Finance:Growth buyout

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Short description: Type of business acquisition


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] 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" (in de), E-Business-Management, Herausforderungen an das Management (Berlin, Heidelberg: Springer) 8: pp. 299–309, doi:10.1007/978-3-642-56707-0_17, ISBN 978-3-642-56707-0, https://link.springer.com/chapter/10.1007/978-3-642-56707-0_17, retrieved 2025-02-09 
  2. ↑ 2.0 2.1 2.2 2.3 "An Introduction to Leveraged Buyout Strategies". https://publishedresearch.cambridgeassociates.com/wp-content/uploads/2016/02/An-Introduction-to-Leveraged-Buyout-Strategies.pdf. 
  3. ↑ 3.0 3.1 "Growth Equity: The Child Prodigy of Private Equity and Venture Capital, or an Artifact of Easy Money?" (in en-US). 2024-03-13. https://mergersandinquisitions.com/growth-equity/. 
  4. ↑ Lenz, Richard K. (2010-03-01) (in en). 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. https://books.google.com/books?id=QXw9X_GPfTIC&q=%22growth+buyout%22&pg=PA199. 
  5. ↑ 5.0 5.1 Bacon, Nicolas; Wright, Mike; Demina, Natalia (2004). "Management Buyouts and Human Resource Management" (in en). British Journal of Industrial Relations 42 (2): 325–347. doi:10.1111/j.1467-8543.2004.00317.x. ISSN 1467-8543. https://onlinelibrary.wiley.com/doi/10.1111/j.1467-8543.2004.00317.x. 
  6. ↑ "Growth Equity–Feeling the L-O-V-E". https://www.stepstonegroup.com/wp-content/uploads/2022/10/Growth-Equity-Feeling-the-LOVE.pdf. 
  7. ↑ 7.0 7.1 Bishop, Mark (2015-12-11) (in en). The Future of Private Equity: Beyond the Mega Buyout. Springer. pp. 68–70. ISBN 978-1-137-29586-6. https://books.google.com/books?id=i5OEuSqN4u8C&dq=ta+associates+growth+equity&pg=PA68. 
  8. ↑ Chokshi, Narendra (April 2, 2007). "Challenges Faced In Executing Leveraged Buyouts in India: The Evolution of the Growth Buyout". https://archive.nyu.edu/bitstream/2451/25939/2/Chokshi.pdf. 
  9. ↑ Means, United States Congress House Committee on Ways and (1989) (in en). 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. https://books.google.com/books?id=j1phx7qwfOoC&dq=growth+buyouts&pg=PA741. 
  10. ↑ Cumming, Chris (2024-11-20). "Exclusive | Frazier Healthcare Partners Hits Fundraising Limit for Latest Vehicle" (in en-US). Wall Street Journal. ISSN 0099-9660. https://www.wsj.com/articles/frazier-healthcare-partners-hits-fundraising-limit-for-latest-vehicle-7db8af52. 
  11. ↑ Sheshinski, Eytan; Strom, Robert J.; Baumol, William J. (2021-03-09) (in en). Entrepreneurship, Innovation, and the Growth Mechanism of the Free-Enterprise Economies. Princeton University Press. pp. 326. ISBN 978-0-691-22764-1. https://books.google.com/books?id=5OcSEAAAQBAJ&dq=accel+kkr+growth+investment&pg=PA326. 
  12. ↑ Joseph, Irien (2023-06-12). "Accel-KKR-backed Energy Services Group acquires Pandell" (in en-US). https://www.pehub.com/accel-kkr-backed-energy-services-group-acquires-pandell/. 
  13. ↑ Joseph, Irien (2024-11-25). "Accel-KKR-backed Vitu buys Dealertrack registration and titling businesses" (in en-US). https://www.pehub.com/accel-kkr-backed-vitu-buys-dealertrack-registration-and-titling-businesses/. 
  14. ↑ "Accel-KKR to acquire American Express' Accertify" (in en). https://thepaypers.com/digital-identity-security-online-fraud/accel-kkr-to-acquire-american-express-accertify--1266326. 
  15. ↑ Joseph, Irien (2024-11-25). "Accel-KKR-backed Vitu buys Dealertrack registration and titling businesses" (in en-US). https://www.pehub.com/accel-kkr-backed-vitu-buys-dealertrack-registration-and-titling-businesses/. 
  16. ↑ "Metropolis, Eyeing Growth, Closes $1.5B Deal for Parking Company" (in en-US). 2024-06-17. https://labusinessjournal.com/featured/metropolis-eyeing-growth-closes-1-5b-deal-for-parking-company/. 
  17. ↑ "Growth Equity: The Child Prodigy of Private Equity and Venture Capital, or an Artifact of Easy Money?" (in en-US). 2024-03-13. https://mergersandinquisitions.com/growth-equity/. 
  18. ↑ Falconer, Kirk (2024-06-12). "General Atlantic launches eighth flagship growth fund with $8bn target" (in en-US). https://www.buyoutsinsider.com/general-atlantic-launches-eighth-flagship-growth-fund-with-8bn-target/. 

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