growth buyout
{{History of private equity and venture capital}}
A growth buyout (GBO) is an acquisition intended to allow an investor or holding company to capitalize on the market growth of a maturing portfolio company.{{Citation |last=Wong |first=Godwin |title=Venture Capital: Catalist for Netrepreneurs |date=2001 |work=E-Business-Management |pages=299–309 |editor-last=Berndt |editor-first=Ralph |url=https://link.springer.com/chapter/10.1007/978-3-642-56707-0_17 |access-date=2025-02-09 |place=Berlin, Heidelberg |publisher=Springer |language=de |doi=10.1007/978-3-642-56707-0_17 |isbn=978-3-642-56707-0|url-access=subscription }}
Characteristics
Growth buyouts often target profitable portfolio companies in industries with a high potential for growth. These acquisitions are financed through a combination of debt and equity. Cambridge Associates defines growth buyouts as being a highly growth oriented form of private equity strategy, in contrast to more leverage-oriented strategies like leveraged buyouts (LBO). The holding company in growth buyout transactions seeks to create revenue growth in the portfolio company by expanding market share.{{Cite book |last=Lenz |first=Richard K. |url=https://books.google.com/books?id=QXw9X_GPfTIC&q=%22growth+buyout%22&pg=PA199 |title=Post-LBO development: Analysis of Changes in Strategy, Operations, and Performance after the Exit from Leveraged Buyouts in Germany |date=2010-03-01 |publisher=Springer Science & Business Media |isbn=978-3-8349-8600-9 |pages=199–200 |language=en}} This model has also been called "buy and build".{{Cite journal |last1=Bacon |first1=Nicolas |last2=Wright |first2=Mike |last3=Demina |first3=Natalia |date=2004 |title=Management Buyouts and Human Resource Management |url=https://onlinelibrary.wiley.com/doi/10.1111/j.1467-8543.2004.00317.x |journal=British Journal of Industrial Relations |language=en |volume=42 |issue=2 |pages=325–347 |doi=10.1111/j.1467-8543.2004.00317.x |issn=1467-8543|url-access=subscription }} Typically this market growth is achieved through strategies like such as acquisitions and the expansion of product lines and distribution.
During a growth buyout, the holding company often acquires a large stake or even a controlling interest in the portfolio company.{{Cite web |date=2024-03-13 |title=Growth Equity: The Child Prodigy of Private Equity and Venture Capital, or an Artifact of Easy Money? |url=https://mergersandinquisitions.com/growth-equity/ |access-date=2025-02-09 |language=en-US}} This focus on management and control differentiates growth buyouts from growth equity, which typically involves minority ownership.{{Cite web |title=Growth Equity–Feeling the L-O-V-E |url=https://www.stepstonegroup.com/wp-content/uploads/2022/10/Growth-Equity-Feeling-the-LOVE.pdf |access-date=2025-02-09 |website=Stepstone |type=PDF}} These buyouts carry a certain amount of risk, as they rely upon the expectation of continued growth in the portfolio company.{{Cite book |last=Bishop |first=Mark |url=https://books.google.com/books?id=i5OEuSqN4u8C&dq=ta+associates+growth+equity&pg=PA68 |title=The Future of Private Equity: Beyond the Mega Buyout |date=2015-12-11 |publisher=Springer |isbn=978-1-137-29586-6 |pages=68–70 |language=en}} In order to be successful, they require operational expertise and the ability to structure financing and acquisitions.{{Cite web |title=An Introduction to Leveraged Buyout Strategies |url=https://publishedresearch.cambridgeassociates.com/wp-content/uploads/2016/02/An-Introduction-to-Leveraged-Buyout-Strategies.pdf |access-date=2025-02-09 |website=Cambridge Associates}}
History
The growth buyout model is often pursued by American and European private equity firms.{{Cite web |last=Chokshi |first=Narendra |date=April 2, 2007 |title=Challenges Faced In Executing Leveraged Buyouts in India: The Evolution of the Growth Buyout |url=https://archive.nyu.edu/bitstream/2451/25939/2/Chokshi.pdf |website=Glucksman Institute for Research in Securities Markets |type=PDF}} Growth buyouts have been observed to correlate with increased employment and employee commitment, due to an increased focus on human resource management intended to drive growth.
