International Journal of Applied Strategic Management (ISSN: 1742-8204) Volume 1 Issue 1 -
Dr David J Pollard and R David Kirk
Dundee Business School
The Management Buy-out (MBO) became a popular mechanism for corporate restructuring and business recovery in the UK during the late 1970s and early 1980s. The majority of UK MBOs in value terms have been small and medium sized enterprises (Chiplin et al 1993). Investigation of the UK post-buy-out experience has indicated that much MBO activity has been driven by the entrepreneurial process to achieve improved business performance (Weir 1996, Wright et al 1994).
While MBOs vary greatly in their scale and method of setting up, there are a number of common aspects that have been identified. Essentially, an MBO entails management taking over some or all of the parent company assets for which they were formerly responsible and utilising various sources of finance such as bank loans, various forms of venture capital or in rare cases loans negotiated by the parent company. In the restructuring process, highly-geared MBOs are often accompanied by a shedding of labour and a drive for higher productivity.
Management buy-outs compete with other methods of divesting parts or all of the company to competitors or other interested parties. Abbot and Johnston (1993) suggest that MBOs generally provide higher returns to parent company shareholders than in selling off to outside companies, although some commentators take a contrary view, while Smart and Waldfogel (1994) argue that MBOs improve the overall corporate performance of the parent company.
The present paper reports on recent case study research of three Polish MBOs which, now as SMEs, are engaged in industrial manufacturing. In the context of the contingent factors affecting their activities, the case studies investigate the patterns of managerial decision-making which have been evident of their period as MBOs. The case studies are based on on-site contact with the managers of the subject firms. Relevant features of the organisational adaptation made within these three businesses are examined using the model derived from the literature concerning the MBO development process experienced in the UK . The paper concludes by exploring the issue of MBO business performance under transition conditions.
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