Private Equity as Strategic Buyers

Abstract

We provide evidence of changes in the private equity (PE) business model from the traditional PE engineering toward focus on growth using the buy-and-build strategies as a setting. In these strategies, a PE firm buys a company and builds on that ``platform” through serial ``add-on" acquisitions. Our novel decomposition methodology compares the combined entities instead of individual firms, and uses artificial replicating strategies as controls. While the traditional engineering practices remain important for growth and efficiency, we demonstrate a new channel of operational improvements, based on synergies between companies.

Keywords: Private Equity, Leveraged Buyouts, Buy-and-Build, Operating Performance, Synergies

JEL Classification: G23, G34, L25