Growth buyout

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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] 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]

See also

References

  1. ↑ Wong, Godwin (2001), Berndt, Ralph (ed.), "Venture Capital: Catalist for Netrepreneurs", E-Business-Management (in German), 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. ↑ 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.
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