Rethinking Target’s Private Equity Process in Turnaround Situations

Giuseppe Tardivo; Milena Viassone; Marco Vulpiani

doi:doi:10.11648/j.jim.20140303.11

| Peer-Reviewed

Rethinking Target’s Private Equity Process in Turnaround Situations

Giuseppe Tardivo, Milena Viassone, Marco Vulpiani

Published in Journal of Investment and Management (Volume 3, Issue 3)

Received: 28 August 2014 Accepted: 10 September 2014 Published: 20 September 2014

Views: Downloads:

Download PDF

Share This Article

Twitter
Linked In
Facebook

Abstract

Given the increasing role of PE investments in restructuring the trend of acquisitions, its process needs an organizational change in order to cope with crisis situations. Despite several papers have emphasized the important role of PE both in M&A transactions and in turnaround situations no research crosses these two aspects. This paper bridge this gap, proposing a rethinking of the target’s PE Process in turnaround situations creating value for the target and preparing it for the takeover. This purpose is achieved throughout a literature review and the description of a new PE process throughout the paradigmatic case study of the sport company Brown Ltd. Finally corrective actions are implemented. Results show how a turnaround situation needs a new PE process, developed in 3 main phases (crisis analysis, recover and development) through which it creates value for the target. Main limits consist in the application of the new PE process to a single case study and the lack of an empirical support able to generalize it. The findings help identify drawbacks and set an agenda for future work. This new process could be tested also on other industries and firms of different size, providing a practical adaptation of the PE process in crisis situations and adopted by consulting agencies after testing also its effects in the long term.

Published in	Journal of Investment and Management (Volume 3, Issue 3)
DOI	10.11648/j.jim.20140303.11
Page(s)	42-50
Creative Commons	This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.
Copyright	Copyright © The Author(s), 2014. Published by Science Publishing Group

