Growth buyout
| 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
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
- ^ 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
- ^ a b c d "An Introduction to Leveraged Buyout Strategies" (PDF). Cambridge Associates. Retrieved 2025-02-09.
- ^ 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.
- ^ 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.
- ^ 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.
- ^ "Growth Equity–Feeling the L-O-V-E" (PDF). Stepstone (PDF). Retrieved 2025-02-09.
- ^ 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.
- ^ 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).
- ^ 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.
