realisations of venture capital investments: the case of management buy-outs in the uk

24
This article was downloaded by: [York University Libraries] On: 13 November 2014, At: 14:36 Publisher: Routledge Informa Ltd Registered in England and Wales Registered Number: 1072954 Registered office: Mortimer House, 37-41 Mortimer Street, London W1T 3JH, UK The Service Industries Journal Publication details, including instructions for authors and subscription information: http://www.tandfonline.com/loi/fsij20 Realisations of Venture Capital Investments: The Case of Management Buy- outs in the UK Mike Wright , Brian Chiplin , Steve Thompson & Ken Robbie a a Centre for Management Buy-out Research , University of Nottingham , University Park, Nottingham, NG7 2RD Published online: 28 Jul 2006. To cite this article: Mike Wright , Brian Chiplin , Steve Thompson & Ken Robbie (1990) Realisations of Venture Capital Investments: The Case of Management Buy-outs in the UK, The Service Industries Journal, 10:3, 499-520, DOI: 10.1080/02642069000000055 To link to this article: http://dx.doi.org/10.1080/02642069000000055 PLEASE SCROLL DOWN FOR ARTICLE Taylor & Francis makes every effort to ensure the accuracy of all the information (the “Content”) contained in the publications on our platform. However, Taylor & Francis, our agents, and our licensors make no representations or warranties whatsoever as to the accuracy, completeness, or suitability for any purpose of the Content. Any opinions and views expressed in this publication are the opinions and views of the authors, and are not the views of or endorsed by

Upload: ken

Post on 16-Mar-2017

212 views

Category:

Documents


0 download

TRANSCRIPT

Page 1: Realisations of Venture Capital Investments: The Case of Management Buy-outs in the UK

This article was downloaded by: [York University Libraries]On: 13 November 2014, At: 14:36Publisher: RoutledgeInforma Ltd Registered in England and Wales Registered Number:1072954 Registered office: Mortimer House, 37-41 Mortimer Street,London W1T 3JH, UK

The Service IndustriesJournalPublication details, including instructionsfor authors and subscription information:http://www.tandfonline.com/loi/fsij20

Realisations of VentureCapital Investments: TheCase of Management Buy-outs in the UKMike Wright , Brian Chiplin , SteveThompson & Ken Robbie aa Centre for Management Buy-out Research ,University of Nottingham , University Park,Nottingham, NG7 2RDPublished online: 28 Jul 2006.

To cite this article: Mike Wright , Brian Chiplin , Steve Thompson & KenRobbie (1990) Realisations of Venture Capital Investments: The Case ofManagement Buy-outs in the UK, The Service Industries Journal, 10:3,499-520, DOI: 10.1080/02642069000000055

To link to this article: http://dx.doi.org/10.1080/02642069000000055

PLEASE SCROLL DOWN FOR ARTICLE

Taylor & Francis makes every effort to ensure the accuracy ofall the information (the “Content”) contained in the publicationson our platform. However, Taylor & Francis, our agents, and ourlicensors make no representations or warranties whatsoever as to theaccuracy, completeness, or suitability for any purpose of the Content.Any opinions and views expressed in this publication are the opinionsand views of the authors, and are not the views of or endorsed by

Page 2: Realisations of Venture Capital Investments: The Case of Management Buy-outs in the UK

Taylor & Francis. The accuracy of the Content should not be reliedupon and should be independently verified with primary sources ofinformation. Taylor and Francis shall not be liable for any losses,actions, claims, proceedings, demands, costs, expenses, damages,and other liabilities whatsoever or howsoever caused arising directlyor indirectly in connection with, in relation to or arising out of the useof the Content.

This article may be used for research, teaching, and private studypurposes. Any substantial or systematic reproduction, redistribution,reselling, loan, sub-licensing, systematic supply, or distribution in anyform to anyone is expressly forbidden. Terms & Conditions of accessand use can be found at http://www.tandfonline.com/page/terms-and-conditions

Dow

nloa

ded

by [

Yor

k U

nive

rsity

Lib

rari

es]

at 1

4:36

13

Nov

embe

r 20

14

Page 3: Realisations of Venture Capital Investments: The Case of Management Buy-outs in the UK

Realisations of Venture Capital Investments: The Case of Management

Buy-outs in the UK

Mike Wright, Brian Chiplin, Steve Thompson and Ken Robbie*

One of the most rapidly developing sectors of the financial services industry in the UK has been venture capital, and with it the growth of management buy-outs. As these markets have matured, increasing attention is being paid to issues associated with the realisation of gains for both institutions and equity- holding management. This article seeks to contribute to this area by examining the issues involved in the realisation of investments in management buy-outs. Based on detailed interviews with 24 managers of buy-outs which have exited, and on information drawn from the Centre for Management Buy-out Research database, the article considers the relative merits of flotations, trade sales, capital restructurings, secondary buy-outs, share redemptions etc. The article also addresses the agency cost issues involved in controlling buy-outs to enable institutions to achieve realisation of their investments at a price and timing which enable their targets to be met.

One of the most rapidly developing sectors of the financial services industry in the UK has been venture capital, and with it the growth of management buy-outs. As these markets have matured, increasing attention is being paid to issues associated with the realisation of gains for both the institutions and management involved in firms with venture capital investment.

A recent analysis of realisation trends in general in the UK noted that while the growth of the venture capital industry had highlighted the importance of identifying exit routes for the investing parties the process was not well understood [Birley and Westhead, 19881. Moreover, a direct study of attitudes of business owners to realisation revealed a generally dismissive set of views and the suggestion that potential

*Centre for Management Buy-out Research, University of Nottingham, University Park, Nottingharn NG7 2RD

Dow

nloa

ded

by [

Yor

k U

nive

rsity

Lib

rari

es]

at 1

4:36

13

Nov

embe

r 20

14

Page 4: Realisations of Venture Capital Investments: The Case of Management Buy-outs in the UK

500 THE SERVICE INDUSTRIES JOURNAL

advantages of exit had not been fully thought through [City Research Associates, 19891. This article aims to enhance our understanding of the realisation process through an examination of management buy-outs, which, as will be shown shortly, are a key part of the UK venture and development capital industry.

Management buy-outs in the UK have developed rapidly throughout the 1980s, with venture and development capital firms playing important roles in the funding of such transactions [Lloyd, et al., 19871. Typical UK deals have involved the transfer of a large equity stake (often a majority, especially in smaller deals) to the incumbent management team, who are often the key to initiating and completing the buy-out [Wright, et al., 19891.

