Growth buyout

Last updated

A growth buyout (GBO) is an acquisition intended to allow an investor or holding company to capitalize on the market growth of a maturing portfolio company. [1]

Contents

Characteristics

Growth buyouts often target profitable portfolio companies in industries with a high potential for growth. These acquisitions are financed through a combination of debt and equity. [2] [3] Cambridge Associates defines growth buyouts as being a highly growth oriented form of private equity strategy, in contrast to more leverage-oriented strategies like leveraged buyouts (LBO). [2] The holding company in growth buyout transactions seeks to create revenue growth in the portfolio company by expanding market share. [4] This model has also been called "buy and build". [5] Typically this market growth is achieved through strategies like such as acquisitions and the expansion of product lines and distribution. [2]

During a growth buyout, the holding company often acquires a large stake or even a controlling interest in the portfolio company. [3] This focus on management and control differentiates growth buyouts from growth equity, which typically involves minority ownership. [6] These buyouts carry a certain amount of risk, as they rely upon the expectation of continued growth in the portfolio company. [7] In order to be successful, they require operational expertise and the ability to structure financing and acquisitions. [2]

History

The growth buyout model is often pursued by American and European private equity firms. [8] Growth buyouts have been observed to correlate with increased employment and employee commitment, due to an increased focus on human resource management intended to drive growth. [5]

Private equity firm TA Associates originally pursued a mixture of early stage and high-growth investments in the 1960s, before shifting to focus exclusively on growth buyouts in the 1980s. [7] Thomas H. Lee Partners acquired Hills Department Store through a growth buyout in 1985, after which the company's sales, operating profit and number of employees grew significantly. The firm acquired J. Baker, Inc. through a growth buyout that same year, increasing its number of stores and licensed sales. [9]

Frazier Healthcare Partners created a dedicated growth buyout fund in 2024 with the goal of acquiring middle-market healthcare companies. [10] The joint venture Accel-KKR has historically pursued growth buyout strategies, [11] especially those focused on technology and software companies such as Energy Services Group, [12] healthcare technology company VisiQuate, [13] fraud prevention and transaction management platform Accertify, [14] and vehicle-to-government technology company Vitu. [15] Technology industry company Metropolis Technologies is also known for adopting a growth buyout model, such as its acquisition of the publicly traded company SP Plus Corporation which was taken private by Metropolis in 2024. [16] Other firms associated with growth buyouts include General Atlantic, [17] which launched its eighth growth fund in 2024, with an $8 billion goal. [18]

See also

References

  1. ↑ Wong, Godwin (2001), Berndt, Ralph (ed.), "Venture Capital: Catalist for Netrepreneurs" , E-Business-Management, Herausforderungen an das Management (in German), vol. 8, Berlin, Heidelberg: Springer, pp. 299–309, doi:10.1007/978-3-642-56707-0_17, ISBN   978-3-642-56707-0 , retrieved 2025-02-09
  2. 1 2 3 4 "An Introduction to Leveraged Buyout Strategies" (PDF). Cambridge Associates . Retrieved 2025-02-09.
  3. 1 2 "Growth Equity: The Child Prodigy of Private Equity and Venture Capital, or an Artifact of Easy Money?". 2024-03-13. Retrieved 2025-02-09.
  4. ↑ Lenz, Richard K. (2010-03-01). Post-LBO development: Analysis of Changes in Strategy, Operations, and Performance after the Exit from Leveraged Buyouts in Germany. Springer Science & Business Media. pp. 199–200. ISBN   978-3-8349-8600-9.
  5. 1 2 Bacon, Nicolas; Wright, Mike; Demina, Natalia (2004). "Management Buyouts and Human Resource Management" . British Journal of Industrial Relations. 42 (2): 325–347. doi:10.1111/j.1467-8543.2004.00317.x. ISSN   1467-8543.
  6. ↑ "Growth Equity–Feeling the L-O-V-E" (PDF). Stepstone (PDF). Retrieved 2025-02-09.
  7. 1 2 Bishop, Mark (2015-12-11). The Future of Private Equity: Beyond the Mega Buyout. Springer. pp. 68–70. ISBN   978-1-137-29586-6.
  8. ↑ Chokshi, Narendra (April 2, 2007). "Challenges Faced In Executing Leveraged Buyouts in India: The Evolution of the Growth Buyout" (PDF). Glucksman Institute for Research in Securities Markets (PDF).
  9. ↑ Means, United States Congress House Committee on Ways and (1989). Tax Policy Aspects of Mergers and Acquisitions: Hearings Before the Committee on Ways and Means, House of Representatives, One Hundred First Congress, First Session. U.S. Government Printing Office. pp. 741–743.
  10. ↑ Cumming, Chris (2024-11-20). "Exclusive | Frazier Healthcare Partners Hits Fundraising Limit for Latest Vehicle" . Wall Street Journal. ISSN   0099-9660 . Retrieved 2025-04-06.
  11. ↑ Sheshinski, Eytan; Strom, Robert J.; Baumol, William J. (2021-03-09). Entrepreneurship, Innovation, and the Growth Mechanism of the Free-Enterprise Economies. Princeton University Press. p. 326. ISBN   978-0-691-22764-1.
  12. ↑ Joseph, Irien (2023-06-12). "Accel-KKR-backed Energy Services Group acquires Pandell". PE Hub. Retrieved 2025-04-06.
  13. ↑ Joseph, Irien (2024-11-25). "Accel-KKR-backed Vitu buys Dealertrack registration and titling businesses". PE Hub. Retrieved 2025-04-06.
  14. ↑ "Accel-KKR to acquire American Express' Accertify". thepaypers.com. Retrieved 2025-04-06.
  15. ↑ Joseph, Irien (2024-11-25). "Accel-KKR-backed Vitu buys Dealertrack registration and titling businesses". PE Hub. Retrieved 2025-04-06.
  16. ↑ "Metropolis, Eyeing Growth, Closes $1.5B Deal for Parking Company". Los Angeles Business Journal. 2024-06-17. Retrieved 2025-04-06.
  17. ↑ "Growth Equity: The Child Prodigy of Private Equity and Venture Capital, or an Artifact of Easy Money?". 2024-03-13. Retrieved 2025-04-05.
  18. ↑ Falconer, Kirk (2024-06-12). "General Atlantic launches eighth flagship growth fund with $8bn target". Buyouts. Retrieved 2025-04-06.
This page is based on this Wikipedia article
Text is available under the CC BY-SA 4.0 license; additional terms may apply.
Images, videos and audio are available under their respective licenses.