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Handbook of Research on Venture Capital

Edited by Hans Landström

This Handbook provides an excellent overview of our knowledge on the various facets of managerial venture capital research. The book opens with a thorough survey of venture capital as a research field; conceptual, theoretical and geographic aspects are explored, and its pioneers revisited. The focus then shifts to the specific environs of venture capital.
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Chapter 11: Private Equity and Management Buy-outs

Mike Wright


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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