Most UK buy-outs arise on divestment of subsidiaries from larger groups (Figure 1). The use of substantial amounts of senior and mezzanine debt to fund large buy-outs of the going-private type - which constitute a major part of the US market - is a much more recent phenomenon in the UK [Chiplin, et al., 1988; Wright, 19891 and remains restricted to a few large cases. The majority of the market, in terms of both numbers and values of transactions, is led by a relatively small group of financial services' firms such as 3i, the development capital subsidiaries of the major London and Scottish clearing banks, and the venture and development capital arms of pension funds such as Prudential and British Coal. In addition, a number of closed-end funds have been established specifically to invest in buy-outs [Wright, Chiplin, Robbie, 19891. Management buy-outs account for the major proportion of UK venture and development capital firms' investment portfolios. In 1988, the latest complete year, buy-outs accounted for 282 financing (21 per cent of the industry's total) worth £733 million (56 per cent of total value, approximately $1.1 billion) by members of the British Venture Capital Association [BVCA, 19891.

The ability to manage and effect realisations of buy-out investments, therefore, has major implications for the behaviour and performance of venture and development capital firms. This article examines the growing range of realisation options available to investors and management involved in buy-outs, in order to highlight the problems which may arise, the circumstances in which each option may be appropriate and the control devices institutions may use to effect realisation in a timely fashion which reconciles their objectives with those of management. The article draws on detailed personal interviews with managers and financiers in 24 representative cases where realisation has been effected or is imminent. Rather than being reported as statistical analyses, the material gathered in these interviews underpins the conceptual discussion which forms the main body of the article. At various points the discussion is supplemented by descriptive statistics drawn from the Centre's data- base of UK buy-outs. In these ways, the article aims to shed light upon the realisation process and the options available to provide insights which will be of relevance to both academics and practitioners. Although the article

Dow

nloa

ded

by [

Yor

k U

nive

rsity

Lib

rari

es]

at 1

4:36

13

Nov

embe

r 20

14

Page 5: Realisations of Venture Capital Investments: The Case of Management Buy-outs in the UK

MANAGEMENT BUY-OUTS IN THE UK

FIGURE 1 SOURCE OF MANAGEMENT BUY-OUTS

UK Parent

kpi \ Raceivershlp - - A

Privatisat 5,08

ion

is

Foreign Parent 11.76

Source: CMBOR

is focused upon UK experience, some of the issues raised, particularly the examination of the range of realisation options available, may have wider relevance internationally, where stock markets and mergers and acquisition markets are under-developed compared with the US and UK [Tybejee and Vickery, 19881.

The first part of the article explains the data sources and interview methodology. The second section sets out the range of realisation options available and highlights the important need to reconcile poteritial conflicts of interest between manager-owners and venture capitalists, within the life-cycle needs of a firm to survive. The third part considers the structuring of buy-out deals to facilitate exit. The fourth and fifth sections discuss, respectively, the development of realisation options in the mid-1980s and more recently so as to focus upon the environmental pressures, including stock market conditions and industrial logic, which influence the nature and timing of realisation. The sixth part examines

Dow

nloa

ded

by [

Yor

k U

nive

rsity

Lib

rari

es]

at 1

4:36

13

Nov

embe

r 20

14

Page 6: Realisations of Venture Capital Investments: The Case of Management Buy-outs in the UK

502 THE SERVICE INDUSTRIES JOURNAL

the problems faced by venture and development capitalists in controlling clients effectively in order to obtain realisation in a timely manner. The seventh section then presents the emerging realisation options and the conditions under which they may be appropriate. Finally, some conclusions are drawn.

THEDATAANDMETHODOLOGY

The issues concerning realisation addressed here are supported by the results of a series of personal interviews with managers in buy-outs which had floated or been sold to a trade buyer, and the institutions which had originally financed the deal. In addition, a small number of buy- outs approaching realisation or having repurchased institutional shares were examined. The buy-outs covered were selected from the Centre's data-base which holds a comprehensive list of all buy-outs completed in the UK toeether with details of their realisations. The researchers' e

judgement was used to choose a set of recently exited buy-outs (within two years of the interviews in order to reduce problems of recall) which would be representative of the spectrum of the market. The cases covered were selected independently of the institutions financing the deals, which may help to reduce bias which might otherwise have entered the sample from financiers offering introductions to favoured clients. The field research concerning the 24 buy-outs chosen was conducted using a structured personal interview lasting from one to three hours between January and May 1989. While only a relatively small number of buy-outs could be covered, it was considered by the researchers that this technique offered the most reliable means of obtaining information on the relevant issues.

-

The main body of the article also makes various references to a survey conducted by the researchers in early 1987 of all buy-outs completed from mid-1983 to the first quarter of 1986. A total of 181 replies were received, after the administration of one reminder, a response rate of 35 per cent. The basic demographic characteristics (source of buy-out, price paid, region, industry) were found to match those for the population of buy-outs in this period.

BACKGROUND TO REALISATION ISSUES

The art of the buy-out deal is to secure a price and financial structure which satisfies the different objectives of the three major parties involved: vendors, managers (with their advisers) and the providers of finance. Clearly, at the time of the buy-out the transaction must be to the mutual benefit of the three parties, or it will not be executed. There is a range of alternative objectives which are relevant, but there is a danger that the pressure to complete the deal may mean that potential problems of conflicts of interest which might arise in the future are obscured. These difficulties, together with those arising from general uncertainty

Dow

nloa

ded

by [

Yor

k U

nive

rsity

Lib

rari

es]

at 1

4:36

13

Nov

embe

r 20

14

Page 7: Realisations of Venture Capital Investments: The Case of Management Buy-outs in the UK

MANAGEMENT BUY-OUTS IN THE UK 503

about the future, mean that realisations of investments may be neither straightforward nor at the time or of the form initially envisaged.

In a dynamic environment, it is necessary to take account of likely developments and introduce a suitable financial structure to meet them. The 'classic' buy-out is often seen as operating in a mature niche market, producing a stable cash flow which can be used to support a highly leveraged structure [Jensen, 19861. As the market has expanded, such 'classic' cases, particularly in the UK, form only a part of the total buy-outs completed, with consequent implications for the appropriate financing structures and options [Thompson, Wright and Robbie, 19891. A number of factors need to be recognised:

1. For the management, investment in the buy-out is likely to be the major asset in their portfolio, whereas for financiers the investment will generally be a relatively less significant element in a wider spread of activities and interests. The important corollary is that external factors affecting other parts of financiers' portfolios can have a significant impact on their decision-making and objectives in respect of any individual buy-out as time passes.

