Abstract
Purpose of the paper: The goal of this paper is to shed some light about Private Equity General Partners' strategy and actions on a growing and still understudied value creation lever of PE firms: buy-and-build strategy. Methodology: We designed a survey addressing 77 private equity (PE) investors with combined assets under management of more than €1,100 billion. Findings: PE investors rely heavily on this value creation strategy with many of their portfolio companies. The good potential of being a platform is assessed before investing in a new portfolio company and future add-on opportunities are already examined at that moment. Add-ons are smaller firms, usually in the same industry and based in another country, and their assets and operations are acquired by the platform firm. A B&B strategy is therefore akin to a horizontal M&A strategy. Acquisitions of add-ons are mostly financed by the PE sponsor through a capital increase in the platform company. GPs often act as industrial buyers, anticipating future synergies and thus are willing to pay more for add-ons. Integration of different organizations and corporate cultures is seen as the major obstacle. Research limits: We discuss how some PE investors could sometimes provide too many positive answers to show off a more positive industry scenario to their stakeholders, affecting our results. Practical implications: From this paper, private equity professionals, entrepreneurs and other stakeholders are informed about relevant aspects and how to deploy buy-and-build strategy. Moreover, this research has practical implications on general M&A activity. Originality of the study: This paper provides new insights that advance understanding of buy-and-build strategy, being particularly relevant as PE firms typically have limited disclosure requirements and there is a scarcity of publicly available information.