Management buy-outs from receivership

The recession of the 1990s has spawned a rapid growth in the number of venture-backed buy-outs of failed firms. Buy-outs from firms in receivership raise the questions as to whether the managers involved were 'pushed' into entrepreneurship to save their jobs in the absence of alternative employment opportunities, or whether they were more proactive, and whether managers associated with the firm entering receivership are able to return the company to viability. Use of the Centre for Management Buy-out Research's general database indicates a shift in the nature of buy-outs from receivership between the recession of the early 1980s and that of the early 1990s, and that buy-outs from receivership in the early 1980s were significantly more likely to fail again than buy-outs in general. Descriptive statistics from a representative survey sample of 64 receivership buy-outs completed between 1990 and 1992 indicate that many arise from potentially viable divisions of failed groups, that in a substantial number of cases buy-out attempts had been made prior to failure and that managers often had alternative employment opportunities. To examine the extent to which managers of failed companies can become successful entrepreneurs, the paper presents regression analysis of the determinants of post-buy-out performance as a function of management and firm characteristics.