Keywords

Private Equity, Acquisitions, Turnaround, Value Creation

References

[1]	R. Harris, T. Jenkinson, S.N. Kaplan, and R. Stucke, Has Persistence Persisted in Private Equity?, Online available from http://faculty.chicagobooth.edu/steven.kaplan/research/HJKS.pdf (accessed 5 August 2013), 2013.
[2]	R. Sahu, A. Nath, and P. Banerjee, “Trends in private equity and venture capital investments with special focus on the booming India growth story”, Journal of International Commercial Law and Technology, Vol. 4, No. 2, pp. 128-142, 2009.
[3]	J. Chen, H. Hong, W. Jang, and J. Kubik, “Outsourcing mutual fund management: firm boundaries, incentives, and performance”, Journal of Finance, Vol. 68, No. 2, pp. 523-558, 2013.
[4]	D.J. Cumming, N. Dai, and S.A. Johan, Hedge Fund Structure, Regulation, and Performance around the World, 1st Edition, Oxford: Oxford University Press, 2013.
[5]	Deloitte, The Economic Contribution of Private Equity in Australia, Kingstone, Australia: Deloitte, 2013.
[6]	M. Kend, and D. Katselas, “Private equity coming out of the dark: The motivations behind private equity activity in Australia”, Quality Research in Accounting & Management, Vol. 10, No. 2, pp. 172-191, 2013.
[7]	G. Giudici, and P.G.J. Roosenboom, The Rise and Fall of Europe's New Stock Markets. Advances in Financial Economics, Amsterdam: Elsevier JAI, 2004.
[8]	Bain & Company, Global Private Equity Report 2013, Boston: Bain & Company Inc., 2013.
[9]	K. Jagafa, and J. Wood, “A Turn-Around Model for Construction Company Rescue: Failure to Success”, Working Paper Proceedings of the Engineering Project Organizations Conference, Rheden, The Netherlands, pp. 1-21, 2012.
[10]	M. Abebe, “Leadership characteristics of declining firms attempting turnaround: An empirical examination”, Journal of Strategy and Management, Vol. 2, No. 3, pp. 201-216, 2009.
[11]	R. Young. This Year’s Turnaround Model, Online available from http://www.icaew.com/en/technical/corporate-finance/business-restructuring/this-years-turnaround-model (accessed 5 August 2013), 2011.
[12]	D. Dauber, G. Fink, M. Yolles. A Configuration Model of Organizational Culture”, Online available from http://sgo.sagepub.com/content/early/2012/03/21/2158244012441482 (accessed 5 August 2013), 2012.
[13]	C. Zecher, “Management Control and Organizational Change in Private Equity Buyouts – An Institutional Theory Perspective”, Dissertation Wissenschaftliche Hochschule für Unternehmensführung (WHU) – Otto Beisheim School of Management, Vallendar, 2012
[14]	M. Vulpiani, Project Work Brown Ltd Business Plan FY12 – FY16, Stricty Private and Confidential Document, 2013.
[15]	S.S. Shroff, R. Menon, R. Anand. Decampment of Private Equity Investments, Online available from http://www.iflr.com/Article/3072110/Decampment-of-private-equity-investments.html (accessed 28 August 2013), 2012.
[16]	R. Foppe, Turnaround Private Equity in Germany: Selecting Targets and Ensuring Their Future Growth, 1st Edition, Germany: VDM Verlag, Saarbrücken, 2009.
[17]	EVCA, Guide for Private Equity and Venture Capital Entrepreneurs, Online available from http://www.fvca.fi/files/11/EVCA_PEVCGUIDE_Nov2007.pdf (accessed 5 August 2013), 2007.
[18]	C. Armstrong, A. Davila, and G. Foster, “Venture-backed private equity valuation and financial statement information”, Review of Accounting Studies, Vol. 17, No. 1, pp. 119-154, 2006.
[19]	M. Humphery-Jenner, Z. Sautner, and J.-A. Suchard, “Cross-Border Mergers and Acquisitions: The Role of Private Equity Firms”, Working Paper, Tinbergen Institute, Amsterdam, 2012.
[20]	M. Goedhart, T. Koller, and D. Wessel, The Five Types of Successful Acquisitions, Online available from http://www.mckinsey.com/insights/corporate_finance/the_five_types_of_successful_acquisitions (accessed 2 August 2013), 2010.
[21]	K. Kaiser, and C. Westarp, Value Creation in the Private Equity and Venture Capital Industry, Fontainebleau, France: INSEAD, 2010.
[22]	C.J. Cuny, and E. Talmor, “A theory of private equity turnarounds”, Journal of Corporate Finance, Vol. 13, No. 4, pp. 629-646, 2007.
[23]	J. Calandro, “Turnaround value and valuation: Reassessing scott paper”, The Journal of Private Equity, Vol. 15, No. 1, pp. 67-78, 2011.
[24]	A.L. White, Invest, Turnaround, Harvest: Private Equity Meets CSR, Online available from www.bsr.org (accessed 5 August 2013), 2006.
[25]	V. Ivashina, and A. Kovner, “The private equity advantage: Leveraged buyout firms and relationship banking”, Review of Financial Studies, Vol. 24, No. 7, pp. 2462-2498, 2011.
[26]	M.A. Ferreira, M. Massa, and P. Matos, “Shareholders at the gate? Institutional investors and cross-border mergers and acquisitions”, Review of Financial Studies, Vol. 23, No. 2, pp. 601-644, 2010.
