Thinking about Build and Buy?

Build and buy strategies are where a business acquires other businesses, very often to help increase value ahead of an exit. They are not uncommon for private equity or companies trading on a public exchange and can also work for smaller businesses but are less common. 

Build and buy strategies can be an attractive way to build value ahead of a business exit. The economic logic is based on;

1. Scale increases value. Analysis clearly shows that larger companies are valued more highly than smaller ones, where the variance of the ‘micro’ and ‘mid-cap’ can be as much as 65% according to recent analysis from marktomarket.
2. Scale can help reduce perceived risk. For example, if a business has a sales team then it is assumed it will have reduced key dependencies compared to a business that is dependent on the founder for sales. Or if a business has a high dependency on one client then an acquisition can proportionally reduce that dependency.
3. Growth increases value, including acquisitive growth. 
4. Diversification can bring synergies such as cross promotion, category sales growth and margin enhancement as well as economies of scale.
5. Accretive value, where profits can attract a higher value in a larger merged  business than a smaller independent.

Three common characteristics of build and buy clients we support include:

1. An absolute determination of growth and the prioritisation of resources and effort to achieve that. There is no prevarication on this point.
2. A clear vision of how to create value that frames decision-making, about how and when to acquire and how to integrate. And they debate it endlessly.  
3. The relentless pursuit of creating opportunities for acquisition, which we help them with.

There are many critics of build and buy on the basis that many fail, so here are four core competencies based on our experience of developing and implementing acquisitive growth:

1. Know your business model extremely well from strategic principles and delivery to cash flows and what works (and what to challenge) in your category. This can help partially fund growth through smart working capital management.
2. Don’t try to do it by yourself. Not least because they already have to keep the rest of the business growing.
3. Have a clear understanding of the consideration (its form and valuation approach) you will pay and how it adds value to the seller. As a result they will happily walk away from the wrong deal.
4. They have a clear approach to integration, which will provide a common framework across the whole group but with an appropriate level of localisation and variability.

Drawing on our experience of supporting build and buy groups, from listed companies to smaller companies here are four hacks for developing or implementing a build and buy strategy:

1. Invest in becoming excellent in the above.
2. Keep learning and build a network of experienced advisors around you who will think beyond just doing the deal. 
3. Sharpen your preparation for integration as much as post-acquisition integration. The difference can be transformational.
4. Get started. Decisiveness is often the difference between success and failure.

We work with businesses to go beyond just doing the deal, from the planning to the integration stages including how to run and optimise the deal process. Our solutions include financial, operational, legal, people, IT and corporate finance capabilities, drawing on business and professional experience. 

Our integrated approach combines operational and professional expertise covering leadership, strategy, people, finance, legal and IT. 

If you would like a confidential conversation to understand how we might help you, contact us.