Buy and Build: The New PE Model for a Post-Crisis World
February 26, 2014
When private equity was coming of age, the use of leverage and financial engineering was often more than enough to drive returns. The perceived ease of private equity success enticed a wide range of new players into the asset class through the 1990s and 2000s, with the more well-connected investors touting their access to “proprietary deal flow” as a key differentiator. Now that the industry is mature, PE firms have come to grips with the fact that the fundamentals of PE investing have changed in a systemic way.
A common theme among investors in recent years has been a heightened focus on businesses with strong growth prospects, as opposed to struggling companies that need to be turned around. Growth equity deals, where an investor makes a minority investment to fuel expansion, are becoming increasingly common for firms that traditionally focused on large buyout deals. But the more significant development—and one that appears to be a long-term shift in the PE model—is the rise of add-on deals and the so-called buy-and-build model.
To learn more about the buy-and-build strategy and recent changes in the PE industry, click here.