Post-LBO development (eBook)

Dr. Richard K. Lenz completed his doctoral thesis at the Center for Entrepreneurial and Financial Studies at the Technical University Munich.

Foreword 6
Acknowledgements 8
Table of Contents 10
Index of Figures 16
Index of Tables 17
Index of Abbreviations 20
A Introduction and Founding Theory 22
1 Introduction and Overview 22
1.1 Relevance of Thesis 22
1.2 Research Objectives 24
1.3 Research Approach 28
1.4 Structure of Analysis 30
2 Definition and Context 32
2.1 Buyouts: a Definition 32
2.2 Characteristics of Buyouts 35
2.2.1 Industry-Specific Characteristics 36
2.2.2 Company-Specific Characteristics 39
2.2.3 Longevity of Buyouts and their Exit 41
2.3 Institutional Governance Framework 46
2.3.1 Buyout Investors 47
2.3.2 Stock Market 49
2.3.3 Strategic Owner 52
3 Related Theory to the Buyout Cycle 53
3.1 Introduction 54
3.2 Agency Theory 57
3.2.1 Agency Costs of Equity and Debt 59
3.2.2 Agency Costs of Free Cash Flow 61
3.2.3 Agency Costs during the Buyout 62
3.2.4 Agency Costs in the Post-Exit Period 65
3.3 Resource-Based View 69
3.3.1 Overview Resource Base 70
3.3.2 Categories of Resources and Capabilities 72
3.4 Corporate Governance-Related Perspective 75
3.4.1 Stakeholders in General and their Claims 76
3.4.2 Large Investors 77
3.5 Active Ownership and the Governed Corporation 81
B Model Building and Hypotheses Development 86
1 Introduction to the Basic Model 86
2 Post-Exit Changes in the Governance Structure and Managerial Objectives 89
2.1 Changes in Governance Structure at the Exit 90
2.1.1 Debt Leverage over the Buyout Cycle 90
2.1.2 Ownership Structure and Performance 100
2.1.3 Owner Identity and Activity Level of Investors 107
2.1.4 Change of Management Shareholdings 115
2.1.5 Concluding Remarks 119
2.2 Changes in Motives and Potential Wealth Transfer 120
2.2.1 Buyout Investors 122
2.2.2 Post-Exit Shareholders 124
2.2.3 Management 125
2.2.4 Employees 127
2.2.5 Debt Holders 128
2.3 Changes in Management Objectives at the Exit 129
2.3.1 Emphasis on Efficiency by Management 130
2.3.2 Emphasis on Corporate Entrepreneurship by Management 132
3 Post-Exit Changes in Efficiency-Focused Management Activities 135
3.1 Introductory Remarks 135
3.2 Changes in Operations and Manufacturing 136
3.2.1 Operational Productivity and Employment 137
3.2.2 Asset Productivity and Capital Expenditure 145
3.2.3 Outsourcing, Offshoring and Partnering 150
3.2.4 Working Capital Management 154
3.3 Changes in Administration and Organization 157
3.3.1 Overhead Productivity 158
3.3.2 Hierarchical Complexity and Decision-Making 162
3.3.3 Efficiency of Management Control Systems 166
4 Post-Exit Changes in Entrepreneurial Growth Focused- Management Activities 171
4.1 Introductory Remarks 171
4.2 Changes in Strategy 177
4.2.1 Strategic Positioning 178
4.2.2 Diversification and Scope 192
4.3 Changes in Innovation 199
4.3.1 R& D Spending and Efficiency
4.3.2 R& D Focus and Cooperation
4.4 Change in Market Development 212
4.5 Change in Human Resource Management 219
4.5.1 Human Resources 220
4.5.2 Top Management Resources 224
4.5.2.1 Quality and Composition of Team 224
4.5.2.2 Incentive System and Compensation 230
5 Performance Development during the Buyout Cycle 236
5.1 Introductory Remarks 236
5.2 Performance Development during Buyout Restructuring 236
5.3 Post-Exit Performance Development 248
5.3.1 Exit Market Development in Germany 248
5.3.2 Determining Concerns for the Choice of Exit Channel 252
5.3.3 Costs and Benefits 256
5.3.4 Performance Development of a LBO exiting via Going-Public 258
5.3.4.1 General Empirical Evidence Related to a Going-Public 258
5.3.4.2 Changes in Corporate Governance and Performance at Going-Public 264
5.3.4.3 Performance of LBOs Going Public 267
5.3.5 Performance Development of a Buyout Exiting via Trade Sale 272
5.3.5.1 General Empirical Evidence related to a Trade Sale 272
5.3.5.2 Changes in Corporate Governance and Performance after a Trade Sale 276
C Empirical Part 280
1 Research Methodology 280
1.1 Identification of Case Studies 280
1.2 Measures for Analyses 282
1.2.1 Measures for Corporate Governance 282
1.2.2 Measures for Management Objectives 283
