Management Buy-outs and Venture Capital

Management Buy-outs and Venture Capital

Into the Next Millennium

Edited by Mike Wright and Ken Robbie

This book presents up-to-date evidence on the issues facing financiers and intermediaries involved in venture capital and management buy-outs. It provides a comprehensive review of existing literature and an analysis of international trends in market development as well as a global comparison of the major issues.

Chapter 10: Sources of venture capital deals: MBOs, IBOs and corporate refocusing

Michelle Haynes, Steve Thompson and Mike Wright

Subjects: economics and finance, industrial organisation


Page 219 10.  Sources of venture capital deals: MBOs, IBOs and corporate refocusing Michelle Haynes, Steve Thompson and Mike Wright I.  Introduction Management buy­outs comprise one of the most important sectors of the UK venture capital industry. In 1995 they accounted for 31 per cent of the number of  investments made by venture capitalists and 73 per cent in terms of value (BVCA, 1996). Both of these were a record share of the market. Moreover, a significant  proportion of institutions focus exclusively on investing funds in later stage transactions in which buy­outs form a major part (Wright and Robbie, 1996a). Within the  broad scope of buy­out activities, the largest single source of transactions is divestment of subsidiaries and divisions of larger groups, accounting for half of buy­outs in  1995 (CMBOR, 1996). In terms of the overall pattern of corporate restructuring, divestments to other organisations and management teams account for 71 per cent of  the volume and 33 per cent of the value of all mergers and acquisitions in the UK in 1995. The divestment process is typically part of corporate refocusing programmes involving a reduction in the scope of often unrelated activities by a firm, enabling it to  concentrate on its core business. According to a number of authors, refocusing can be understood as an attempt to correct the problems of unsuccessful diversification,  most of which occurred in the late 1960s and 1970s (Shleifer and Vishny, 1991). Unlike previous eras in corporate restructuring, the latest emphasis...

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