Family Firm Buy-Outs, Private Equity and Strategic Change

Abstract

Management buy-outs (MBO) and buy-ins (MBI) represent an important succession option in family firms. They thus also provide an important deal source for private equity firms. Yet, while much attention in the private equity and buy-out market has been upon large public to private transactions, the family buy-out part of the market is not well-understood. In light of these issues, the purpose of this article is twofold: We provide an overview of developments in the family firm buy-out market. Specifically, we examine trends in the number and value of deals, deal sizes, share of the total buy-out market, employment and the role of private equity. We use CMBOR’s unique database comprising the population of 30,000 European buy-outs as the source for this analysis. We undertake a detailed study of strategic changes in family firms as a result of a buy-out. Specifically, we examine whether changes in the strategy of former private family firms affected by the ownership and governance of the firm before the buy-out. These issues are examined using a novel hand-collected representative questionnaire survey of 104 private family firms across Europe which had a buy-out funded by private equity between 1994 and 2003.

Keywords: family firm, buy-out, governance, ownership, strategic change