1.2.3 Measures for Value Creation Levers 284
1.2.4 Measures for Performance Development 288
1.3 Data Collection 290
2 Case Study: Wincor Nixdorf 292
2.1 Case Description 292
2.1.1 Company Development before the Buyout 292
2.1.2 Company Development during the Buyout Period 294
2.1.2.1 Efficiency-Focused Management Activities 294
2.1.2.2 Entrepreneurial Growth-Focused Management Activities 296
2.1.3 Company Development fter The Exit 298
2.1.3.1 Market nd Competitive Environment 298
2.1.3.2 Efficiency-Focused Management Activities 299
2.1.3.3 Entrepreneurial Growth Focused-Management Activities 306
2.2 Case Analysis 318
2.2.1 Changes in Governance over the Buyout Cycle and in the Post-Exit Period 318
2.2.1.1 Debt Leverage 318
2.2.1.2 Ownership Concentration 320
2.2.1.3 Activity Level of Investors 322
2.2.1.4 Managerial Shareholdings 326
2.2.2 Changes in Management Objectives 329
2.2.3 Changes in Efficiency-Focused Management Activities 331
2.2.4 Changes in Entrepreneurship-Focused Management Activities 335
2.2.5 Changes in Performance Development 339
3 Case Study: Techem 345
3.1 Case Description 345
3.1.1 Company Development before the Buyout 345
3.1.2 Company Development during Buyout 346
3.1.2.1 Efficiency-Focused Management Activities 346
3.1.2.2 Entrepreneurial Growth-Focused Management Activities 348
3.1.3 Company Development after the Exit 351
3.1.3.1 Market and Competitive Environment 351
3.1.3.2 Efficiency-Focused Management Activities 352
3.1.3.3 Entrepreneurial Growth Focused-Management Activities 357
3.2 Case Analysis 372
3.2.1 Changes in Governance over the Buyout Cycle and in the Post-Exit Period 372
3.2.1.1 Debt Leverage 372
3.2.1.2 Ownership Concentration 374
3.2.1.3 Activity Level of Investors 378
3.2.1.4 Managerial Shareholdings 380
3.2.2 Changes in Management Objectives 383
3.2.3 Changes in Efficiency-Focused Management Activities 385
3.2.4 Changes in Entrepreneurship-Focused Management Activities 388
3.2.5 Changes in Performance Development 393
4 Case Study: Trevira 400
4.1 Case Description 400
4.1.1 Company Development before the Buyout 400
4.1.2 Company Development during the Buyout Period 402
4.1.2.1 Efficiency-Focused Management Activities 402
4.1.2.2 Entrepreneurial Growth-Focused Management Activities 404
4.1.3 Company Development after the Exit 407
4.1.3.1 Market and Competitive Environment 409
4.1.3.2 Efficiency-Focused Management Activities 409
4.1.3.3 Entrepreneurial Growth Focused-Management Activities 416
4.2 Case Analysis 422
4.2.1 Changes in Governance over the Buyout Cycle and in the Post-Exit Period 422
4.2.1.1 Debt Leverage 423
4.2.1.2 Ownership Concentration 425
4.2.1.3 Activity Level of Investors 426
4.2.1.4 Managerial Shareholdings 428
4.2.2 Changes in Management Objectives 431
4.2.3 Changes in Efficiency-Focused Management Activities 432
4.2.4 Changes in Entrepreneurship-Focused Management Activities 437
4.2.5 Changes in Performance Development 442
5 Comparative Case Study Analysis 448
5.1 Changes in Governance Structure 448
5.1.1 Debt Leverage 448
5.1.2 Ownership Concentration 449
5.1.3 Activity Level of Investors 450
5.1.4 Managerial Shareholdings 452
5.2 Changes in Management Objectives 454
5.3 Changes in Efficiency-Focused Management 457
5.4 Changes in Entrepreneurial Growth-Focused Management 466
5.5 Changes in Performance Development 479
5.5.1 During the LBO 479
5.5.2 Post-LBO 480
5.5.2.1 Revenue Growth 480
5.5.2.2 Margin Development 481
5.5.2.3 Cash Flow from Operations 484
5.5.2.4 Cash Flow from Investments and Resulting Free Cash Flow 487
5.6 Discussion 488
5.7 Closing Remarks 493
D Synthesis and Outlook 495
1 Research Synthesis and Conclusion 495
2 Contributions to Research and to Practice 502
2.1 Contributions to Agency Theory 502
2.2 Contributions to Corporate Governance Theory 504
2.3 Contributions to Operations Management, Strategy, and Corporate Entrepreneurship Research 507
2.4 Contributions to Finance Research 509
2.5 Applications of Findings to Post-Ext Shareholders and Investors 513
3 Limitations of Study and Areas of Future Research 517
E Appendix 520
1 Interview Partners 520
2 Key Financials of Case Studies 521
F References 524