Overview

In the last decade or so, management buyouts have become one of the most important developments in international finance. The pioneers of the industry, such as KKR’s founders Henry Kravis and George Roberts or Joe Rice from CD&R, had little inkling of what they would accomplish when they set up shop in the late 1970s to practice their unusual method of acquiring companies. Since the 1980s, the scale and scope of the leveraged or management buyout rose to unprecedented heights, as more and more companies have been acquired by specialized buyout investors using large amounts of debt to finance the transaction, making managers (co-)owners, and monitoring performance closely. The investor’s goal in these deals is to improve the long-term value of their assets in order to earn extraordinary returns, but at the same time, buyouts play an important role in developed economies as they contribute to the restructuring and revitalization of mature businesses. 

Initially, the huge leveraged buyouts in the US were primarily about restructuring of under-performing corporations listed on a stock market. In recent years, buyouts spread to other countries and moved from the predominant role of debt as a financial tool to a model for reorganising and managing corporate assets. Ultimately, they do not only increase the value of the acquired assets, but also to forge an alignment of the all-to-often divergent interests between investors and managers. The buyout concept has therefore wide applicability. In many countries they are the most significant element of private equity markets and play an important role in revitalizing mature businesses. Management buyouts, therefore, increasingly involve an important combination of finance and entrepreneurship.

This elective provides the opportunity to examine all aspects of management buyouts from both the point of view of the funds providers' entry strategy into the market and the various stages of the deal process. The course contains a strong flavour of the practical aspects of doing buyouts. We will also draw on available evidence to provide a balanced view of management buyouts which cuts through the hype!

Team Assignment

As an integral part of the course, every student will participate in the Team Assignment: a practical exercise in which you have to submit a bid for a potential target company for a management buyout. This bid will have to be justified by a detailed investment proposal for the acquisition of this company in which you need to qualitatively assess and quantify the value generation potential along a number of value levers we discuss in class. In doing so, you will be required to consider financial, managerial and entrepreneurial aspects of management buyouts.

The course will also feature breakthrough findings from the HEC Buyout Research Program regarding performance and value creation mechanisms in buyouts.

Learning outcomes

Course Format

The elective attempts to reach its learning objectives by offering you a healthy mix of various pedagogical methods. We are starting out with a healthy dose of theoretical background to familiarize you with the most relevant concepts and to give you an overview of the various value generation mechanisms at work in a management buyout. After this, we will rapidly shift gears to come to a more practical approach to the topic.

During the discussion of case studies, we will be leveraging on the presence of a number of high-calibre guest speakers who will share their own buyout experience with you. This will facilitate the appreciation of the complex interactions between the numerous managerial challenges to be faced in the various stages of the buyout process.

In parallel, the team assignment will provide you with the unique opportunity to try out your own skills as a potential buyout firm investment manager. You will perform this task in small groups of three to five student members, whose talents, skills and knowledge should be complementary. Ideally, team formation starts before the first class session. Finally, we will step back from the discussion of specific cases to take a more general look at the buyout industry. Drawing on brand new findings from the HEC Buyout Research Program, one of the world’s largest research initiatives in the buyout area, we will look at the factors what determine performance and value creation (or destruction!) in buyouts.