Pricing and Value Creation in Private Equity-backed Buy-and-Build Strategies

68 Pages Posted: 23 Sep 2018 Last revised: 1 Mar 2023

See all articles by Benjamin Hammer

Benjamin Hammer

Lancaster University - Department of Accounting and Finance

Nikolaus Marcotty-Dehm

HHL Leipzig Graduate School of Management

Denis Schweizer

Concordia University

Bernhard Schwetzler

HHL Leipzig Graduate School of Management - Department of Finance

Date Written: August 31, 2022

Abstract

We investigate the pricing and value creation in private equity-backed buy-and-build (B&B) strategies using a sample of 3,399 buyouts between 1997-2020 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.

Keywords: Leveraged buyout; M&A; add-on; tuck-in, multiple expansion

JEL Classification: G23, G24, G32, G34

Suggested Citation

Hammer, Benjamin and Marcotty-Dehm, Nikolaus and Schweizer, Denis and Schwetzler, Bernhard, Pricing and Value Creation in Private Equity-backed Buy-and-Build Strategies (August 31, 2022). Journal of Corporate Finance, Vol. 77, December 2022, 102285, Available at SSRN: https://ssrn.com/abstract=3244189 or http://dx.doi.org/10.2139/ssrn.3244189

Benjamin Hammer (Contact Author)

Lancaster University - Department of Accounting and Finance ( email )

Lancaster, Lancashire LA1 4YX
United Kingdom

Nikolaus Marcotty-Dehm

HHL Leipzig Graduate School of Management ( email )

Jahnallee 59
Leipzig, 04109

Denis Schweizer

Concordia University ( email )

1455 de Maisonneuve Blvd. W.
Montreal, Quebec H3G 1M8
Canada
+1 (514) 848-2424 ext. 2926 (Phone)
+1 (514) 848-4500 (Fax)

HOME PAGE: http://www.concordia.ca/jmsb/faculty/denis-schweizer.html

Bernhard Schwetzler

HHL Leipzig Graduate School of Management - Department of Finance ( email )

Jahnallee 59
D-04109 Leipzig
Germany
+49-341-9851-685 (Phone)
+49-341-9851-689 (Fax)

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
912
Abstract Views
3,841
Rank
48,085
PlumX Metrics