Chapter 14 • Corporate restructuring
‘Mezzanine’ finance has also been a feature of a number of management buy-outs.
This is basically high-interest-rate borrowing (probably through a loan notes issue)
with the possibility that lenders can convert their loan to equity. Usually the equity
conversion option only arises if the business through which the MBO is effected
becomes listed on the Stock Exchange. The evidence on the success of MBOs is thin
and inconclusive; however, it appears that managers taking over the business that
they run is a phenomenon that is likely to continue to occur.Buy-ins
In a buy-ina group of individuals puts together an offer for part, or possibly all, of a
business with which they have previously had no particular connection. Most of the
features of MBOs are present with buy-ins, including the means of financing such
deals. Many buy-ins involve very large sums of money.
An example of a buy-in was when Caterham Cars Ltdwas sold to a buy-in team in
January 2005. Caterham Cars makes specialist sports cars. It was founded (in 1973),
managed and owned by the Nearn family, until the sale. Ansar Ali, who had worked
for Lotus Cars Ltdas a senior manager, led the buy-in team. Corven Ventures Ltd, a
venture-capital provider, financially backed the deal. (Venture capital is relatively low
amounts of finance provided to growing small businesses. Chapter 16 discusses ven-
ture capital.)
Another example occurred when the Iceland-based retail group Baugersold a stake
in Whistles, a small chain of women’s fashion shops, to a management buy-in team led
by Jane Shepherdson, in early 2008.
Buy-ins seem to occur quite often when the majority shareholder of a small family-
type business wishes to retire.The rise of buy-outs and buy-ins
Management buy-outs and buy-ins were first seen in the UK in the late 1970s. By 1980,
there were about 100 buy-outs/buy-ins, but during 2007 there were over 600 (Centre
for Management Buy-out Research 2008), valued at more than £42.2 billion. The aver-
age value of the buy-out/buy-in has also increased dramatically, from a mean of
£0.4 million in 1980 to around £69 million per buy-out in 2000.Sell-offs
Sell-offsinvolve one established business selling part of its operations (that is, a set of
assets) to another established business, normally for cash. A sell-off can be an altern-
ative to a merger. The assets of the selling business, perhaps all of its assets, are sold
to another business, leaving the selling business with the debts to settle.
The disposal by Fords of Jaguar and Land Rover, which we discussed earlier in this
chapter, is an example of a sell-off, though this was only a relatively small part of
Ford’s total business.Spin-offs
In a spin-off, part of a business is floated (spun off ) as a separate, new (probably listed)
business, and the existing shareholders receive the appropriate number of shares in the
new business. There is no change in ownership, except that the shareholders directly
own the spun-off part, instead of owning it through the intermediary of the original‘
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