Buy and Build Strategies in Management Buyouts

Post-Acquisition Integration and the Contribution of Private Equity Firms

Master's Thesis , 2013 , 58 Pages , Grade: 7,5

Business economics - Business Management, Corporate Governance

Recent changes in the market for private equity have led investors to shift their attention away from market beta and towards generating alpha through the exploration of growth opportunities. PE firms increasingly use active ownership to implement these new growth plans. Buy and build strategies have emerged as a feasible and lucrative strategy of active ownership. The add-on acquisitions required when pursuing this strategy and the need to
create value through synergistic effects necessitate post-acquisition integration efforts. Despite its relevance, researchers in the field of strategic management and finance have paid little attention to buy and build strategies. Moreover, they have yet to bridge the findings by scholars and practitioners on post-acquisition integration and active ownership. This paper seeks to fill this gap by answering the research question of how PE firms contribute to the integration process and how they handle task and affective conflicts and exercise management control with regard to the cooperation between the PE firm and the management
of the portfolio company.
Previous work has linked active ownership to capabilities and found that prior business experience is a strong predictor of active ownership, meaning a high level of contribution by the investment firm. This paper complements this work by analyzing active ownership of
private equity firms in the context of post-acquisition integration in buy and build strategies and finds a direct link between capabilities and active ownership through four explanatory theory-building case studies. Birkinshaw et al. (2000)’s study on post-acquisition integration is used as a guiding concept in this paper. They distinguish between task integration, which is
defined as the identification and realization of operational synergies, and human integration, which is defined as the creation of positive attitudes towards the integration and shared identity among employees. This paper creates a practical Framework for Integration
Management on this notion and extends it by additional academic literature and relevant studies of consulting firms. A number of working propositions are derived from the literature and linked to the framework. Each proposition is then tested through within-case analysis and across-case comparison. Based on the evidence, three propositions are revised or extended whereas six propositions are supported. [...]

Table of Contents

1 Introduction

2 Literature review
2.1 The resource-based view as theoretical lens
2.2 Private equity-backed buyouts
2.3 Buy and build strategies
2.4 Added value of PE investment and active ownership
2.5 Post-acquisition integration

3 Problem definition and research questions

4 Framework and propositions
4.1 A framework for integration management
4.2 Working propositions

5 Research design

6 Data collection

7 Case study results
7.1 Case study 1 (PE)
7.2 Case study 2 (PE)
7.3 Case study 3 (PE)
7.4 Case study 4 (portfolio company)
7.5 Across-case comparison

8 Discussion
8.1 Extension and revision of propositions
8.2 Relevance of findings

9 Conclusion
9.1 Limitations
9.2 Further research

References

Appendices

Appendix I: Semi-structured interview questions

Appendix II: Summary of case study results

• College: Erasmus University Rotterdam (Strategic Management)
• Grade: 7,5
• Author: Moritz Breuninger (Author)
• Publication Year: 2013
• Pages: 58
• Catalog Number: V265503
• ISBN (eBook): 9783656551850
• ISBN (Book): 9783656551928
• Language: English
• Tags: build, strategies, management, buyouts, post-acquisition, integration, contribution, private, equity, firms