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Business Model Innovation Comes To Private Equity

News from INSEAD

“When PE giant KKR created Emerald Media, a $300 million equity-based platform, in late 2015, its investment model exemplified a stark contrast to the traditional PE investment strategy of a standalone buyout, re-structure and exit.

“A ‘platform’ consists of a horizontal merger of two or three sector-specific investments, called ‘add-on’ deals. Value creation in a platform is primarily dependent on operational synergies of scale and scope between these investments, as opposed to the traditional PE levers of financial restructuring of a standalone firm. For instance, in the case of Emerald Media, scope complementarity was evident in CA Media’s (the focal investment) distribution reach, YuppTV’s (the first add-on) exceptional technology platform and Amagi Media’s (the second add-on) content delivery model.

“The culmination of these individual investments (Emerald), with each firm bringing unique yet compatible capabilities, allowed KKR to build sufficient scale in the growing digital media space in Asia.”