Chapter 11: Private Equity and Management Buy-outs
Mike Wright Introduction Management buy-outs and related transactions involve simultaneous changes in the ownership, ﬁnancial structure and incentive systems of ﬁrms. Although buy-outs can be traced back to the eighteenth and nineteenth centuries, the modern phenomenon began to appear in the late 1970s in the US and diﬀused to the UK in the early 1980s (Wright et al., 1991). Buy-outs represent an important part of private equity markets internationally, yet present major challenges that may diﬀer from investing in early stage entrepreneurial ventures (see Chapter 10). In terms of their importance to private equity markets, buy-outs have accounted for major shares of both the volume and value of transactions since the 1980s (Wright et al., 2000a). In many European private equity markets they account for the majority of funds committed annually (EVCA, 2004). Buy-outs have played an important role in the transition from Communism in Central and Eastern Europe from the beginning of the 1990s (Wright et al., 2002a). Buy-outs oﬀered a mechanism to eﬀect transition that would enhance the ownership and control of enterprises where there were strong insider interests and often an absence of external buyers. For similar reasons, further privatization and restructuring activity has seen the spread of buy-outs to Africa (Wright et al., 2000c). Buy-outs are now spreading in signiﬁcant numbers to Asia in both developed markets that need to restructure, such as Japan and Korea, as well as emerging and transition economies such as China (Wright et al., 2003a). By...
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