Growth buyout
A growth buyout is an acquisition intended to allow an investor or holding company to capitalize on the market growth of a maturing portfolio company.
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. The holding company in growth buyout transactions seeks to create revenue growth in the portfolio company by expanding market share. This model has also been called "buy and build". 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. This focus on management and control differentiates growth buyouts from growth equity, which typically involves minority ownership. These buyouts carry a certain amount of risk, as they rely upon the expectation of continued growth in the portfolio company. In order to be successful, they require operational expertise and the ability to structure financing and acquisitions.
History
The growth buyout model is often pursued by American and European private equity firms. 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.
Frazier Healthcare Partners created a dedicated growth buyout fund in 2024 with the goal of acquiring middle-market healthcare companies. The joint venture Accel-KKR has historically pursued growth buyout strategies, especially those focused on technology and software companies such as Energy Services Group, healthcare technology company VisiQuate, fraud prevention and transaction management platform Accertify, and vehicle-to-government technology company Vitu. 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. Other firms associated with growth buyouts include General Atlantic, which launched its eighth growth fund in 2024, with an $8 billion goal.