Select Committee on Treasury Written Evidence

Memorandum from Professor Mike Wright and Andrew Burrows, Centre for Management Buy-out Research, Nottingham University Business School


    —  This memorandum responds to the call by the Treasury Select Committee for proposals for a respected capability for providing comprehensive, industry-wide data on the private equity industry.

    —  We believe that a respected capability for Providing Comprehensive, Industry-wide Data on the Private Equity Industry needs to have both the specialist expertise in constructing, maintaining and developing large scale databases, as well as having the validation of analyses by the peer-reviewed process.

    —  We propose that an appropriate capability can be achieved by developing the work of the Centre for Management Buy-out Research which has over 20 years experience in monitoring the private equity and buy-out industry.


  1.  This memorandum responds to the call by the Treasury Select Committee for proposals for a respected capability for providing comprehensive, industry-wide data on the private equity industry.


  2.  CMBOR was founded by what are now Barclays Private Equity and Deloitte in 1986 at Nottingham University, in what is now Nottingham University Business School. Barclays Private Equity and Deloitte continue to provide financial support that helps to fund the research staff. The relationship is at arms' length. CMBOR was founded specifically to monitor buy-outs in a comprehensive and objective way; from the beginning this has covered both private equity backed and non-private equity backed buy-outs. CMBOR is an associate member of the BVCA but is otherwise independent of the BVCA. CMBOR has now developed a wide-ranging and detailed database of over 25,000 buy-outs/buy-ins, which provides the only complete set of data on these transactions in the UK and Continental Europe.

  3.  The founders of CMBOR provide support to build the buy-out database. Their primary interest is in the quarterly trends statistics for which they seek to obtain press/media coverage. CMBOR is regularly referred to in the press as the authoritative source of buy-out data. The number of deals and information fields added to this database each year far exceeds those of other [commercial] databases.

  4.  CMBOR has published and disseminated papers to a wide audience over several years that include the examination of profit growth and other performance measures such as employment[6] and productivity.[7] These could easily be extended to include other measures. CMBOR would be open to collecting additional detailed data on private equity investment activity as appropriate.


  5.  We believe that a respected capability for Providing Comprehensive, Industry-wide Data on the Private Equity Industry needs to have both the specialist understanding of the sector combined with expertise in constructing, maintaining and developing large scale databases on the sector, as well as the validation of analyses by the peer-reviewed process. The latter is especially important to achieve objective, rigorous analyses and if it is difficult to avoid some form of funding of the monitoring body by the industry (see below). CMBOR combines these two elements.

  6.  The rigour of CMBOR is emphasised by Mike Wright, as founder director, being a full time academic (Professor of Financial Studies), wholly funded by the university and who does not receive any remuneration from the sponsors. Wright organised the first conference on private equity and MBOs in 1981, and his PhD in 1985 was on this topic. His initial work on buy-outs was funded by the ESRC and resulted in a number of peer-reviewed papers. On the basis of his academic research in this area, he received an Honorary Doctorate from the University of Ghent and is a visiting professor at Erasmus University and INSEAD. Wright is an editor of the Journal of Management Studies, probably the leading European-based peer-reviewed management journal.[8]

  7.  The original premise for establishing CMBOR at a university was that, having built the database, it would be used to develop rigorous academic studies, typically in collaboration with other full-time university faculty at Nottingham or elsewhere. This generally involves taking the basic data from the CMBOR dataset regarding deal names and combining it with data from other sources, eg the UK government's establishment level survey or the FAME database, etc; this work is generally done by collaborating full-time academics who have no connection with the industry. Currently, CMBOR is collaborating with 20 academics on private equity and buy-out related projects.

  8.  The academic papers have contributed to the wider understanding of buy-outs and private equity over the period since CMBOR was founded. Most recently, findings on the impact of buy-outs and buy-ins on employment, wages and industrial relations have had extensive coverage and it is interesting that the findings have been used by both the industry and the union side to support their cases.

  9.  To date, over 40 peer-reviewed articles have been published by Wright and colleagues on this area, and within the last three years 12 have been published, accepted for publication or are in working paper format. It is most important to stress that the results of this academic work have been published extensively in rigorously peer-reviewed international-level academic journals. Referees and editors have never questioned the nature of the CMBOR database; on the contrary it is generally seen as a valuable source because it is comprehensive and located at a university.

  10.  Although CMBOR informs its founders about what academic activities are being undertaken, the results of which may occasionally be used in press releases, this research agenda is decided solely by the academics. There has never been any attempt to restrict CMBOR's ability to research whatever it wishes from an academic perspective.


  11.  The rigour and objective nature of CMBOR's analysis is reflected in reports and advice provided by CMBOR since its foundation to bodies such as: the National Audit Office in the UK [returns on privatised firms and a report on auditing privatisations by buy-outs], ILO, EBRD, EU, OECD, etc. Most recently, CMBOR wrote a detailed report for the OECD on private equity and buy-outs.[9] CMBOR also during 2007 made presentations on private equity to the Bank of England and has held discussions with Treasury officials regarding private equity.

