MIKE WRIGHT, KEN ROBBIE, BRIAN CHIPLIN and MARK ALBRIGHTON , University of Nottingham

Researchers and commentators have charted the development of several takeover or merger waves in the UK during the twentieth century. Starting with a first upsurge in merger activity at the turn of the century, subsequent waves have been identified in the 1920s, the late 1960s and early 1970s and the second half of the 1980s. The second half of the 1990s also appears to be witnessing a further growth in takeovers.' Each of these waves has been characterised by a particular driving force. Thus, takeovers at the turn of the century can be typified as being driven by technical, commercial and financial pressures to create larger enterprises, whilst the merger wave of the 1920s was driven by the perceived need for rationalisation of overcapacity to create large enterprises yielding economies of scale. Takeovers from the late 1950s onwards, and especially in the peak years of the late 1960s and early 1970s, were seen to be driven partly by government attempts to reorganise industry and create large-scale enterprises in certain sectors and partly by the diversification strategies of corporate management. It was not until the beginning of the 1980s that attention began to be addressed to sales of subsidiaries and especially their purchase by incumbent management as a distinct type of takeover.' By the time of the merger wave of the 1980s, these new forms of organisation, which came to be identified as management buy-outs, had become an established part of an expanded market in corporate assets.

Although there has been an increasing amount of divestment activity throughout the century, divestment has been a neglected topic in business history. Much of the discussion of corporate restructuring has focused on the shift from family capitalism to large-scale managerial enterprises in which managers held insignificant equity stakes, with much being made of the supposed superiority of the latter over the former. Around 1980 this apparently inevitable shift began to be challenged as the limitations of managerial capitalism came to be recognised, partly as a result of critiques of the transactions cost approach to multi-divisional firms and the emergence of agency cost approaches to the theory of the firm which stress the importance of monitoring and incentives (see below), and partly as a result of deregulation. The result of these changes was the reversal of earlier corporate restructuring to involve increasingly the disposal of subsidiaries together with an emphasis on significant managerial equity ownership. Management buy-outs represent a major feature of this re-evaluation of managerial capitalism. However, the historical context of the rationale for management buy-outs and the nature of their development, both in the UK and elsewhere, are not generally well understood. While there has been considerable debate about the nature and scope of applicability of buy-outs, explanations of their development have hitherto been partial and incomplete. Much of the theoretical and empirical discussion, emanating primarily from the United States, has related to the taking private of listed corporations in mature sectors using highly leveraged companies created specifically for the purpose and led by specialist Leveraged Buy-out Associations. While these transactions have accounted for a significant proportion of the value of the US buy-out market, they have been rare in the UK. Even in the US they account for a minority of transactions. This suggests a need to develop a more inclusive approach to examining the factors influencing the development of buy-outs in the UK.

The aims of this article are thus fivefold. First, it outlines definitions of buy-out types and the financial instruments used to fund them. Second, a general conceptual framework for understanding the development of a buyout market is outlined in the context of the research which has examined the historical development of organisational forms and the macro-economic and capital market factors which drove developments. This framework encompasses a number of complementary theoretical perspectives. Third, in the light of this framework, the article documents and analyses the development of the UK buy-out market. Fourth, the impact of buy-outs, in terms of their contribution to the economy, their share of the mergers and acquisitions market, and their performance, is addressed. Fifth, in the light of a marked resurgence in the number and value of buy-out transactions in the late 1990s, the article discusses the lessons which may be learnt from previous experience. Finally, some conclusions are drawn. The data used are drawn from the dataset of UK buy-outs compiled by the authors over the period 1980-97. The salient features of each year are summarised in Table 1. At the end of 1997, the dataset contained details of approximately 7,600 buy-outs and buy-out-type investments which had been completed in the UK from 1980.

To link to this article: https://doi.org/10.1080/00076790000000305