Laying the foundations for a buy-and-build strategy

Our latest article in Real Deals (Article), examines how to successfully execute a buy-and-build, from origination of targets, research requirements and avoiding the potential pitfalls of these deals. At Armstrong, we have supported a number of successful buy-and-build acquisitions and are seeing more funds using this approach. A big challenge for PE teams currently is deploying dry powder, and achieving sufficient returns in a market with high entry multiples.

In a buy-and-build play, more capital can be put to work through the hold period by making bolt-ons and driving down the average multiple. Platform opportunities for ‘traditional’ roll-ups are getting hard to find, meaning funds will need to think about how they create value using buy-and-build. A successful buy-and-build strategy will optimise the ‘sum of the parts’ by adding new geographies, services, cross-selling, and creating efficiencies to reduce costs; all of which contribute to the bottom line.

Common factors of a buy-and-build strategy include:

  • A fragmented market with small private local businesses

  • An opportunity to reduce costs through efficiencies while growing top line revenues through cross-sell

  • New complementary services, geographies and/or customer sets

  • Vertical integration

  • Less reliance on underlying market growth and / or winning market share (often in relatively mature markets where customer acquisition costs are high)

  • Improvements to the business e.g., sales capacity, new hires, technology, and clear customer and supplier relationship plans

SH RD 1 July 2021-pages-13
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