The 'Next Phase' of Strategic Acquisition

Abstract

There are three well-known phases of leveraged buyouts (LBOs): the initial or classic LBO phase, the breakup value phase and the strategic LBO phase. The start of each of these phases is subjective, but the general phase-by-phase progression seems clear. Following the phase progression through to the present (mid-2015), it seems that we may be entering -- or indeed may already be in -- a new buyout phase, one that takes strategic targets to the proverbial “next level” of performance. This supposition is based on select recent deal activity as well as investor observations regarding the growing need for more integrated levels of operational, investment and financial competencies that, at times, must be deployed simultaneously to identify, close and profit from strategic acquisitions in today’s marketplace. This paper profiles the phase-by-phase progression of buyouts from the classic phase to the proposed “next phase” via theoretical example. Implications of a “next phase” are then discussed via three relatively recent deals that involved highly-performing strategic targets, two of which were, post-acquisition, taken to the proverbial “next level” of performance. The integrated and interactive nature of post-acquisition management is then explored, especially with respect to the dynamics of cash feedback. The paper concludes with a discussion of the competencies required to successfully compete in the “next phase” of strategic acquisition, and the implications for private equity acquirers.

Keywords: Leverage Buyouts, Strategic Acquisition, Deal Financing, Value Realization

JEL Classification: G32, G34, M1