Performance of UK SMBOS

This thesis investigates the operating performance of companies following secondary management buyouts (SMBOs) and the factors which determine that performance. First, we find strong evidence that SMBOs underperform in the long run in terms of profitability, productivity, employment growth, and sales growth. This underperformance can be explained by the high level of leverage used in the buyout model. Nevertheless, our results suggest that managerial ownership does not affect post-SMBO operating performance. Moreover, further analysis of the determinants of the post-SMBO performance from the perspective of the board of directors reveals that having more private equity (PE)-related directors on the board and appointing skilled inside directors will both significantly improve post-SMBO operating performance, especially growth ratios. Replacing the top managers and having independent outside directors has little influence on the performance. Finally, we demonstrate that selling pressure is associated with better profitability, indicating that PE funds under selling pressure tend to exit good companies. Meanwhile there is little evidence to show that PE funds under buying pressure tend to invest in bad companies. Likewise, there is little evidence to support that previous industry experience, number of investments per executive, and buyout/acquisition stage specialization of buying PE firms enhance post-SMBO operating performance