[27]	Preqin, Preqin Special Report: Distressed Private Equity, 1st Edition, New York: Preqin, 2011.
[28]	S. Kaplan, and P. Strömberg, “Leveraged buyouts and private equity”, Journal of Economic Perspectives, Vol. 23, No.1, pp. 121-146, 2009.
[29]	J. McCahery, Z, Sautner, and L. Starks, “Behind the scenes: The corporate governance preferences of institutional investors”, Working Paper, University of Amsterdam, Amsterdam, 2011.
[30]	Y.V. Hochberg, A. Ljungqvist, and Y. Lu, “Networking as a barrier to entry and the competitive supply of venture capital”, Journal of Finance, Vol. 65, No. 3, pp. 829-859, 2010.
[31]	C. Leuz, K. Lins, and E. Warnock, “Do foreigners invest less in poorly governed firms?”, Review of Financial Studies, Vol. 22, No. 8, pp. 3245-3285, 2009.
[32]	K. Amess, and M. Wright, “Leveraged buyouts, private equity, and jobs, Small Business Economics”, Vol. 38, No. 4, pp. 419-430, 2012.
[33]	N. Bacon, M. Wright, L. Scholes, and M. Meuleman, “Assessing the impact of private equity on industrial relations in Europe”, Human Relations, Vol. 63, No. 9, pp. 1343–1370, 2010.
[34]	C. Weir, P. Jones, and M. Wright, Public to Private Transactions, Private Equity, and Performance in the UK: An empirical analysis of the impact of going private, Online available from http://ssrn.com/abstract=1138616 (accessed 2 August 2013), 2008.
[35]	K. Wruck, “Private equity, corporate governance, and the reinvention of the market for corporate control”, Journal of Applied Corporate Finance, Vol. 20, No. 3, pp. 8–21, 2008.
[36]	M. Goergen, N. O’Sullivan, and G. Wood. “Private equity takeovers and employment in the UK: Some Empirical Evidence”, Corporate Governance: An International Review, Vol. 19, No. 3, pp. 259-275, 2011.
[37]	N. Bacon, M. Wright, and N. Demina, “Management buyouts and human resource management”, British Journal of Industrial Relations, Vol. 42, No. 2, pp. 325–347, 2004.
[38]	H. Bruining, P. Boselie, M. Wright, and N. Bacon, “The impact of business ownership change on employee relations: Buyouts in the UK and the Netherlands”, The International Journal of Human Resource Management, Vol. 16, pp. 345–365, 2005.
[39]	AlixPartners, Staying in the Game: An Outlook on Turnaround and Restructuring in Asia-Pacific 20132, Online available from http://mergermarketgroup.com/wp-content/uploads/2013/06/Staying_in_the_Game_2013.pdf (accessed 26 August 2013), 2013.
[40]	A. Barton, and B. Uhlhorn, The Green Potential for Private Equity: How and Why Private Equity Firms Should Manage Environmental Risks and Opportunities, 1st Edition, Michigan: University of Michigan School of Natural Resources and Environment Master’s Opus 2010.
[41]	G. Tardivo, and M. Viassone, “Crisi d'impresa e processi di turnaround”, in Corporate Finance, G. Tardivo, R. Schiesari, and N. Miglietta, Eds. Turin: Isedi, 2012, pp. 409-428.
[42]	K. DePonte, The Guide to Distressed Debt and Turnaround Investing. Making, Managing and Exiting Investments in Distressed Companies and their securities, London: Private Equity International, 2007.
[43]	D. Jones, “Private Equity’s role in turnarounds, workouts and insolvencies”, Australian Insolvency Journal, Vol. April-June, pp. 6-8, 2007.
[44]	M. Anson, “Trends in private equity”, The Journal of Wealth Management, Vol. 7, No. 3, pp. 84–91, 2004.
[45]	L. Phalippou, and M. Zollo, What Drives Private Equity Fund Performance, Online available from http://fic.wharton.upenn.edu/fic/papers/05/0541.pdf (accessed 26 August 2013), 2005.
[46]	J. Lerner, F. Hardymon, and A. Leamon, Venture Capital and Private Equity: A Casebook, 3rd edition, Hoboken, NJ: John Wiley & Sons, 2004.
[47]	T. Hellmann, and M. Puri, “Venture capital and the professionalization of start-up firms: Empirical evidence”, Journal of Finance, Vol. 57, No. 1, pp. 169-197, 2002.
[48]	J.M. Collard, Recovering Value: Turnaround Management and Distressed Investing Strategies. A Compendium of Articles, 1st Edition, Annapolis, Maryland: Strategic Management Partners Inc., 2010.
[49]	C. Demaria. Introduction to Private Equity. Venture, Growth & Turn-Around Capital, 2nd edition, Chichester, West Sussex, UK: John Wiley & Sons Ltd, 2013.
[50]	J. Vild, and C. Zeisberger, “Strategic buyers vs. private equity buyers in an investment process”, Insead Working Paper, 014/9/DSC/EFE, pp. 1-17, 2014.
[51]	G. Wortche, and T. Nguyen, “The impact of M&A transactions from private equity and hedge funds: Empirical evidence from Austria and Switzerland", Journal of Financial Regulation and Compliance, Vol. 19, No. 1, pp. 45 – 57, 2011.

