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
Research Objectives and Key Themes
This thesis investigates how private equity (PE) firms contribute to the post-acquisition integration process within buy and build strategies. It explores the cooperation between PE firms and portfolio company management, focusing on how they handle task and affective conflicts and exercise management control to drive value creation.
- The role of active ownership in PE-backed buy and build strategies.
- The distinction and interaction between task integration and human integration.
- The influence of PE firm capabilities on the integration process.
- Conflict resolution and management control mechanisms in portfolio companies.
- The impact of investment horizon and exit value expectations on integration strategy.
Excerpt from the Book
Task integration
Ex-post of the acquisition, the integration of business functions oftentimes represents a large part of the integration efforts and is planned and supported by the PE firm. Especially sales, marketing, or sourcing functions (particularly low-cost sourcing in Asian countries) are regularly integrated and centralized. This finding relates to Proposition 3 and Proposition 4. Proposition 3 states that PE firms initiate task integration, which Firm 1 does by planning and supporting the integration of business functions, which is also in accordance with Proposition 4. The firm does not get actively involved in integrating business processes. It argues that the platform company has more detailed knowledge of these processes and thus better capabilities to integrate them. However, the PE firm offers project management support to these integration tasks at no charge by providing its own consultants with operational experience. This can take the form of strategic plans outlined by the consultants with control exercised through regular meetings. If key capabilities (especially of technical nature, e.g. IT) are lacking on both sides, the PE firm and the management oftentimes agree to seek outside help via external management consultants or by hiring new people.
Summary of Chapters
1 Introduction: Introduces the shift in private equity toward buy and build strategies and identifies the research gap regarding PE firm contribution to post-acquisition integration.
2 Literature review: Reviews existing theories including the resource-based view, agency theory, and previous studies on post-acquisition integration to contextualize the research.
3 Problem definition and research questions: Outlines the research focus and defines specific questions regarding PE firm involvement in integration and conflict management.
4 Framework and propositions: Establishes a theoretical framework for integration management and presents working propositions to be tested.
5 Research design: Describes the explanatory, theory-building case study methodology employed for the study.
6 Data collection: Details the four key data sources, including documentations, archives, databases, and interviews, used for empirical evidence.
7 Case study results: Provides a detailed within-case analysis of three PE firms and one portfolio company, followed by an across-case comparison.
8 Discussion: Evaluates the findings against the initial propositions, discusses necessary revisions, and highlights the relevance for academia and practitioners.
9 Conclusion: Summarizes the research findings, notes limitations, and suggests future research directions.
Keywords
Private Equity, Management Buyouts, Buy and Build Strategy, Post-Acquisition Integration, Active Ownership, Task Integration, Human Integration, Value Creation, Resource-Based View, Strategic Management, Portfolio Company, Conflict Resolution, Management Control, Exit Value, Operational Engineering.
Frequently Asked Questions
What is the core focus of this research?
This research focuses on how private equity firms contribute to post-acquisition integration during buy and build strategies in management buyouts, a process critical to value creation that has received little academic attention.
What are the primary thematic areas explored in the thesis?
The study explores active ownership, the roles of PE firms in task and human integration, the impact of PE firm capabilities on operational support, and how management control and conflict resolution are navigated.
What is the primary research goal?
The goal is to determine how PE firms contribute to the post-acquisition integration process and to understand how they cooperate with portfolio management regarding task and affective conflicts.
Which scientific methodology is used?
The paper employs an explanatory, theory-building case study design, analyzing four distinct cases to test and refine working propositions based on literature.
What is covered in the main section of the paper?
The main section covers a literature review, the development of a framework for integration management, empirical testing of working propositions through case studies, and a discussion on how capabilities drive PE contributions.
Which keywords best characterize this work?
Key terms include Private Equity, Buy and Build Strategy, Post-Acquisition Integration, Active Ownership, and Resource-Based View.
How does the investment horizon influence integration?
The research suggests that because PE firms often have a limited investment horizon (4-6 years), they favor task integration that creates quick wins for exit value, often neglecting slower, long-term human integration.
Why do some PE firms struggle with integration?
The study finds that PE firms often lack internal operational expertise (as they are primarily finance-driven), which can lead them to adopt a hands-off approach or rely heavily on external consultants rather than integrating processes themselves.
- Arbeit zitieren
- Moritz Breuninger (Autor:in), 2013, Buy and Build Strategies in Management Buyouts, München, GRIN Verlag, https://www.hausarbeiten.de/document/265503
