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!
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.