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Growth buyout

From Wikipedia, the free encyclopedia
History of private equity
and venture capital
Early history
(origins of modern private equity)
The 1980s
(leveraged buyout boom)
The 1990s
(leveraged buyout and the venture capital bubble)
The 2000s
(dot-com bubble to the credit crunch)
The 2010s
(expansion)
The 2020s
(COVID-19 recession)

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]

Characteristics

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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

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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

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References

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  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. ^ a b c d "An Introduction to Leveraged Buyout Strategies" (PDF). Cambridge Associates. Retrieved 2025-02-09.
  3. ^ a b "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. ^ a b 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. ^ a b 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.
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