Exits, Performance, and Late Stage Private Equity: the Case of UK Management Buy-outs

Using a hand-collected dataset of 1,225 buy-outs, we examine post buy-out and post exit long term abnormal operating performance of UK management buy-outs, during the period 1980-2009. Our univariate and panel data analysis of post buy-out performance conclusively show positive changes in output. We also find strong evidence for improvements in employment and output and a lack of significant changes in efficiency and profitability following initial public offerings (IPO) exits. IPOs from the main London Stock Exchange (LSE) market outperform their counterparts from the Alternative Investment Market (AIM) only in terms of changes in output. For secondary management buy outs (SMBOs), performance declines during the first buy-out but in the second buy-out performance stabilises until year three, after which profitability and efficiency fall while employment increases. Although private equity (PE) backed buy-outs do not exhibit either post buy-out or post exit underperformance, they fail to over-perform their non-PE backed counterparts. In the subsample of buy-outs exiting via IPOs on the AIM, PE firms do not outperform non-PE buy-outs. Our findings highlight the importance of tracing the overall performance of buy-outs over a longer period and controlling for sample selection bias related to the provision of PE backing.