Factors affecting entrepreneurship in transition economies: An evaluation of the development cycles of Polish MBOs - Page 2

The Development of MBOs in the UK

Corporate restructuring has been a significant feature of the 1980s and early 1990s on both sides of the Atlantic . Peel (1995) argues that such restructuring occurred as a response to such economy-wide variables as the de-regulation of markets and increasing global competition.

MBOs in the UK have been the subject of much academic interest and the literature is relatively extensive. Studies have been carried out on issues such as setting up the MBO (Wright et al 1990), their relationship with the parent company and the avoidance of conflicts of interest (Easterwood et al 1994), financing buy-outs and MBO control and performance issues (Wright et al 1994); Smart and Waldfogel 1994, Smith 1990) management motivation and MBO cultures (Green 1992), Smart and Waldfogel (1994) examined the MBO as a privatisation mechanism., whilst Wright et al (1995 and 1996; McKibben (1990) and Pearson (1990)) addressed factors contributing to the success or failure of MBOs. Finally researchers such as Seth and Easterwood (1993) have investigated aspects of strategic change in MBOs. Assembling the results of such studies provides a model of MBOs that can be utilised for comparative purposes.

The early 1980s saw an upsurge of management buy-outs (Anslow et al 1994), although of late the trend has diminished (Beresford 1994; Robbie and Wright 1992). Many MBOs were created as a result of the owner's retiral or the disposal of unwanted parts of larger groups (Chiplin et al 1993). Wright et al (1988) noted that divestments by UK-based parent companies accounted for at least 60% of buyout opportunities and in addition sales to UK-based management by foreign groups contributed another 12% of buyout activity.

A significant number of MBOs evolved as a result of the privatisation of industrial and transport sectors of the UK economy in the 1980s and the early 1990s (Chiplin et al 1993; Wright et al 1994), (Miller 1994). Employees were often encouraged to take a stake in the newly-privatised companies.

Wright et al (1993) argue that MBOs often became more efficient in this form compared with their earlier existence as part of a larger group or as part of the public sector, providing for wider industrial and societal economic benefits. However, debt-bearing MBOs are suspect to changes in the wider economic climate (Singh 1993), the number of new MBOs declined in the recession of the early 1990s in the UK for example. Such economic changes can place additional pressures of new MBOs, a factor discussed below.

Few managers involved in MBOs were involved in the buying and selling of companies before, so clearly it was important that good practice existed in negotiating and setting up management buy-outs and this aspect was the subject of much research activity.

Wright et al 1991 argue that three separate constituencies have to be satisfied before an MBO is created: management, institutions and the company itself. Of the fundamentally important features of the MBO, three can be readily identified (Ward 1992). Firstly, the management team itself in terms of inherent enterprise and managerial competences, secondly, profit potential and finance, and thirdly, negotiating the MBO. To these can be added issues concerning the positioning and the political economic environment in which the MBO emerges.

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