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This paper iestigates inorganic growth strategies in PE buyouts where the portfolio firm, which has been acquired in the initial buyout, serves as a platform for subsequent add-on acquisitions. We analyze a comprehensive sample of 9,548 buyouts and 4,937 add-on acquisitions spanning 16 years of buyout activity in 86 countries. We find that probability for add-on acquisitions is high if the PE sponsor is experienced and has reputational capital, if the portfolio firm is large, has M&A experience at entry and operates in an industry with moderate degree of fragmentation, as well as in case of favorable financing conditions. Similar factors also explain higher add-on productivity and faster add-on execution. On average, cross border/industry diversifying inorganic growth strategies are most likely if the portfolio company already draws upon international/inter-industrial M&A experience at entry and if the PE sponsor frequently iests across border/industries. Furthermore, our results indicate that add-on acquisitions increase the probability for exiting through IPO and secondary buyout. The effect on secondary buyouts is driven by deals where the subsequent PE owner continues the inorganic growth strategy of the previous buyout.
Zahlreiche Politiker sehen die Reduktion der steuerlichen Abzugsfähigkeit von Zinsaufwendungen als probates Mittel, um die Anreize von Private Equity Unternehmen zur Verwendung von Fremdkapital bei ihren Portfolio-Unternehmen zu reduzieren. Die Autoren zeigen in diesem Beitrag, dass der Effekt einer Kürzung fremdfinanzierungs-bedingter Steuervorteile auf die Performance von Private Equity Iestitionen keineswegs eindeutig ist: Der Wegfall der Steuerersparnis beeinflusst nicht nur die Cash Flows während der Haltedauer, sondern auch auf den Einstiegs- und Ausstiegspreis des Private Equity Iestors.
Politicians and the public blame private equity (PE) firms to receive disproportionately high tax benefits due to the tax-deductibility of interest. In this paper we analyze the contribution of these tax shields to PE performance. Based on a simple model we identify two important drivers of the performance impact: the debt levels of past, current and future owners of the portfolio firm and the negotiation power of buyer and seller at the entry and the exit transaction. Differentiating between financial and strategic iestors with respect to their target debt levels and combining with entry and exit transaction, we define four different cases to be analyzed. Our results point towards a moderate impact of the tax benefits on performance. Only in one out of four cases we find evidence for a significant positive contribution. The reason for this moderate effect is that a significant part of the realized tax savings is already contained in the PE firm´s entrance price and thus paid upfront to the vendors of the portfolio firms. Based on a large sample of more than 4000 deal cycles we find the positive performance case to account for roughly one third of all cases.
A copy of this doctoral thesis can be obtained on account from the HHL Library. Please send your request indicating the delivery address to: library(at)hhl.de._x000D_ For packaging and postage we request an advance payment of EUR 5.00 for deliveries within Germany or EUR 20.00 for international orders.
We study add-on acquisitions of portfolio _x000C_firms based on a world-wide data sample covering 9,548 buyouts between 1997 and 2012. We _x000C_find that add-ons have become increasingly relevant, but activity is concentrated among a few PE sponsors. Further, our results suggest that synergies are important when pursuing add-on acquisitions. We show that portfolio _x000C_firms initiate acquisitions early to realize synergies until the exit. Lastly we identify determinants that increase the likelihood of add-ons for a particular buyout. Our _x000C_findings help academia and practice to understand inorganic growth in buyouts, which is important given the aging of the industry.