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

  • 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.

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Document Type:Article
Author:Benjamin HammerORCiD, Nikolaus Marcotty-DehmORCiD, Denis SchweizerORCiD, Bernhard SchwetzlerORCiD
Chairs and Professorships:Chair of Financial Management
Parent Title (English):Journal of Corporate Finance
Issue:December 2022
Article Number:102285
Year of first Publication:2022
Tag:Add-on; Leveraged buyout; M&A; Multiple expansion; Tuck-in
Content Focus:Academic Audience
Peer Reviewed:Yes
Rankings:AJG Ranking / 4
VHB Ranking / B
SJR Ranking / Q1
Licence (German):License LogoCreative Commons - CC BY - Namensnennung 4.0 International