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Management Buyouts: Distinguishing Characteristics and Operating Changes Prior to Public Offering

Harbir Singh
Strategic Management Journal
Vol. 11, Special Issue: Corporate Entrepreneurship (Summer, 1990), pp. 111-129
Published by: Wiley
Stable URL: http://www.jstor.org/stable/2486673
Page Count: 19
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Management Buyouts: Distinguishing Characteristics and Operating Changes Prior to Public Offering
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Abstract

This is a two-part study of management buyouts. In the first part we identify characteristics of firms bought out by their management by contrasting a sample of 65 firms which went private between 1980 and 1987 with an industry-matched comparison group of 130 firms. Firms which go private, when compared with others in their industries, tend to have higher levels of cash flow as a percentage of sales, have lower levels of receivables to sales, and have a significantly higher incidence of takeover speculation prior to the buyout In the second part of the study we find that privately held firms, in the 3 years preceding the public offering, grow faster in revenues than their corresponding industry averages, while maintaining a better performance than industry norms in inventory management, in accounts receivable, and in operating income. In particular, private firms originating through management buyouts of divisions (of publicly held corporations) exhibit substantially higher growth rates than their industry averages, while still maintaining the same levels of operating income. These findings collectively suggest heightened performance after management buyout, which may be attributable to the changed governance structure of the firm.

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