Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/88121
Authors: 
Borell, Mariela
Heger, Diana
Year of Publication: 
2013
Series/Report no.: 
ZEW Discussion Papers 13-094
Abstract: 
This article documents a new value creation function of private equity investors who carry out buy-and-build strategies. Buy-and-build strategies constitute an initial acquisition of a firm, serving as a 'platform', by a private equity investor and follow-on private equity-backed acquisitions ('add-ons'). The investor merges the platform and add-ons into a single entity. Additionally to the selection of well performing firms by the investors prior to the transaction, we identify value-enhancing potentials which private equity investors explore through buy-and-builds. The investors bring together platforms with lower capacity utilization and lower returns, and add-ons with higher utilization and higher returns in order to allocate resources and capacity more efficiently and to improve firms' performance. However, the buy-and-build strategies only have a positive impact on the profitability of firms with increasing industry adjusted utilization. Consequently the more efficient deployment of assets for the generation of sales drives the improved performance after buy-and-builds.
Subjects: 
Private Equity
Buy-and-Build
JEL: 
G24
G34
L14
Document Type: 
Working Paper

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