2. The parties may have different views as to their future in- volvement in the business. The financiers, for example, may be intending to dispose of their interest once some particular performance target or time-scale has been reached; whereas the management team may, or may not, wish to retain a long-term interest in the business.

3. Management may have emotive ties (including their own ca- reers) to the business, whereas the financiers can take a more objective and 'hard-headed' view.

4. An asymmetry of information exists between the parties: a) management may have a better idea of the actual and

potential performance of the business than a financier; b) financiers will have greater experience in financial markets

and may be better placed to have a fuller picture of the range of options.

The initial financial structure of a buy-out will attempt to reconcile these differences and prepare for the eventual realisation of the interests of both managers and venture capital investors. While realisation is necessary to enable the interested parties to meet their objectives, it is also linked to the different financial and ownership needs of the firm itself at different points in its life-cycle. This point is not unique to buy-outs and all venture capital investments as well as other firms experience a life-cycle in which different ownership and financial structures are appropriate [Mueller, 19881.

Birley and Westhead [I9881 noted the growing variety of exit routes in their study. In respect of management buy-outs this list may be extended to provide the range of options as shown in Table 1. Some are more

Dow

nloa

ded

by [

Yor

k U

nive

rsity

Lib

rari

es]

at 1

4:36

13

Nov

embe

r 20

14

Page 8: Realisations of Venture Capital Investments: The Case of Management Buy-outs in the UK

504 THE SERVICE INDUSTRIES JOURNAL

relevant to one of the parties; others are equally applicable to both. Account also needs to be taken of whether one or both parties are seeking full or partial realisation. The remaining sections of this article consider the conditions under which each option may be appropriate and whether the operation of the financial market and the market for corporate control provide suitable opportunities for both parties to satisfy their objectives.

THE STRUCTURE OF BUY-OUT DEALS

The simplest buy-out structure essentially consists of 100 per cent management equity stake, with the balance of the purchase price funded by bank borrowing. Traditional structures involving venture capital firms would normally be based on institutions and management holding different classes of equity [see Thompson, Wright, Robbie, 1989, for examples of UK buy-out deal structures].

Institutional holdings frequently consist of preferred shares which may be convertible to ordinary shares with provision for a participating dividend dependent upon the company's profitability. In addition, the long-term finance would be likely to include redeemable preference

TABLE 1 FORMS O F EXIT FROM A BUY-OUT

Forms of Exit Investors Extent Affected

Liquidation

Trade Sale (Acquisition by an external group) Repayment of debt Repurchase or redemption of shares Internal share market (used in larger employee buy-out)

Stock market flotation Management Buy-in Second buy-out

Capital restructuring

Management, financiers Management, financiers

Financiers Financiers

Difficult for management or financiers to make substantial disposals Management, financiers Management, financiers Management, financiers Management, financiers

full

generally full

partial

fulVpartial

fulupartial

fulllpartial

fulupartial

Dow

nloa

ded

by [

Yor

k U

nive

rsity

Lib

rari

es]

at 1

4:36

13

Nov

embe

r 20

14

Page 9: Realisations of Venture Capital Investments: The Case of Management Buy-outs in the UK

MANAGEMENT BUY-OUTS IN THE UK 505

shares held by institutions and secured loan capital provided by banks. The existence of shares redeemable at pre-set dates clearly imposes a constraint on management action, and is one of a number of devices to reduce agency cost problems to enable institutions to achieve their objectives [Thompson and Wright, 1988: Ch.41. The returns to the equity-holding institutions would be achieved through a running yield from dividends and realisation of a capital gain when flotation or trade sale occurred. Until the use of ratchets in the mid-1980s it was unusual for exit by either of these routes to be specified by a given date at the time of the buy-out. The introduction of ratchet mechanisms has permitted the equity stake of management to be increased providing certain targets (frequently related to some form of exit) are met within a specified period, or in some cases, decreased for failure to do so. Management's equity may increase in discrete jumps, so-called 'cliff-edge' ratchets, as performance increases, or along a continuum.

The driving forces behind the introduction of ratchets in the UK were:

(a) competition,in the capital market which put upward pressure on the size of equity stake that management might expect from different financiers;

(b) competition in the market for corporate control which meant that higher pricelearnings ratios had to be paid if a buy-out was to be accepted by vendors in the face of alternative bids from trade buyers;

(c) the advent of limited life buy-out funds introduced a need to ensure that realisation of investments took place within a given period;

(d) where disagreement exists over the price of a deal, management may be offered a lower equity stake than they consider reasonable. However, the negotiation of a ratchet may help them to attain their aspirations. In addition, it can enable institutions to attain their target internal rate of return while providing a cap on the upside if management perform well.

The results of the survey conducted by the CMBOR in early 1987 of buy-outs completed between 1983 and early in 1986 indicate that in a little under one quarter of cases, management's equity stake was related to a ratchet. In a little over one third of these cases, successful operation of the ratchet could result in management 'switching fr0m.a minority stake to having majority control. Ratchet conditions may be triggered by a single factor or be dependent upon the achievement of multiple targets. In some two-thirds of the firms identified as using ratchets in the survey they were based on performance targets, usually profit-related. The actual mechanism generally operated over a period of years with specific levels of the targets being required in each year. Alternatively, the target level of profits could relate to an aggregate over the period. The remaining one-third of ratchets related to exits and other targets

Dow

nloa

ded

by [

Yor

k U

nive

rsity

Lib

rari

es]

at 1

4:36

13

Nov

embe

r 20

14

Page 10: Realisations of Venture Capital Investments: The Case of Management Buy-outs in the UK

506 THE SERVICE INDUSTRIES JOURNAL

including redemption of preference shares on realisation. Where a ratchet depends on some form of exit, the increase in management's equity stake will normally depend upon the market capitalisation of the company at the date of the exit.

The recent interviews conducted by the researchers have revealed that management are generally more in favour of ratchets related to performance than to exit, since they are perceived as being based on a measure that they themselves can influence more directly through their own efforts. Institutions on the other hand tended to favour ratchets based on market capitalisation since they relate more closely to their actual return on investment and both sides carry the risk arising from general stock market trends. Ratchets may be particularly appropriate where institutions perceive a need to discount heavily the expected performance of some buy-outs, such as those emerging from difficult trading periods, or where management argue that previous lack-lustre performance has been the result of constraints imposed by the former owner, or where the nature of previous accounting systems make earlier performance difficult to assess.

