Inorganic growth strategies and the evolution of the private equity business model

Hammer, B. and Knauer, A. and Pflücke, M. and Schwetzler, B. (2017) Inorganic growth strategies and the evolution of the private equity business model. Journal of Corporate Finance, 45. pp. 31-63. ISSN 0929-1199

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Abstract

This paper investigates inorganic growth strategies in PE buyouts where the portfolio firm, which has been acquired in the initial buyout, serves as a platform for subsequent add-on acquisitions. We analyze a comprehensive sample of 9548 buyouts and 4937 add-on acquisitions spanning 16years of buyout activity in 86 countries. We find that the probability for add-on acquisitions is high if the PE sponsor is experienced and has reputational capital, if the portfolio firm is large, has M&A experience at entry and operates in an industry with moderate degree of fragmentation, as well as in case of favorable financing conditions. Similar factors also explain higher add-on productivity and faster add-on execution. On average, cross-border/industry diversifying inorganic growth strategies are most likely if the portfolio company already draws upon international/inter-industrial M&A experience at entry and if the PE sponsor frequently invests across borders/industries. Furthermore, our results indicate that add-on acquisitions increase the probability for exiting through IPO and secondary buyout. The effect on secondary buyouts is driven by deals where the subsequent PE owner continues the inorganic growth strategy of the previous buyout.

Item Type:
Journal Article
Journal or Publication Title:
Journal of Corporate Finance
Uncontrolled Keywords:
/dk/atira/pure/subjectarea/asjc/1400/1408
Subjects:
ID Code:
150643
Deposited By:
Deposited On:
13 Jan 2021 11:55
Refereed?:
Yes
Published?:
Published
Last Modified:
08 Jun 2021 07:21