Pricing and value creation in private equity-backed buy-and-build strategies

Benjamin Hammer, Nikolaus Marcotty-Dehm, Denis Schweizer and Bernhard Schwetzler

Journal of Corporate Finance, 2022, vol. 77, issue C

Abstract: We investigate the pricing and value creation in private equity-backed buy-and-build (B&B) strategies using a sample of 3399 buyouts between 1997 and 2020 as well as proprietary performance data. We find that private equity firms pay sizable premiums for B&B platforms. The transaction multiples are similar to those paid by strategic acquirers for matched targets. Despite paying high premiums, private equity firms generate above-average equity returns in B&B strategies. This is because of both higher top-line growth and multiple expansion. To back up our empirical results and shed light on decision-making in B&B strategies, we present evidence from the field. Survey results from 32 interviews with private equity managers provide novel insights into B&B rationale, valuation practices, pricing, value creation, acquisition processes and execution.

Keywords: Leveraged buyout; M&A; Add-on; Tuck-in; Multiple expansion (search for similar items in EconPapers)
JEL-codes: G23 G24 G32 G34 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:77:y:2022:i:c:s0929119922001286

DOI: 10.1016/j.jcorpfin.2022.102285

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