Ratchet conditions can cause protracted disputes between institutions and management both at the time of the negotiation of the buy-out and over its interpretation when the ratchet is crystallised. Flexibility in UK accounting rules provides scope for alternative interpretations of the conditions specified in a ratchet formula [Taylor and Turley, 19861. For example, disputes may arise over the treatment of exceptional gains from the sales of assets affecting the outcome of the ratchet formula. Such issues may become particularly important in 'cliff-edge' ratchets where at the margin a small increase in apparent profits can lead to a large increase in managerial equity stakes. While there may potentially be scope for manipulation of information so that profit-related ratchets are met, this seems from our interviews to be a problem only in very isolated instances and to be a high-risk strategy for management. This finding appears to lend support to the study by DeAngelo [I9861 of US going-private buy-outs which could not identify statistically significant evidence of manipulation of accounting information.

More recent buy-outs have further increased the complexities involved in realisation. These difficulties arise from the problems in reconciling the various objectives of additional participants in syndications. The divergence of interests may be minimised as syndicates often tend to be self-selecting. Syndicate members may, however, have little scope for renegotiating the basic terms of a buy-out brought to them by the deal leader. Hence, it may not be possible to negotiate out a ratchet which may be considered inappropriate or to introduce additional control mechanisms. The growth of mezzanine finance with equity warrants introduces a new perspective on exit. Successful teams may wish to renegotiate the financial structure through early repayment, trade sale or flotation in order to reduce the costs of this type of finance [Wright, 19891.

Dow

nloa

ded

by [

Yor

k U

nive

rsity

Lib

rari

es]

at 1

4:36

13

Nov

embe

r 20

14

Page 11: Realisations of Venture Capital Investments: The Case of Management Buy-outs in the UK

MANAGEMENT BUY-OUTS IN THE UK

REALISATION OPTIONS OF THE MID-1980s

As management buy-out companies developed in the mid-1980s the potential differences in the motivation of financiers and management emerged, although for both there was the need to realise at least part of their accrued gain. Management had a need to repay the personal borrowings which had enabled them to fund their share of the original equity. The financing institutions looked to the medium and long-term requirement of their shareholders to produce satisfactory returns in at least a partially realisable form. The buy-out company, despite good cash flows, might itself require further equity funds to help finance growth as new opportunities emerged, either organically or by acquisition.

Many of the initial buy-outs had been completed during a time of recession when exit options were restricted and likely to be long-term. The mid 1980s brought major changes to the possibilities for realisation. Economic recovery was helping to create attractive profit profiles for some buy-outs. Stock market indices were rising fast, making it appealing for many buy-outs to consider flotation. Furthermore many quoted companies were seeking acquisitions as their growth prospects improved and their gearing ratios approached more normal levels [Benzie, 19881.

These features are reflected in the survey by CMBOR of buy-outs completed between 1983 and early 1986. The results showed that 40 per cent of the management teams were considering realising their equity stakes (fully or partially) through flotation on the USM and 12 per cent on the main market. Only 13 per cent stated that exit by means of a trade sale was under consideration. Although some management teams (7 per cent of the sample) were considering two or more options, 45 per cent did not indicate their intention to exit in any of these ways. The extent of flotations increased markedly from 1984 as a result of the growing number of completed buy-outs and the buoyancy of the stock markets. Critically, the average size of buy-out remained relatively small limiting the potential for a Full Market listing to a few companies (Table 2). Hence, up to 1986 most flotations were on the USM, although this position changed in 1987 and 1988 (Figure 2). Market buoyancy was an important influence in encouraging companies to float at an earlier date than they might have planned, with average periods to float falling from 4 years 5 months in 1985 to 3 years 7 months in 1987. Nevertheless, the level of activity observed in the last two years is below that indicated by the respondents to our survey of buy-outs completed in 1983-86, even taking into account the likely time-lag before the buy-out is realised. For the less well performing companies other realisation options were likely to be more appropriate, but at this time it was a little too soon for them to receive serious consideration. The exceptions were those buy-outs performing so badly that they were unable to meet the financing costs of the original deal and where a restructuring or exit was needed immediately.

Dow

nloa

ded

by [

Yor

k U

nive

rsity

Lib

rari

es]

at 1

4:36

13

Nov

embe

r 20

14

Page 12: Realisations of Venture Capital Investments: The Case of Management Buy-outs in the UK

508 THE SERVICE INDUSTRIES JOURNAL

RECENT DEVELOPMENTS IN REALISATIONS

During the past two years trade sales have replaced flotations as the most significant form of realisation for management buy-outs (Figure 3). In 1987 and 1988, CMBOR identified 88 trade sales of unquoted buy-outs as against only 68 flotations. In the immediate aftermath of the events of October 1987, flotations all but ceased for a period of five months, with several planned stock market entries being postponed or replaced by trade sale. The latter half of 1988 witnessed a notable recovery in numbers of flotations. Nevertheless, the average period to flotation rose from the low point in 1987 to 4 years 1 month in 1988, the same as in 1986. The first half of 1989 produced only nine buy-out flotations compared with 25 in the same period in 1988. Despite some recovery by the end of 1988, average broking spreads of Gamma stocks in particular remain at levels well above those seen before October 1987 (Figure 4), and the market is illiquid making it difficult for institutions to sell significant blocks of shares at prices which would be consistent with their target rate of return. Sponsors may be more relaxed about sales by investors after flotation, because of the general reputation of buy-out stocks, but institutions need to take account of their reputation in the after market if they attempt to sell too much too quickly. Hence, investors run the risk of being locked in for a long period to an equity stake that has been diluted by crystallisation of a ratchet and/or the issue of new equity.

During our case discussions it became clear that for some companies, plc status was not as attractive as management might initially have thought. A positive relationship with a few institutional investors may be replaced by a more intrusive one with many analysts. Sponsors and brokers involved in flotations may also need to ensure a balanced spread of new shareholdings from institutions whose objectives are compatible with the company. The behaviour of new institutional investors may have important implications for the future direction of the firm including whether or not it remains independent or is acquired at a time and by a

TABLE 2 MARKET CAPITALISATIONS OF BUY-OUT FLOTATIONS

Market capitalisation at float Average (fm) 11.46 18.65 21.51 37.21 Standard deviation 8.18 22.03 29.05 39.31 Total capitalisation(fm) 332.4 690.2 709.9 1265.26

Source: CMBOR

Dow

nloa

ded

by [

Yor

k U

nive

rsity

Lib

rari

es]

at 1

4:36

13

Nov

embe

r 20

14

Page 13: Realisations of Venture Capital Investments: The Case of Management Buy-outs in the UK

MANAGEMENT BUY-OUTS IN THE UK

FIGURE 2 FLOTATIONS OF MANAGEMENT BUY-OUTS

Number

I

- Official List + USM

Source: CMBOR

predator which is against the preferences of equity-holding managers. Thinly traded markets may make it difficult to issue paper to make acquisitions. Dilution of equity holdings may make a company vulnerable to a hostile takeover bid. Even where institutions sell few shares, a continued close circle of original institutional shareholders may not offer protection against-an attractive hostile bid. It may be harder for them to argue against sale once the company has floated than beforehand. Vulnerability to take-over and institutional behaviour may also be important in another respect. Buy-outs with high initial management equity stakes and large debts may be faced with issuing substantial equity on flotation to reduce debt. Those with lower managerial stakes may also need to reduce debt by issuing equity, but at least a significant element may be in the hands of a core of original friendly shareholders with a possible lowering of vulnerability.

