Buy and Build Strategies

Buy and build strategies are a popular way for both trade and financial buyers to achieve additional scale and liquidity.

Private Equity traditionally deploys buy and build strategies to improve returns, particularly in a slow economy where, even after improving operational efficiency, organic growth may not deliver the required return on investment. Our experience is that the number of financial buyers deploying this strategy is increasing.

According to new data from PitchBook “Add-ons accounted for 70% of all US buyout activity in 1Q 2018. Buy-and-build strategies have become more common in the last decade as competition has intensified for private assets, rendering the paydown of debt and multiple expansion less useful than they once were.”

Several of our recent clients have been acquired as part of buy and build strategies. Examples are Marlowe plc’s acquisition of Hentland which followed several other acquisitions in the fire and security sector and Cairngorm Capital’s acquisition of M J Wilson Group, which is to be the platform for a national, technically focused, MRO business that serves small-to-medium size enterprises.

For vendors, this type of acquirer is often more attractive because the buyer will be taking a long-term view and vendors, who are often concerned for the future security of their businesses, are reassured knowing that the company they founded will form part of a larger, growing entity that will receive focus and investment from the acquirer.

For acquirers, however, these strategies can be challenging as it takes longer to properly acquire several companies and integrate them together. This is particularly true for privately owned trade buyers inexperienced in acquisition integration.

Making a successful integration requires specific skills and experience in areas such as change management, risk management and operational metrics. For this reason, the appointment of a suitably experienced CEO and management team is essential.

However, the rewards can be significant; many of the world’s leading companies have been created through buy and build acquisitions.

Transactions of this nature can represent a win-win deal for both vendors and acquirers. For vendors planning an exit it is wise to include financial buyers that are looking at bolt-on targets in the research list, as part of creating a competitive sale environment.

For advice on buying, growing and selling your business please contact us at info@evolutioncbs.co.uk

 

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