Acquisition Strategies as Option Games

In 1996, HAL Investments, a European private equity investor, agreed to buy Pearle Benelux, a leading optical chain in Belgium and the Netherlands. HAL subsequently made further acquisitions in Belgium and the Netherlands and also in Germany, Austria, and Italy, all within the same industry. These transactions were part of an acquisition strategy known as "buy-and-build," in which an equity investor initially undertakes a "platform" acquisition in an industry and then leverages core competencies or efficiencies onto follow-on acquisitions in a broad-ended geographical base. The goal of such a strategy is targeted industry consolidation. This paper develops a framework for assessing the value generated by both the option-like and competitive characteristics of an acquisition strategy.