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

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Inorganic growth strategies and the evolution of the private equity business model. / Hammer, B.; Knauer, A.; Pflücke, M.; Schwetzler, B.

In: Journal of Corporate Finance, Vol. 45, 01.08.2017, p. 31-63.

Research output: Contribution to Journal/MagazineJournal articlepeer-review

Harvard

Hammer, B, Knauer, A, Pflücke, M & Schwetzler, B 2017, 'Inorganic growth strategies and the evolution of the private equity business model', Journal of Corporate Finance, vol. 45, pp. 31-63. https://doi.org/10.1016/j.jcorpfin.2017.04.006

APA

Hammer, B., Knauer, A., Pflücke, M., & Schwetzler, B. (2017). Inorganic growth strategies and the evolution of the private equity business model. Journal of Corporate Finance, 45, 31-63. https://doi.org/10.1016/j.jcorpfin.2017.04.006

Vancouver

Hammer B, Knauer A, Pflücke M, Schwetzler B. Inorganic growth strategies and the evolution of the private equity business model. Journal of Corporate Finance. 2017 Aug 1;45:31-63. https://doi.org/10.1016/j.jcorpfin.2017.04.006

Author

Hammer, B. ; Knauer, A. ; Pflücke, M. ; Schwetzler, B. / Inorganic growth strategies and the evolution of the private equity business model. In: Journal of Corporate Finance. 2017 ; Vol. 45. pp. 31-63.

Bibtex

@article{d72f74adadf243668cb24a33abff7ae1,
title = "Inorganic growth strategies and the evolution of the private equity business model",
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.",
keywords = "Leveraged buyout, Mergers and acquisitions, Buy and build, Add-on, Bolt-on",
author = "B. Hammer and A. Knauer and M. Pfl{\"u}cke and B. Schwetzler",
year = "2017",
month = aug,
day = "1",
doi = "10.1016/j.jcorpfin.2017.04.006",
language = "English",
volume = "45",
pages = "31--63",
journal = "Journal of Corporate Finance",
issn = "0929-1199",
publisher = "Elsevier",

}

RIS

TY - JOUR

T1 - Inorganic growth strategies and the evolution of the private equity business model

AU - Hammer, B.

AU - Knauer, A.

AU - Pflücke, M.

AU - Schwetzler, B.

PY - 2017/8/1

Y1 - 2017/8/1

N2 - 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.

AB - 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.

KW - Leveraged buyout

KW - Mergers and acquisitions

KW - Buy and build

KW - Add-on

KW - Bolt-on

U2 - 10.1016/j.jcorpfin.2017.04.006

DO - 10.1016/j.jcorpfin.2017.04.006

M3 - Journal article

VL - 45

SP - 31

EP - 63

JO - Journal of Corporate Finance

JF - Journal of Corporate Finance

SN - 0929-1199

ER -