Trade sales have come to prominence because of high merger and acquisition activity generally [Hughes, 1989; Benzie, 19891, and because they offer managers and investors the possibility of total realisation of gains frequently at a higher PE ratio than could be achieved through flotation. The CMBOR data-base shows average PE ratios of floated buy-outs to be 11.3 in 1988 compared with 15.6 in 1987. Less obviously this route may also enable management to achieve their objectives from a buy-out. If management wish to exit completely, through retirement or a desire to pursue other entrepreneurial opportunities, such as a

Dow

nloa

ded

by [

Yor

k U

nive

rsity

Lib

rari

es]

at 1

4:36

13

Nov

embe

r 20

14

Page 14: Realisations of Venture Capital Investments: The Case of Management Buy-outs in the UK

THE SERVICE INDUSTRIES JOURNAL

FIGURE 3 EXITS FROM UK BUY-OUTS

Number 120

Trade sale(unquoted) Trade sale (quoted)

n Stock market float

Source: CMBOR

buy-in, sale to another group enables full liquidation of equity holdings. If management wish to remain, they may be able to obtain some cash, an equity stake in the new parent and an attractive service contract. The reasons why management may wish to pursue this option, which apparently negates the original rationale for buying-out from a former parent, concern the longer-term prospects for themselves and for the business. For example, for quite a few managers we interviewed a trade sale represented a beneficial career move to a bigger company. Trade sale as a realisation objective may not be immediately acceptable to management at the time of buy-out but it may be worthy of consideration as circumstances change. Buy-outs may thus in some cases present a brief entrepreneurial diversion in a long-term pattern of working for someone else. Although it is outside the scope of this article, study of trade sale buy-outs may provide further insights to add to the work of Ronstadt [I9861 on why entrepreneurs end their entrepreneurial careers before retirement.

For the longer-term success of the business, there may be very good reasonsfor seeking a friendly take-over. The initial niche market strength of many buy-outs may become a longer-term weakness. The recent growth of take-over activity generally in the UK, in which context buy-outs have to be placed, has seen a great deal of emphasis placed on the achievement of leading market positions [Gray and McDermott, 19881. Buy-outs, even successful ones, may find themselves no longer

Dow

nloa

ded

by [

Yor

k U

nive

rsity

Lib

rari

es]

at 1

4:36

13

Nov

embe

r 20

14

Page 15: Realisations of Venture Capital Investments: The Case of Management Buy-outs in the UK

MANAGEMENT BUY-OUTS IN THE UK

' FIGURE 4 STOCK MARKET SPREADS (PER CENT)

0 pre-crash Oct 1987 End Oct 1987 End December 1988 - Alpha Stocks Beta Stocks 0 Gamma Stocks

Source: ISE

of a size and financial strength to remain independent. A white knight acquisition may give access to new markets and distribution outlets which could not otherwise be achieved, though we may be sceptical about the achievement of production economies of scale [Mueller, 1989; Geroski, 19891. In addition, management's motivation may be maintained through service contracts and significant equity stakes in the new parent. Some buy-outs, clearly, do have significant growth potential and can continue as independent companies after flotation. Trade sale may still, however, become the optimum strategy at a later date. Moreover, flotation may be a means by which the availability of a company can be made more transparent and a subsequently higher exit premium realised. In 1986-88, 41 sales of quoted buy-outs to other companies have been identified (see Figure 3), with a doubling in the number in 1988. Again putting buy-outs in context, the total number of quoted companies in the UK has fallen by a third in the last decade as a result of acquisition activity [Stock Exchange, 19891.

In some cases, management may have beaten a trade bidder at the time of the buy-out. Subsequent sale to the same bidder at a significant premium may be considered a reward to management for their worth to the company which they would not otherwise have obtained. Trade sale may also be attractive where management are not really strong enough to lead a floated company or where splits in the buy-out team make flotation or continuation of the original structure extremely difficult.

Dow

nloa

ded

by [

Yor

k U

nive

rsity

Lib

rari

es]

at 1

4:36

13

Nov

embe

r 20

14

Page 16: Realisations of Venture Capital Investments: The Case of Management Buy-outs in the UK

512 THE SERVICE INDUSTRIES JOURNAL

However, if trade sale is seen to be the preferred option, careful search is required to find a compatible partner so that the kind of control and behavioural problems which may have provoked the buy-out in the first place are avoided [Porter, 1987; Wright, 1988; Hunt et al., 19871. As noted earlier, institutional shareholders have an important role to play here, since their desire to exit at a particular time and price may force the company into a merger which management who remain in the company find unsatisfactory. The authors' case interviews found notable evidence of this problem.

CONTROL AND THE TIMING OF REALISATION

The increasing emphasis placed by institutions upon realisation carries with it the need to introduce effective control devices so that realisation occurs in a timely fashion and at a level which satisfies rate of return targets. The incentives to management to seek a timely exit may involve financing conditions which become more demanding as time passes or by the need to meet the conditions specified in ratchet clauses. Ratchets are more frequently used in the larger buy-outs since management often start with a low percentage of equity. As noted earlier, ratchets may be related to profit targets and/or they may be related to achieving an exit so that management can only reap the benefit of better performance if they achieve the exit. In addition, in some cases ratchets may vary over time and hence the longer realisation is delayed the more management have to perform at increasingly high levels over a longer period in order to achieve the same target equity percentage. Additionally, beyond a certain date participating dividends or debt repayment schedules may cut in which motivates management to seek a new structure. Moreover, failure to hit targets may produce demoralised management.

