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Buying performance? : the impact of multiple arbitrage in B&B strategies : [working paper]

  • B&B strategies are increasingly popular, with past studies showing them to achieve superior returns. The question of how exactly B&B strategies create value is, however, still a "black box". Relying on a unique and proprietary sample of 161 B&B buyouts with valuation details on related add-on acquisitions, this study is, to the best of our knowledge, the first to decompose EBITDA growth as value driver into the organic, inorganic and the "sourcing" component. The "add-on sourcing effect" thereby considers the reduction of the average entry multiple caused by acquiring smaller firms in add-on transactions at multiples lower than the entry multiple for the platform company and labels the corresponding multiple uplift following the revaluation of add-on acquisitions post-closing. We find this effect to be a significant component of B&B buyout performance, contributing roughly 8% to the equity value CAGR. When eliminating it from the performance measurement, we find B&B outperformance to decrease significantly to the levels of their non-B&B peers. Finally, we find preliminary evidence that potential buyers of the buyout company do not seem to differentiate between the different sources of EBITDA growth.

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Document Type:Working Paper
Author:Philipp Heisig, Jonas Kick, Bernhard SchwetzlerORCiD
Chairs and Professorships:Chair of Financial Management
Page Number:64
Year of first Publication:2022
Tag:Buy-and-build; Equity value CAGR; Multiple arbitrage; Private equity; Value creation
Content Focus:Academic Audience
Licence (German):License LogoUrheberrechtlich gesch├╝tzt