Cite This Article

Plain Text BibTeX RIS

APA Style

Giuseppe Tardivo, Milena Viassone, Marco Vulpiani. (2014). Rethinking Target’s Private Equity Process in Turnaround Situations. Journal of Investment and Management, 3(3), 42-50. https://doi.org/10.11648/j.jim.20140303.11

Copy | Download

ACS Style

Giuseppe Tardivo; Milena Viassone; Marco Vulpiani. Rethinking Target’s Private Equity Process in Turnaround Situations. J. Invest. Manag. 2014, 3(3), 42-50. doi: 10.11648/j.jim.20140303.11

Copy | Download

AMA Style

Giuseppe Tardivo, Milena Viassone, Marco Vulpiani. Rethinking Target’s Private Equity Process in Turnaround Situations. J Invest Manag. 2014;3(3):42-50. doi: 10.11648/j.jim.20140303.11

Copy | Download

@article{10.11648/j.jim.20140303.11,
  author = {Giuseppe Tardivo and Milena Viassone and Marco Vulpiani},
  title = {Rethinking Target’s Private Equity Process in Turnaround Situations},
  journal = {Journal of Investment and Management},
  volume = {3},
  number = {3},
  pages = {42-50},
  doi = {10.11648/j.jim.20140303.11},
  url = {https://doi.org/10.11648/j.jim.20140303.11},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.jim.20140303.11},
  abstract = {Given the increasing role of PE investments in restructuring the trend of acquisitions, its process needs an organizational change in order to cope with crisis situations. Despite several papers have emphasized the important role of PE both in M&A transactions and in turnaround situations no research crosses these two aspects. This paper bridge this gap, proposing a rethinking of the target’s PE Process in turnaround situations creating value for the target and preparing it for the takeover. This purpose is achieved throughout a literature review and the description of a new PE process throughout the paradigmatic case study of the sport company Brown Ltd. Finally corrective actions are implemented. Results show how a turnaround situation needs a new PE process, developed in 3 main phases (crisis analysis, recover and development) through which it creates value for the target. Main limits consist in the application of the new PE process to a single case study and the lack of an empirical support able to generalize it. The findings help identify drawbacks and set an agenda for future work. This new process could be tested also on other industries and firms of different size, providing a practical adaptation of the PE process in crisis situations and adopted by consulting agencies after testing also its effects in the long term.},
 year = {2014}
}

Copy | Download

TY  - JOUR
T1  - Rethinking Target’s Private Equity Process in Turnaround Situations
AU  - Giuseppe Tardivo
AU  - Milena Viassone
AU  - Marco Vulpiani
Y1  - 2014/09/20
PY  - 2014
N1  - https://doi.org/10.11648/j.jim.20140303.11
DO  - 10.11648/j.jim.20140303.11
T2  - Journal of Investment and Management
JF  - Journal of Investment and Management
JO  - Journal of Investment and Management
SP  - 42
EP  - 50
PB  - Science Publishing Group
SN  - 2328-7721
UR  - https://doi.org/10.11648/j.jim.20140303.11
AB  - Given the increasing role of PE investments in restructuring the trend of acquisitions, its process needs an organizational change in order to cope with crisis situations. Despite several papers have emphasized the important role of PE both in M&A transactions and in turnaround situations no research crosses these two aspects. This paper bridge this gap, proposing a rethinking of the target’s PE Process in turnaround situations creating value for the target and preparing it for the takeover. This purpose is achieved throughout a literature review and the description of a new PE process throughout the paradigmatic case study of the sport company Brown Ltd. Finally corrective actions are implemented. Results show how a turnaround situation needs a new PE process, developed in 3 main phases (crisis analysis, recover and development) through which it creates value for the target. Main limits consist in the application of the new PE process to a single case study and the lack of an empirical support able to generalize it. The findings help identify drawbacks and set an agenda for future work. This new process could be tested also on other industries and firms of different size, providing a practical adaptation of the PE process in crisis situations and adopted by consulting agencies after testing also its effects in the long term.
VL  - 3
IS  - 3
ER  -

