Reassessing the Practical and Theoretical Influence of Entrepreneurship Through Acquisition

Hunt, R. A. and Fund, B.R. (2012) Reassessing the Practical and Theoretical Influence of Entrepreneurship Through Acquisition Journal of Entrepreneurial Finance Volume 16, Number 1, Spring 2012 29-56. ISSN: 1551-9570

28 Pages Posted: 14 Sep 2012 Last revised: 30 Apr 2014

See all articles by Richard Hunt

Richard Hunt

Virginia Polytechnic Institute

Bret Fund

University of Colorado at Boulder

Date Written: September 13, 2012

Abstract

This paper presents a long overdue reassessment of entrepreneurship through acquisition (ETA). Traditionally considered simply a niche occurrence of small company leveraged buyouts (LBO), ETA is actually a meaningful contributor to a nation’s entrepreneurial capacity and business revitalization. Scholarly understanding of ETA has been severely limited by three factors: the paucity of data related to entrepreneurial acquisitions, the tendency to equate entrepreneurship primarily with new venture creation, and the reliance upon explanatory models for buyouts that are grounded in narrowly conceived notions of 1980s-era, large-scale, hyper-leveraged LBOs. Prior efforts to conceptualize all buyouts based on the large LBO model and through the lens of agency theory have severely restricted the ability of scholars to look past the buyout model motivated by financial reengineering gains to see instead the entrepreneurial aims and outcomes often associated with buyouts, particularly ETA. In order to situate ETA more fruitfully in the domain of entrepreneurship finance, we take issue with the conventional agency theory framing and offer instead an explanatory model for ETA involving entrepreneurial intent and novel financing. To overcome the data scarcity problems and to bring the characteristics of ETA into sharper relief, we present testable propositions side-by-side with data from search funds, a specific ETA investment vehicle that substantively replicates the entrepreneurial intents and outcomes of ETA. By examining the theoretical streams of LBO and entrepreneurship finance in practical context of search funds, we build a more coherent conceptualization of ETA.

Keywords: entrepreneurship through acquisition, entrepreneurial finance, search funds, buyouts, buyins

Suggested Citation

Hunt, Richard and Fund, Bret, Reassessing the Practical and Theoretical Influence of Entrepreneurship Through Acquisition (September 13, 2012). Hunt, R. A. and Fund, B.R. (2012) Reassessing the Practical and Theoretical Influence of Entrepreneurship Through Acquisition Journal of Entrepreneurial Finance Volume 16, Number 1, Spring 2012 29-56. ISSN: 1551-9570, Available at SSRN: https://ssrn.com/abstract=2146301 or http://dx.doi.org/10.2139/ssrn.2146301

Richard Hunt (Contact Author)

Virginia Polytechnic Institute ( email )

250 Drillfield Drive
Blacksburg, VA 24061
United States

Bret Fund

University of Colorado at Boulder ( email )

1070 Edinboro Drive
Boulder, CO 80309
United States

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