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RESULTS

Background Analysis

This paper analyses all management buy–out and buy–in deals from 1989 to 1995 inclusive. According to statistics provided by the British Venture Capital Association (BVCA), in the period 1993–1995 buy–outs accounted for 49% and buy–ins for 19% of the total investments by venture capital firms in the UK. Table 2 shows the total number of such deals and separates them into those which were backed by venture capital firms and those which were not. As can be seen, there were 1,999 such deals backed by venture capital firms: just over 50% of the total, of which 1,344 were buy–outs and 655 buy–ins. It will be observed that it is much more likely that buy–ins will be venture capital backed than buy–outs.

TABLE 2

Venture Backed Management Buy–outs and Buy–ins – 1989 to 1995

Year of buy–out Not venture capital backed Venture capital backed Total
Buy–out Buy–in Buy–out Buy–in
1989 176 16 226 107 525
1990 282 25 220 74 601
1991 274 35 181 79 569
1992 276 40 184 89 589
1993 261 38 135 53 487
1994 209 39 199 103 550
1995 176 62 199 150 587
TOTAL 1,654 255 1,344 655 3,908

Table 3 shows the number of venture capital backed management buy–out and buy–in deals which were supported by a single venture capital firm and those that were syndicated across more than one. In total 31% of these deals were syndicated (32% of buy–outs and 29% of buy–ins). As might be expected, a higher proportion of the larger deals are syndicated. For example, 66% of deals valued at 10 million pounds or more are syndicated compared with 23% of those valued at less than 10 million. Thus, syndication is an important aspect of the financing of management buy–outs and buy–ins.

TABLE 3

Syndicated Venture Backed Buy–outs and Buy–ins – 1989 to 1995

Year of buy–out Non–Syndicated Syndicated Total
Buy–out Buy–in Buy–out Buy–in
1989 157 86 59 31 333
1990 152 55 64 23 294
1991 124 66 54 16 260
1992 122 59 62 30 273
1993 79 33 56 20 188
1994 127 80 71 24 302
1995 140 98 59 52 349
TOTAL 901 477 425 196 1,999

Econometric Analysis

Table 4 reports the results of applying both the weighted analysis of the complete cases and the full data–set with imputed missing values. The first point to notice is that the signs on the coefficients are generally the same whether using the weighted complete case of imputed missing values and, in particular, that conclusion holds for all of the variables which are significant at the 10% or lower level. Since a substantial number of the explanatory variables are 0,1 dummies it would be expected that their coefficients would be different in size between the two models given the much greater number of cases in the latter.

TABLE 4

Logistic Regression Results

Weighted (complete case) EM (all cases)
Coefficient Standard Error Coefficient Standard Error
Risk
Debt -0.135 ** 0.065 -0.033 *** 0.017
Gearing 0.147 * 0.053 0.021 0.015
Mezzanine 0.014 0.107 -0.010 0.025
Mgtshare -0.040 * 0.0097 -0.044 * 0.006
Total equity 0.055 0.051 0.042 *** 0.024
Total mgt 0.024 0.176 0.077 0.065
Total vendor -0.206 0.126 -0.038 0.045
Value 0.085 0.052 0.026 0.019
Vendor loan 0.106 0.137 0.019 0.042
Buy–out -0.035 0.381 -0.013 0.192
Divestment -0.246 0.375 0.233 0.198
Receivership -0.173 0.550 0.369 0.312
Venture Capital
Deals -0.058 * 0.017 -0.047 * 0.008
Funds managed 0.0004 0.0013 -0.001 *** 0.0005
Portfolio size -0.006 0.0068 -0.006 *** 0.0037
Captive -0.764 0.725 -0.079 0.350
Semi–captive 0.767 0.502 0.815 * 0.281
VC1 3.769 * 0.857 3.738 * 0.496
VC2 4.747 * 1.234 4.599 * 0.614
VC3 5.093 * 1.396 4.125 * 0.647
VC4 4.440 * 1.306 3.421 * 0.683
VC5 5.305 * 1.451 3.907 * 0.622
VC6 6.774 * 1.314 4.686 * 0.662
VC7 5.533 * 1.263 3.826 * 0.641
VC8 14.059 * 2.889 12.315 * 1.359
VC9 2.181 1.993 2.553 ** 1.161
VC10 2.880 ** 1.293 3.421* 0.654
VC11 77.174 * 21.641 68.116 * 10.589
Industry
Food 2.392 * 0.829 0.831 *** 0.444
Hotel -1.084 1.377 -2.323 * 0.755
Transport -1.722 1.077 -1.181 ** 0.547
Region
North -2.981 ** 1.163 -1.110 *** 0.578
Scotland 1.302 *** 0.773 0.814 ** 0.338
South West -1.591 *** 0.834 -1.012 ** 0.419
West Midlands -1.261 ** 0.606 -0.780 ** 0.316
Year
1990 -0.146 0.776 -0.216 0.329
1991 0.096 0.746 -0.243 0.342
1992 0.520 0.776 0.437 0.343
1993 0.259 0.781 0.584 *** 0.336
1994 -0.271 0.728 0.211 0.328
1995 -0.335 0.726 -0.113 0.296
Constant 0.469 0.980 1.151 0.502

* significant at the 1% level

** significant at the 5% level

*** significant at the 10% level

Table 5 gives the classification table for both models, where the percentages for the EM model are based on the average across the 11 separate estimations. The models correctly classify 86.2% and 89.0% of the cases respectively. The classification of the non–syndicated deals is over 96% correct in both cases and 75.9% and 72.2% of the syndicated deals are correctly classified. The Likelihood ratio test shows both equations to be highly significant.

TABLE 5

Percentage of Cases Correctly Classified

Complete cases: weighted estimates EM: full sample
Non–syndicated 98.6 96.5
Syndicated 75.9 72.2
Overall 86.2 89.0
Total cases 645 1,999

 

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