Heavy discounting of projected upturns in performance by the invest- ing institution(s) leads to management being offered a low initial equity stake coupled with a ratchet. A problem may then be caused when post-buy-out performance comfortably exceeds budget and management need to achieve an exit in order to crystallise the ratchet. The early exits we have- examined were all characterised by this feature of exceptional growth above revealed expectations. (Against these need to be weighed the less well performing buy-outs which take longer to float and depress institutions' overall internal rates of return.) Ironically, early flotation and hence early crystallisation of ratchets may mean institutional equity stakes are diluted. If institutions remain as shareholders after flotation, a high short-term return on investment may be converted into a lower medium-term one, whereas if early crystallisation had not occurred institutions could have had a better overall return. Problems have been encountered in the use of ratchets in large buy-outs which have been floated very quickly. First, except the rare case when no new funds are raised, all shareholders lose the benefit of the original gearing through dilution of their equity stake and management do not have

Dow

nloa

ded

by [

Yor

k U

nive

rsity

Lib

rari

es]

at 1

4:36

13

Nov

embe

r 20

14

Page 17: Realisations of Venture Capital Investments: The Case of Management Buy-outs in the UK

MANAGEMENT BUY-OUTS IN THE UK 513

the incentive of further increases in equity stake except in the more limited scope of share options. Second, institutions may have to accept on listing conversion of the higher-yielding preference shares, andtor cannot sell a substantial proportion of their ordinary equity stake at float since the company is raising new money to reduce the gearing. Both of these factors reduce the internal rate of return to the institution in comparison with a'flotation at a later date, and it is difficult to take them into account in the design of any ratchet without introducing an untenable degree of intricacy.

The effect of these issues may be particularly acute in some of the specialist buy-out funds which have been established in recent years. In such a case the fund managers may need to make a capital distribution to the investors relating to the buy-out in the portfolio which has just exited. The problem for the fund manager is that when ownership of the quoted securities is returned to the investor, it is not possible to reinvest the proceeds from a realisation. Hence, while there may be high returns in the short term, early realisation will dilute the return over the full life of the fund. A better return for the fund may be obtained by buy-outs taking longer to reach a stock market flotation. It is not unusual for investors to report average IRRs of over 50 per cent and occasionally over 100 per cent in those investments realised, but considerably lower ones for their overall portfolio (see Bygrave et al., 1989, for returns on venture capital funds in general). Indexation of such ratchets in order to prevent targets being achieved too quickly in a rising market seem to be ruled out on the grounds of complexity.

In more predictable established businesses, the need for ratchets is less clear and some would argue for their abandonment. The exceptions may be the much larger buy-outs where management's stake usually starts at a very low level because of their small contribution relative to the overall equity. For this option to be pursued, institutions will find it necessary to offer higher flat managerial equity stakes than at present, something that does find a significant level of interest. However, there appears to be marked concern among managers about the consequences of not hitting targets. From a managerial point of view, removal of ratchets dependent upon profit or exit targets may also have advantages. The existence of ratchets may deter management from pursuing investment with a longer- term pay-off until the ratchet has been achieved. The downside may be that a fixed equity stake may reduce the incentive for high-performing management to take initiatives. Additionally, institutions may need to exercise more direct controls on management which may be both costly in executive time and have a depressing effect on management incentives. However, this argument can be over-stated and there may be very important benefits to management maintaining a close relationship with investors in order to achieve a balanced approach to growth. But evidence from elsewhere suggests that closeness of involvement is more likely to be related to financiers' choice rather than to performance [MacMillan et al., 19881.

Dow

nloa

ded

by [

Yor

k U

nive

rsity

Lib

rari

es]

at 1

4:36

13

Nov

embe

r 20

14

Page 18: Realisations of Venture Capital Investments: The Case of Management Buy-outs in the UK

514 THE SERVICE INDUSTRIES JOURNAL

Particular problems may be faced by the smaller earlier buy-outs, completed in the depths of recession with the USM only just beginning, and, in today's terms, with relatively unsophisticated financing forms used (although at the time they were quite novel). Many financiers may have taken a longer-term perspective, of the order of seven to ten years, than is usual currently. However, it is questionable whether management or institutions realistically thought through their objectives for the firm and how they were to exit. Even with attractive rates of growth such firms may be marginal candidates for flotation on the USM. In many cases, therefore, managers may take an over-optimistic view of what is likely to be feasible. As a result several hundred smaller buy-outs may now be faced with the problem of how to realise the investment of financiers and management. Aggressive participating dividends may put pressure on management to restructure or seek an exit. However, where an institution holds several types of share in a company and participating shares are redeemed it may be left with a significant equity percentage which although acquired at a negligible original cost, is difficult to market, produces little dividend, incurs costs associated with monitoring and provides the institutions with little control.

Small size in relation to competitors and a still relatively highly geared balance sheet may provoke difficulties in establishing financial credibility with large potential customers as well as trade creditors. Furthermore, second-round financing will not generally be suitable where major, rather than marginal, developments are envisaged. Hence smaller companies may be trapped in a vicious circle which prevents them from expanding their customer base or obtaining a healthier balance sheet. Trade sale may provide a means of achieving financial stability and background strength. However, in some markets trade buyers may not be attracted especially where there is excess capacity.

An important aspect of control may be that exerted by funding institutions through non-executive directors and share class rights. While a managerial equity stake can be an important incentive it needs to be borne in mind that many managements in smaller buy-outs may be having to develop strategic approaches for the first time. It may be difficult to introduce a non-executive director in a buy-out where management having a majority stake are reluctant to accept it, but it may be an important move which can help guide the direction of the firm, making subsequent exit less problematical. Institutions usually have defined rights of control under the Articles of Association. It is questionable as to whether sufficient control has been exercised in some smaller deals even where it was feasible.

Exit may be required to enable expansion to be achieved with more appropriate forms of funding. The existence of debt and quasi-debt levers up the return to the equity holders, but because of their nature cash flow is disgorged to its providers reducing what is left for investment [Jensen, 19861. Hence the kind of mature business classically associated with buy-outs noted earlier. Recent experience in the UK shows that

Dow

nloa

ded

by [

Yor

k U

nive

rsity

Lib

rari

es]

at 1

4:36

13

Nov

embe

r 20

14

Page 19: Realisations of Venture Capital Investments: The Case of Management Buy-outs in the UK

MANAGEMENT BUY-OUTS IN THE UK 515

many buy-outs are financed which do not fit this picture. The problem may become acute for those companies which do have significant new growth opportunities requiring major investment; Virtually all the exit buy-outs interviewed by the CMBOR which floated early claimed to have done so because of the problems that high gearing was causing for investment. In the case of high-growth companies there may be an inherent conflict between interests of the management and the institutional investors which is difficult to resolve: rapid growth makes the business highly attractive for flotation and the constraints of gearing may be most severe, but such firms are just those where the institutional investors may wish to delay the flotation to maintain their internal rates of return. Substantial divestment to pay down debt may be an alternative solution but has so far been little seen in the UK [Thompson, Wright, Robbie, 19891.

