The Private Equity (PE) model is going through significant changes right now. A case in point was the creation of Emerald Media by PE firm KKR which is now an equity-based platform. This kind of a platform horizontally merges a few sector-specific investments, known as “add-on” deals. Emerald consisted of the combined synergies of CA Media, Yupp TV and Amagi Media. CA which was the focal investment enabled distribution through its wide reach, Yupp had an excellent technology platform, while Amagi is known for its top-notch content. This sort of “buy and build” model is rare but catching on. This business innovationis in stark contrast to the traditional leveraged buyout which aims at almost instant gains. Matching operational synergies is now being taken seriously by PE heads, as opposed who believe in the financial role in buyouts. Fund managers now realize that these platforms may be differentiators if managed well. Building a platform works when a PE already has investments in field it wants to create one on. More options are generated when the investments are in widely differing fields. It is also a sign of “exploration propensity”, always a sign of opportunities to be tapped. No wonder, the big four were the first to mainstream into such platforms.

Source:https://knowledge.insead.edu/economics-finance/business-model-innovation-comes-to-private-equity-9211

Uploaded Date:05 June 2018