Private equity firm TA Associates originally pursued a mixture of early stage and high-growth investments in the 1960s, before shifting to focus exclusively on growth buyouts in the 1980s. Thomas H. Lee Partners acquired Hills Department Store through a growth buyout in 1985, after which the company's sales, operating profit and number of employees grew significantly. The firm acquired J. Baker, Inc. through a growth buyout that same year, increasing its number of stores and licensed sales.{{Cite book |last=Means |first=United States Congress House Committee on Ways and |url=https://books.google.com/books?id=j1phx7qwfOoC&dq=growth+buyouts&pg=PA741 |title=Tax Policy Aspects of Mergers and Acquisitions: Hearings Before the Committee on Ways and Means, House of Representatives, One Hundred First Congress, First Session |date=1989 |publisher=U.S. Government Printing Office |pages=741–743 |language=en}}
Frazier Healthcare Partners created a dedicated growth buyout fund in 2024 with the goal of acquiring middle-market healthcare companies.{{Cite news |last=Cumming |first=Chris |date=2024-11-20 |title=Exclusive {{!}} Frazier Healthcare Partners Hits Fundraising Limit for Latest Vehicle |url=https://www.wsj.com/articles/frazier-healthcare-partners-hits-fundraising-limit-for-latest-vehicle-7db8af52 |url-access=subscription |access-date=2025-04-06 |work=Wall Street Journal |language=en-US |issn=0099-9660}} The joint venture Accel-KKR has historically pursued growth buyout strategies,{{Cite book |last1=Sheshinski |first1=Eytan |url=https://books.google.com/books?id=5OcSEAAAQBAJ&dq=accel+kkr+growth+investment&pg=PA326 |title=Entrepreneurship, Innovation, and the Growth Mechanism of the Free-Enterprise Economies |last2=Strom |first2=Robert J. |last3=Baumol |first3=William J. |date=2021-03-09 |publisher=Princeton University Press |isbn=978-0-691-22764-1 |pages=326 |language=en}} especially those focused on technology and software companies such as Energy Services Group,{{Cite web |last=Joseph |first=Irien |date=2023-06-12 |title=Accel-KKR-backed Energy Services Group acquires Pandell |url=https://www.pehub.com/accel-kkr-backed-energy-services-group-acquires-pandell/ |access-date=2025-04-06 |website=PE Hub |language=en-US}} healthcare technology company VisiQuate,{{Cite web |last=Joseph |first=Irien |date=2024-11-25 |title=Accel-KKR-backed Vitu buys Dealertrack registration and titling businesses |url=https://www.pehub.com/accel-kkr-backed-vitu-buys-dealertrack-registration-and-titling-businesses/ |access-date=2025-04-06 |website=PE Hub |language=en-US}} fraud prevention and transaction management platform Accertify,{{Cite web |title=Accel-KKR to acquire American Express' Accertify |url=https://thepaypers.com/digital-identity-security-online-fraud/accel-kkr-to-acquire-american-express-accertify--1266326 |access-date=2025-04-06 |website=thepaypers.com |language=en}} and vehicle-to-government technology company Vitu.{{Cite web |last=Joseph |first=Irien |date=2024-11-25 |title=Accel-KKR-backed Vitu buys Dealertrack registration and titling businesses |url=https://www.pehub.com/accel-kkr-backed-vitu-buys-dealertrack-registration-and-titling-businesses/ |access-date=2025-04-06 |website=PE Hub |language=en-US}} Technology industry company Metropolis Technologies is also known for adopting a growth buyout model, such as its acquisition of the publicly traded company SP Plus Corporation which was taken private by Metropolis in 2024.{{Cite web |date=2024-06-17 |title=Metropolis, Eyeing Growth, Closes $1.5B Deal for Parking Company |url=https://labusinessjournal.com/featured/metropolis-eyeing-growth-closes-1-5b-deal-for-parking-company/ |access-date=2025-04-06 |website=Los Angeles Business Journal |language=en-US}} Other firms associated with growth buyouts include General Atlantic,{{Cite web |date=2024-03-13 |title=Growth Equity: The Child Prodigy of Private Equity and Venture Capital, or an Artifact of Easy Money? |url=https://mergersandinquisitions.com/growth-equity/ |access-date=2025-04-05 |language=en-US}} which launched its eighth growth fund in 2024, with an $8 billion goal.{{Cite web |last=Falconer |first=Kirk |date=2024-06-12 |title=General Atlantic launches eighth flagship growth fund with $8bn target |url=https://www.buyoutsinsider.com/general-atlantic-launches-eighth-flagship-growth-fund-with-8bn-target/ |access-date=2025-04-06 |website=Buyouts |language=en-US}}