THE EMERGING OPTIONS

As the market matures the options for the realisation of institutional and management stakes are developing beyond trade sales and flotations to encompass the other possibilities summarised in Table 1. These emerging options may be divided into internal and external changes.

1. Internal changes essentially involve no new incoming investors, but a change in the balance of investments held by existing ones. The main possibilities are as follows:

(a) The simplest internal route is for institutions to encourage management to buy back their holdings at a premium. This option will tend to be more appropriate for buy-outs where institutions have a minority shareholding. However, it may produce acute valuation problems and if not considered as part of an overall package may leave the firm with an inappropriate capital structure, making it difficult to succeed in the longer term. Nevertheless, it does achieve one basic objective of many buy-outs-ensuringlong-term management control allowing the institutions to realise their investments.

(b) An alternative possibility is a capital restructuring whereby the company is re-leveraged so that the longer-term benefits of gearing can be maintained. Such a restructuring can be achieved through a major capital repayment to management and the institutional equity investors, the extension of bank facilities and the possible introduction of mezzanine debt. This method has the advantage of crystallising a large part of the capital gain for the equity investors while retaining a major role for thedebt providers, who might see their position eliminated if a trade sale occurred. Capital restructuring provides a clear outlet for the larger buy-outs at a time of relatively weak stock market prices.

Dow

nloa

ded

by [

Yor

k U

nive

rsity

Lib

rari

es]

at 1

4:36

13

Nov

embe

r 20

14

Page 20: Realisations of Venture Capital Investments: The Case of Management Buy-outs in the UK

THE SERVICE INDUSTRIES JOURNAL

(c) A further option is for existing institutions to inject additional funds to finance future growth. This route may be attractive given the previous problems and the fact that the cost of new issues on the UK stock market can be of the order of 10 per cent of funds raised (Figure 5). It can be complex to achieve in large deals with many syndicate partners and ratchets that require renegotiation. Management may consider that the actual cost of funds is more expensive than flotation and that such a route implies continued over-close control by institutions. Institutions may consider the longer-term development of the business, and returns in their portfolio may be better served through a continuation of the relationship.

External changes may involve either or both of a new set of institutional or managerial investors. Here are the main options (some of which overlap with each other):

(a) Poor performance may require more serious restructuring involving enforced changes in the original management team. In such cases, institutions would normally buy back the departing members' shares, though not necessarily at the premium completed in I (a).

(b) The management buy-in is also likely to begin to play an increasing role in buy-outs which have failed to perform satisfactorily and where management changes are considered important by the investing institutions. In such cases of low performance, institutions may as a first step have chosen an internal solution by altering the management structure of the buy-out and introducing key new people into the company, possibly giving them share options or the opportunity to acquire the shares of departing management. They may, however, seek a more complete break and restructure the company through effecting an exit which brings in both fresh management and new equity investors.

(c) From an external perspective refinancing by a new set of investors may be a means of effecting exit by original institutions in those buy-outs which for various reasons do not meet other realisation criteria. In some cases, this route may be driven by incumbent management wishing to maintain independence and obtain an improved equity stake over and above what was available from the original deal. The introduction of mezzanine funds as a means of re-financing some or all of the original equity increases the level of gearing but alleviates some of the costs of equity such as those involved in meeting heavy participating dividends if exit isnot achieved within a pre-defined time. Thisoption may be an alternative to the share buy-back referred to earlier.

Dow

nloa

ded

by [

Yor

k U

nive

rsity

Lib

rari

es]

at 1

4:36

13

Nov

embe

r 20

14

Page 21: Realisations of Venture Capital Investments: The Case of Management Buy-outs in the UK

MANAGEMENT BUY-OUTS IN THE UK 517

Buy-backs may be appropriate for asset rich companies or where institutions have a small equity stake. Otherwise, in firms with high goodwill and high institutional stakes it may be difficult to raise sufficient secured debt. In this case a second buy-out can be arranged with new institutional equity participants, perhaps the establishment of another newco, extensive amendments to Articles of Association and rights and perhaps the extension of management ownership to a wider group. It has the advantage of realising the original shareholder interests whilst at the same time ensuring the continuing dynamic influence of the existing management whose share in the equity will normally be increased and possibly be subject to a new range of incentives.

(d) Some measure of success and the retirement of the original team leader may provide the conditions for exit via a second generation buy-out led by a new management team.

(e) As the market continues to mature, the growth of secondary markets for institutional shareholdings will emerge. Such markets are likely to provide an increasingly important route whereby institutional investors can realise their stakes, particularly if the funds themselves are of limited life.

CONCLUSIONS

Despite the growth in the size of the UK buy-out market during the 1980s, it still remains in a state of dynamic change, particularly in relation to the realisation by institutions and managers of all or part of their investments. The stock market, and in particular the USM, was the dominant route used for realisation in the mid 1980s, but more recently trade sales have become far more significant. The other options listed in Table 1 remain comparatively untested, but as the market progresses through its life-cycle they will come to play an increasingly important role in helping to reconcile the conflicting objectives of the participants and the changes in the company's circumstances.

The circumstances of individual buy-outs vary enormously and the opportunities for realisation need to reflect these. There are many buy- outs in which managers will not wish to lose control and relinquish their independence. Consideration of alternative options must, therefore, take account of the different wishes of the major participants since the implications of the alternatives for the incentive structure are not trivial.

Flotation and trade sale are not the only alternatives which may enable institutions to achieve their target rate of return and meet management's objectives. Alternatives which allow at least partial realisation by investors but ensure the continuing independence of the business are likely to come into increasing focus.

The form that these alternative realisation routes will take will vary

Dow

nloa

ded

by [

Yor

k U

nive

rsity

Lib

rari

es]

at 1

4:36

13

Nov

embe

r 20

14

Page 22: Realisations of Venture Capital Investments: The Case of Management Buy-outs in the UK

THE SERVICE INDUSTRIES JOURNAL

FIGURE 5 AVERAGE COST AS PERCENTAGE OF NEW MONEY

1111 official List EB USM

Source: ISE

significantly depending on specific factors relating to each individual buy-out. The main influences are likely to be: size, initial purchase price, post-buy-out performance, prospects, participating dividends, gearing, management's objectives and the diversity of investors. For many buy-outs where management have majority control, re-purchasing of the investing institution's shares will prove the most practical. In other cases a second buy-out or capital restructuring is likely to prove most attractive. For the larger buy-outs, capital restructuring may be the most feasible and in time secondary markets for institutional shareholdings are likely to develop. The range of options will, however, be constrained by the initial financial structure including the effect of goodwill. Where companies are performing relatively badly, the management buy-in is already emerging as a useful option.

