Benefits of a buy and build strategy

Why mid-sized businesses should explore a buy and build strategy

Executed well, a buy and build strategy can create substantial value for the combined group and these results can be achieved much more rapidly than they can via the organic route.

Capture new customers in a crowded market

Perhaps the market or sector in which you currently operate is mature or congested. When there is a high level of competition for new customers, there are very few opportunities to grow organically at scale.

Enter new markets or expand internationally

With a ready-made platform from which to grow, acquisitions can be bolted on to create an immediate presence in new markets or geographies that would typically necessitate a great deal of time, expense and risk to build on their own.

Diversify and expand your product range or services

Add complementary products or services to enhance the resilience of your business or broaden your customer reach from improved market positioning. Benefit from increased scale and cross-selling opportunities in your chosen markets.

Add new skills and capabilities

Buy in new specialist skills or knowledge or add expertise in certain areas. You might be buying a smaller business that brings strong digital knowhow, for example, so you can rapidly integrate that capability for maximum benefit. Alternatively, perhaps the target company already has a sales and distribution platform in a particular marketplace that you can leverage to increase existing sales without having to build from scratch.

Achieve economies of scale

Duplicate costs can be removed and shared support functions, such as marketing and HR, can be optimised. On the buying side, greater purchasing power can reduce unit costs and support rapid margin improvements.

Attain higher multiples

Executed well, 1+1 can equal 3, leading to a more robust and valuable business. Increased scale into a larger entity also supports this enhanced valuation metric and higher internal rates of return.

Meet objectives at speed

The opportunity for step-change growth leads to size and value creation opportunities at a much faster rate than if attempted organically.

Private equity appeal

Buy and build strategies are particularly attractive to private equity buyers due to their relatively short investment horizon. Traditional organic growth typically takes longer to achieve the same results while certain buy and build gains can be monetised almost instantaneously. Private equity firms appreciate these fast gains and want to turbo-charge their investment returns. Multiple (valuation) arbitrage can support this objective if the acquirer trades at a higher price-to-earnings (P/E) ratio than the acquiree. Including the acquiree’s earnings and valuing using the acquirer’s P/E ratio will immediately boost the combined value.