استراتژی های رشد  و تکامل مدل کسب و کار خصوصی سهام  Inorganic growth strategies and the evolution of the private equity business model

1 Introduction ”The glory days of private equity are over: too many funds are chasing too few opportunities, and many of those will be too expensive. It won’t end well.” The Wall Street Journal, March 29, 2015 Many observers of the private equity (PE) industry notice that the business model has undergone significant change in recent years. Traditionally, PE managers generated return through a combination of buying low/selling high, de-leveraging of highly indebted portfolio firms and governance improvements (e.g. Gompers et al., 2016; Guo et al., 2011; Kaplan and Str¨omberg, 2009). These value creation levers have come under pressure though. Increasing capital commitments to PE by institutional investors and healthy mergers and acquisitions (M&A) markets have led to more competition for deals, increasing valuations and greater fluctuation of returns (Braun et al., 2017). Access to cheap financing has furthermore proven to be volatile and, if available, it has not been a distinct source of value creation (Axelson et al., 2013). Governance improvements, finally, are more difficult to achieve as many firms advanced their governance standards in comparison to the early days of the PE industry (Kaplan, 1997). In light of the current state of the PE sector, Braun et al. (2017) argue that traditional value creation levers increasingly commoditize and, in line with this, there is a growing number of industry reports discussing the evolution of value creation strategies in PE.1 In this paper, we study a recently evolving value creation strategy in the PE sector where the portfolio firm, which has been acquired in the initial buyout, serves as a platform for subsequent add-on acquisitions – so called ”inorganic growth” or ”buy and build” strategies. Our comprehensive sample of 9,548 buyouts, spanning 16 years of buyout activity between 1997 and 2012 in 86 countries, clearly shows that these strategies have become a relevant phenomenon in the PE market. We observe 2,497 deals with at least one and up to 18 subsequent add-onacquisitions and, in sum, 4,937 add-on acquisitions during the sample period. These numbers support previous survey results by The Boston Consulting Group which suggest that the use of M&A has become the single most important way to improve operations in PE buyouts.2 Despite the relevance of inorganic growth strategies for the PE market, there has been very limited research up to date and the few existing studies focus on small-scale evidence on the return potential of add-on acquisitions. Nikoskelainen and Wright (2007) and Valkama et al. (2013) find that deals with add-on acquisitions outperform those without in terms of internal rate of return (IRR) using a sample of 321 UK buyouts. Acharya et al. (2013) document outperformance of deals with add-on acquisitions in terms of margin and multiple improvement for a sample of 395 Western European deals. While these studies provide evidence for the attractiveness of inorganic growth strategies, they do not enhance our understanding of the add-on acquisition market and how such acquisitions affect decision-making at the PE sponsor level. Thus, at least three important questions have been unanswered so far: (i) What are systematic drivers of add-on acquisitions at the buyout, portfolio firm, PE sponsor and industry/economy level?; (ii) Which firm-level characteristics affect the probability for cross border/industry diversifying add-on acquisitions?; and (iii) How do add-ons affect the choice of the exit channel? This paper aims at answering these research questions.