Brexit, Private Equity and Management
| Date | 01 October 2016 |
| DOI | http://doi.org/10.1111/1467-8551.12191 |
| Published date | 01 October 2016 |
British Journal of Management, Vol. 27, 682–686 (2016)
DOI: 10.1111/1467-8551.12191
Brexit, Private Equity and Management
Mike Wright, Nick Wilson,1John Gilligan, Nick Bacon2and Kevin Amess3
Center for Management Buyout Research, Imperial College Business School, Imperial College, Exhibition
Road, London SW7 2AZ, UK, and Universityof Ghent, Belgium, 1Credit Management Research Centre, Leeds
University Business School, 2Cass Business School, Bunhill Row, London, and 3Nottingham University
Business School, Nottingham, and Center for Management Buyout Research, London, UK
Email: Mike.Wright@imperial.ac.uk; nw@lubs.leeds.ac.uk; rjmghome@hotmail.com;
Nick.Bacon.1@city.ac.uk; kevin.amess@nottingham.ac.uk
We analyse the expected impact of Brexit on private equity and its implications for man-
agement research. Specifically, we explore the implications for private equity funds and
funding, and at the portfolio firm level with respect to employment and performance.
Introduction
We explore private equity (PE) as the risk capital
used to finance the acquisition of mature busi-
nesses via a leveraged buyout (LBO). A portfolio
firm acquired through an LBO combines equity
capital from the PE fund with debt finance secured
against the portfolio firms’ assets and/or future
cash flows (Gilligan and Wright, 2014). An LBO
leads to changes in ownership and governance of
portfolio firms. Management teams typically re-
ceive a significant equity share, aligning managers
with PE firm objectives. In larger deals, PE firms
usually take the majority equity stake and board
representation to actively monitor performance
and provide strategic advice to guide firms to the
realization of capital gains. PE firms specify con-
tractual conditions regarding both management
behaviour and information provision regarding
the portfolio business.
LBOs account for three-quarters of total UK
merger and acquisition activity by transaction
numbers and the UK has the largest PE market
in Europe (CMBOR, 2016). After emerging in the
mid-1980s the PE market reached its peak in 2007.
In the wake of the financial crisis LBO activity de-
clined. Prior to Brexit, the market had recovered
Authors are listed in reverse alphabetical order. All au-
thors contributed equally.
to levels comparable to the late 1990s and early
2000s.However,in the first half of 2016, deal values
declined sharply with the largest deals being ad-
versely aected by macroeconomic uncertainties,
including Brexit (CMBOR, 2016). Pre-referendum
there was a strongly expressedview that remaining
in the EU would be most favourable to portfolio
companies (BVCA, 2016).
Before 2007 the PE industry operatedlargely be-
low the radar of public attention, but immediately
prior to the banking crisis the industry became
subject to scrutiny by governments and parlia-
ments on both sides of the Atlantic. Critics made
claims of short termism, cost cutting, asset strip-
ping, excessive leverage making portfolio compa-
nies vulnerable to failure, and deleterious eects
on innovation, employment and employee rela-
tions (ITUC, 2007). Subsequent debate resulted in
enhanced regulation and disclosure (Buckley and
Howarth, 2011).1This EU level regulation leads
to a need to understand the potential impact of
Brexit on PE. Indeed, formanagement researchers,
Brexit provides a natural experiment to explore
the eects on PE of a major exogenous shock. We
1Gilligan was on the Institute of Chartered Accountants
in England and Wales committee that reviewed the first
draft of the Alternative Investment Fund Managers Di-
rective (AIFMD) and joined with others to successfully
lobby to have it redrafted.
© 2016 British Academy of Management. Published by John Wiley & Sons Ltd, 9600 Garsington Road, Oxford OX4
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