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SMBOs: Buying Time or Improving Performance?

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  • D. Zhou
  • R. Jelic
  • M. Wright

Abstract

On the basis of an empirical analysis of 491 UK recent secondary management buyouts (SMBOs), we find strong evidence of a deterioration in long‐run abnormal returns following SMBO deals. SMBOs also perform worse than primary buyouts in terms of profitability, labor productivity, and growth. We find no evidence for superior performance of private equity (PE) backed SMBOs, compared with their non‐PE‐backed counterparts. It appears that a PE firm's reputation and change in management are important determinants of improvements in profitability and labor productivity, respectively. High debt and high percentage of management equity tend to be associated with poor performance measured by profitability and labor productivity. Notably, none of the buyout mechanisms (i.e., financial, governance, operating) normally associated with performance improvements generate growth during the secondary buyout phase. The results are robust to the use of alternative performance measures, alternative benchmarks, and the possibility of sample selection bias. Copyright © 2013 The Authors. Managerial and Decision Economics published by John Wiley & Sons, Ltd.

Suggested Citation

  • D. Zhou & R. Jelic & M. Wright, 2014. "SMBOs: Buying Time or Improving Performance?," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 35(2), pages 88-102, March.
    • Handle: RePEc:wly:mgtdec:v:35:y:2014:i:2:p:88-102
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    Cited by:

    1. Cumming, Douglas & Deloof, Marc & Manigart, Sophie & Wright, Mike, 2019. "New directions in entrepreneurial finance," Journal of Banking & Finance, Elsevier, vol. 100(C), pages 252-260.
    2. Benjamin Hammer & Heiko Hinrichs & Bernhard Schwetzler, 2018. "Does culture affect the performance of private equity buyouts?," Journal of Business Economics, Springer, vol. 88(3), pages 393-469, May.
    3. Giovannetti, Andrea & Pipic, Denis, 2023. "Shaking hands with common foes: Clique premium and information diffusion in private equity networks," International Review of Financial Analysis, Elsevier, vol. 86(C).
    4. Castellaneta, Francesco & Hannus, Simon & Wright, Mike, 2019. "A Framework for Examining the Heterogeneous Opportunities of Value Creation in Private Equity Buyouts," Annals of Corporate Governance, now publishers, vol. 4(2), pages 87-146, June.

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