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
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