Over the next few years the direction of the realisation of buy-outs is thus expected to alter significantly. So far only 16 per cent of completed buy-outs in the UK have exited by means of a trade sale or flotation, which leaves some 2,000 firms needing to reach a decision over the next few years. Thus, methods of realisation are likely to receive much more attention from venture and development capital institutions. While the focus of this article has been on management buy-outs in the UK, the analysis of the full range of options available may provide useful insights for the venture capital industry in general and developing buy-out markets in continental Europe, where stock markets and mergers and

Dow

nloa

ded

by [

Yor

k U

nive

rsity

Lib

rari

es]

at 1

4:36

13

Nov

embe

r 20

14

Page 23: Realisations of Venture Capital Investments: The Case of Management Buy-outs in the UK

MANAGEMENT BUY-OUTS IN THE UK 519

acquisition markets have hitherto been comparatively underdeveloped, and which may otherwise adversely affect the development of venture capital markets [Tyebjee and Vickery, 19881.

The authors are grateful to Sue Birley for comments on an earlier draft and to Spicer and Oppenheim and Barclays Development Capital Ltd for financial support.

REFERENCES

DeAngelo, L., 1986, 'Accounting Numbers as Market Valuation Substitutes: A Study of Management Buy-outs', Accounting Review, Vol. 61, No. 3.

Benzie, R. S., 1988, 'The Financial Behaviour of Industrial and Commercial Companies, 1970-1986', Bank of England Quarterly Bulletin, Vol. 28, No. 1 . - 1989, 'Takeover Activity in the 1980's', Bank of England Quarterly Bulletin, Vol.

29, No. 1. Birley, S. and P. Westhead, 1988, Exit Routes, Cranfield: Cranfield Entrepreneurship

Research Centre. British Venture Capital Association 1989, Report on Investment Activity, London: BVCA. Bygrave, W. et a1.;1989, 'Early Rates of Return of 131 Venture Capital Funds Started

1978-1984, Journal of Business Venturing, Vol. 4. Chiplin, B., M. Wright and K. Robbie, 1988, OK Management Buy-outs in 1988 - The

Annual Review from the Centre for Management Buy-out Research, Nottingham: CMBOR.

City Research Associates, 1989, Study of Attitudes of Owners of Private Companies Towards the Future of Their Business, London: Investors in Industry.

Geroski, P.A., 1989, 'The Choice Between Diversity and Scale', in J.A. Kay et al.(eds.), 1992: Myths and Realities, Centre for Business Strategy, London Business School, London

Gray, S.J. and M.C.McDermott, 1988, 'International Mergers and Takeovers: A Review of Trends and Recent Developments', European Management Journal, Vol. 6, No. 1.

Hughes, A., 1989, 'The Impact of Merger: A Survey of Empirical Evidence for the UK', in J. Fairburn and J.A. Kay (eds.), Mergers and Merger Policy, Oxford: Oxford University Press.

Hunt, J. et al., 1987, 'Acquisition - The Human Factor', London: London Business School.

Jackson, P.D., 1987, 'The Management of UK Equity Portfolios', Bank of England Quarterly Bulletin, Vol. 27.

Jensen, M.C., 1986, 'The Agency Costs of Free Cash Flow', American Economic Review - Papers and Proceedings, May.

Kensinger, J.W. and J.D. Martin, 1988, 'The Quiet Restructuring', Journal of Applied Corporate Finance, Vol. 1 , No. 1.

Lloyd, S., M. Wright and J. Coyne, 1987, 'Trends in UK Buy-outs', LondonINottingham: Venture EconomicsICentre for Management Buy-out Research.

MacMillan, I.C., D.M. Kulow and R. Khoylian, 1988, 'Venture Capitalists Involvement in Their Investments: Extent and Performance', Journal of Business Venturing, Vol. 14.

Mueller, D.C., 1988, 'The Corporate Life-cycle', in Thompson and Wright (eds.) - 1989, 'Mergers and Merger Policy', International Journal of Industrial Organisation, Porter, M.E., 1987, 'From Competitive Advantage to Corporate Strategy', Harvard

Business Review, MayIJune, pp.43-59. Ronstadt, R., 1986, 'Exit Stage Left: Why Entrepreneurs End their Entrepreneurial

Careers Before Retirement', Journal of Business Venturing, Vol. 1. Stock Exchange, 1989, 'Quality of Markets Quarterly', Spring, London: Stock Exchange. Taylor, P. and S. Turley, 1986, The Regulation of Accounting, Oxford: Basil Blackwell. Thompson, S. and M. Wright (eds.), 1988, Internal Organisation, Efficiency and Profit,

Oxford: Philip Allan.

Dow

nloa

ded

by [

Yor

k U

nive

rsity

Lib

rari

es]

at 1

4:36

13

Nov

embe

r 20

14

Page 24: Realisations of Venture Capital Investments: The Case of Management Buy-outs in the UK

520 THE SERVICE INDUSTRIES JOURNAL

Thompson, S. and M. Wright, 1989, 'Equity Ratchets and the Agency Problem', mimeo. Thompson, S., M. Wright and K. Robbie, 1989, 'Management Buy-outs, Debt and

Efficiency: Some Evidence from the UK', Journal of Applied Corporate Finance, Vol. 12, No. 1.

Tyebjee, T. and L. Vickery, 1988, 'Venture Capital in Western Europe', Journal of Business Venturing, Vol. 3, No. 2.

Venture Economics, 1989, 'Venture Capital in Europe', Brussels: European Venture Capital Association.

Wright, M., S. Thompson and K. Robbie, 1989, 'On the Financial and Accounting Implications of Management Buy-outs', British Accounting Review, September.

Wright, M., 1989, 'Developments in Mezzanine Funding of UK Buy-outs', Institute for International Research Conference on Mezzanine Funding, June.

Wright, M . , B. Chiplin and K. Robbie, 1989, 'Trends in UK Buy-outs', in L. Blackstone (ed.), Guide to Management Buy-outs, Economist Publications, 5th edition.

Wright, M., 1988, 'Redrawing the Boundaries of the Firm', Ch. 10 in Thompson and Wright (eds.)

Dow

nloa

ded

by [

Yor

k U

nive

rsity

Lib

rari

es]

at 1

4:36

13

Nov

embe

r 20

14