Growth buyout

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.[1]

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.[2] This model has also been called "buy and build".[3] 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.[4] This focus on management and control differentiates growth buyouts from growth equity, which typically involves minority ownership.[5] These buyouts carry a certain amount of risk, as they rely upon the expectation of continued growth in the portfolio company.[6] In order to be successful, they require operational expertise and the ability to structure financing and acquisitions.[7]

History

The growth buyout model is often pursued by American and European private equity firms.[8] 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.[3]

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.[6] 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.[9]

Frazier Healthcare Partners created a dedicated growth buyout fund in 2024 with the goal of acquiring middle-market healthcare companies.[10] The joint venture Accel-KKR has historically pursued growth buyout strategies,[11] especially those focused on technology and software companies such as Energy Services Group,[12] healthcare technology company VisiQuate,[13] fraud prevention and transaction management platform Accertify,[14] and vehicle-to-government technology company Vitu.[15] 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.[16] Other firms associated with growth buyouts include General Atlantic,[17] which launched its eighth growth fund in 2024, with an $8 billion goal.[18]

See also

• Management buyout
• Divisional buyout