Management buy-outs have become an international phenomenon, yet important differences exist between countries in the nature of buy-outs. In the early 1990s, the differential impact of recession has brought two important issues to the fore. The first involves the contribution of buy-outs to restructuring failed firms and the second relates to concerns over the viability of buy-out transactions carried out in the 1980s. This paper addresses these issues as follows. First, it reviews the criteria for the development of a buy-out market; second it examines the nature and extent of buy-outs of firms in receivership; and third it examines financial factors which influence the failure of buy-outs. The analysis of the sample of buy-outs of firms in receivership show that in the 1990s such firms are more likely to be profitable subsidiaries of failed groups, to be located in the South East of England and to be in service industries. The study found that the main reasons for failure were parent related, with unwise acquisition policies being one of the most important factors. High incidences of management having alternative job opportunities and having attempted to buy the firm in advance of receivership are also identifies. Buy-outs of firms in receivership are found to engage in higher levels of restructuring that buy-puts in general. Examination of a matched sample of buy-outs which failed and those which have not finds that those which fail are significantly more likely to have high gearing ratios, low liquidity and poor labour productivity.