  12.  CMBOR's data and analysis have been used in recent reports regarding private equity. CMBOR's data was extensively quoted in the 2006 FSA report on private equity. The FSA obtained data from CMBOR on the private equity market that was used in the TSC Vol 1 report on private equity. The quantitative evidence on employment and wages effects of private equity in the Work Foundation report on private equity, which was referred to in the TSC Vol. 1 report, relied very extensively on the studies by Wright and colleagues and specific analyses were provided for the author without charge.


  13.  The Walker Guidelines focused on the largest private equity transactions and therefore do not enable comprehensive, industry-wide monitoring. Although extending coverage to a broader segment of the market raises potential issues about the burden of reporting, it would make for more reliable, meaningful and balanced monitoring of the private equity industry as a whole. In any case, the annual number of large deals completed is quite volatile, with there being few if any very large deals in some years. Extending the collection of data to the mid-market is important in enabling a more balanced view to be obtained, especially in the light of existing evidence of considerable heterogeneity in private equity. For example, there are differences in the employment effects of buy-outs and buy-ins[10] and differences in the extent of post-buyout restructurings and exit timescales according to size and vendor (source) of deal.[11]

  14.  If deals with enterprise value of £100 million and above were included, the total number of deals reviewed in 2006 would be 58 (9% of all deals) valued at £20.6 billion (78% of total market value). Further extending the approach to cover the £50-100 million range would bring in a further 36 deals in 2006. Furthermore if the threshold were lowered to £10 million the total for 2006 would be increased to 196. Therefore, CMBOR believes there is scope to widen monitoring to include mid market buy-outs from, say, a £50 million deal value upwards. CMBOR's database already provides the basis for tracking these deals.

  15.  In comparison with CMBOR, academics do not tend to engage in the collection of primary data on a continuing basis. Rather, they make use either of commercially developed databases [eg Zephyr, Thomson One Banker and Corpfin in the UK and Venture Economics in the U.S.]. An alternative is that some academics make use of government data sources [such as the Bureau of Census data in the U.S.] but as this is typically collected for other purposes, the information relating to private equity can be quite limited. A further option for buy-outs of listed corporations is to make use of publicly available data, but again this covers only a limited subset of the market. These different sources of data may then be combined with other information to create larger datasets.


  16.  The notion of a purely independent body to monitor private equity raises major questions over who will fund it. If such a body receives funding from the industry, it too will be open to criticism that it is not independent. We suggest that a way forward is for an arms' length relationship with the industry that can be achieved by locating a monitoring capability at a university, as is the case with CMBOR.

  17.  The benefit of using CMBOR is that the data are comprehensive and already provide a basis for monitoring. The CMBOR database comprises 25 years of data covering private equity and buy-outs deals across the UK and Europe. CMBOR goes to great lengths to ensure that it obtains as wide and complete a coverage of private equity deals as possible. Unlike commercially available sources, we also include information on confidential deals, engage in more effort to follow deals post-buy-out, and have a network of academic collaborators who are fully independent from the industry who can undertake rigorous analyses. This work also enables CMBOR to compare private equity with non-private equity backed buy-outs (if the data just looked at private equity backed buy-outs this would be a major shortcoming) as well as to compare private equity and buy-outs with firms in general.

  18.  Given that the CMBOR database is already extant it is not clear what would be gained by beginning a new dataset ab initio that would be less complete and that would take several years to build up before any trends could be analysed.

  19.  We suggest that it would be appropriate to explore options whereby the CMBOR database, as the widely acknowledged comprehensive and authoritative holder of deal information, could be used as the source for researchers and other interested parties wishing to conduct analyses of the market. To some extent this occurs already through our wide range of collaborative arrangements but there may be scope for this to be extended.

December 2007

6   Amess, K and Wright, M, 2007. The wage and employment effects of leveraged buyouts in the U.K. International Journal of Economics and Business, forthcoming. Back

7   Harris, R, Siegel, D S and Wright, M, 2005. Assessing the impact of management buyouts on economic efficiency: plant-level evidence from the United Kingdom. The Review of Economics and Statistics, 87, 148-153. Back

8   According to the 2006 ISI rankings, JMS was ranked in 11th position out of 64, the highest ranked European-based journal. Back

9   This report is available from the OECD website or the CMBOR website []. Back

10   Amess and Wright, ibid. Back

11   For a review see: Wright, M, Burrows, A, Ball, R, Scholes, L, Meuleman, M and Amess, K, 2007. The implications of Alternative Investment Vehicles for Corporate Governance: A Survey of Empirical Research, Report prepared for the Steering Group on Corporate Governance. Paris: OECD. Back

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