Copy | Download

Author Information

Giuseppe Tardivo

Department of Management-University of Turin, Turin, Italy
Milena Viassone

Department of Management-University of Turin, Turin, Italy
Marco Vulpiani

Deloitte Financial Advisory S.r.l., Rome, Italy

Download PDF

Sections

Plain Text BibTeX RIS

APA Style

Giuseppe Tardivo, Milena Viassone, Marco Vulpiani. (2014). Rethinking Target’s Private Equity Process in Turnaround Situations. Journal of Investment and Management, 3(3), 42-50. https://doi.org/10.11648/j.jim.20140303.11

Copy | Download

ACS Style

Giuseppe Tardivo; Milena Viassone; Marco Vulpiani. Rethinking Target’s Private Equity Process in Turnaround Situations. J. Invest. Manag. 2014, 3(3), 42-50. doi: 10.11648/j.jim.20140303.11

Copy | Download

AMA Style

Giuseppe Tardivo, Milena Viassone, Marco Vulpiani. Rethinking Target’s Private Equity Process in Turnaround Situations. J Invest Manag. 2014;3(3):42-50. doi: 10.11648/j.jim.20140303.11

Copy | Download

@article{10.11648/j.jim.20140303.11,
  author = {Giuseppe Tardivo and Milena Viassone and Marco Vulpiani},
  title = {Rethinking Target’s Private Equity Process in Turnaround Situations},
  journal = {Journal of Investment and Management},
  volume = {3},
  number = {3},
  pages = {42-50},
  doi = {10.11648/j.jim.20140303.11},
  url = {https://doi.org/10.11648/j.jim.20140303.11},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.jim.20140303.11},
  abstract = {Given the increasing role of PE investments in restructuring the trend of acquisitions, its process needs an organizational change in order to cope with crisis situations. Despite several papers have emphasized the important role of PE both in M&A transactions and in turnaround situations no research crosses these two aspects. This paper bridge this gap, proposing a rethinking of the target’s PE Process in turnaround situations creating value for the target and preparing it for the takeover. This purpose is achieved throughout a literature review and the description of a new PE process throughout the paradigmatic case study of the sport company Brown Ltd. Finally corrective actions are implemented. Results show how a turnaround situation needs a new PE process, developed in 3 main phases (crisis analysis, recover and development) through which it creates value for the target. Main limits consist in the application of the new PE process to a single case study and the lack of an empirical support able to generalize it. The findings help identify drawbacks and set an agenda for future work. This new process could be tested also on other industries and firms of different size, providing a practical adaptation of the PE process in crisis situations and adopted by consulting agencies after testing also its effects in the long term.},
 year = {2014}
}

Copy | Download

TY  - JOUR
T1  - Rethinking Target’s Private Equity Process in Turnaround Situations
AU  - Giuseppe Tardivo
AU  - Milena Viassone
AU  - Marco Vulpiani
Y1  - 2014/09/20
PY  - 2014
N1  - https://doi.org/10.11648/j.jim.20140303.11
DO  - 10.11648/j.jim.20140303.11
T2  - Journal of Investment and Management
JF  - Journal of Investment and Management
JO  - Journal of Investment and Management
SP  - 42
EP  - 50
PB  - Science Publishing Group
SN  - 2328-7721
UR  - https://doi.org/10.11648/j.jim.20140303.11
AB  - Given the increasing role of PE investments in restructuring the trend of acquisitions, its process needs an organizational change in order to cope with crisis situations. Despite several papers have emphasized the important role of PE both in M&A transactions and in turnaround situations no research crosses these two aspects. This paper bridge this gap, proposing a rethinking of the target’s PE Process in turnaround situations creating value for the target and preparing it for the takeover. This purpose is achieved throughout a literature review and the description of a new PE process throughout the paradigmatic case study of the sport company Brown Ltd. Finally corrective actions are implemented. Results show how a turnaround situation needs a new PE process, developed in 3 main phases (crisis analysis, recover and development) through which it creates value for the target. Main limits consist in the application of the new PE process to a single case study and the lack of an empirical support able to generalize it. The findings help identify drawbacks and set an agenda for future work. This new process could be tested also on other industries and firms of different size, providing a practical adaptation of the PE process in crisis situations and adopted by consulting agencies after testing also its effects in the long term.
VL  - 3
IS  - 3
ER  -

Copy | Download