Buy and build strategies: How to get them right

A ‘buy and build’ growth strategy is a bit like Lego — putting multiple pieces together, to create something greater than the sum of its parts. As with Lego, the success of a buy and build strategy depends on how well these pieces fit and complement each other. But with careful planning, scale can be achieved in a relatively short period of time.

Read to learn more about buy and build acquisition strategies, the potential risks and benefits, and what our investors look for in a business pursuing this type of business growth.

What is a buy and build strategy?

‘Buy and build’ is a popular strategy for business growth. While a traditional acquisition strategy may see one company acquiring another, a buy and build involves making a series of add-on acquisitions of similar or complementary businesses, and integrating them into your own (sometimes referred to as ‘the platform business’). The goal of combining these companies is to achieve synergies, increase profitability, and scale at pace.

It’s a relatively easy thesis for entrepreneurs to get their heads around: you raise funds from investors, so that you can acquire other companies, and together, you grow your business into a larger, more valuable proposition. But while the concept of a buy and build strategy might seem simple, it can be difficult to execute well.

Potential benefits of buy and build strategies

Carried out effectively, a buy and build growth strategy can enable businesses to expand much faster than they’d be able to organically. This approach can be particularly useful in sectors where it’s difficult or costly to acquire new customers or to enter new markets. The potential advantages of a successful buy and build include:

Near-instant added value

Compared with organic growth strategies, successful buy and builds can increase the valuation of your business almost immediately. This can happen when the platform business commands a higher multiple than the component companies — in other words, it’s worth more than the sum of its parts. In private equity, this may be considered a form of multiple arbitrage.

Rapid expansion

A successful buy and build can allow your business to expand into new geographies, sectors or product lines. It can also quickly boost the size of your customer base and company headcount.

Increased profit margins

Through consolidation, businesses pursuing a buy and build growth strategy could benefit from economies of scale, efficiency gains, and reduced costs (for instance, by removing overlapping functions, like multiple finance teams). And these benefits of scale can lead to greater profit margins. Meanwhile, larger businesses are often viewed as more stable, with a stronger market position, which can also have positive knock-on effects, in terms of profitability.

Higher rates of return

As well as increasing profits and reaching a higher valuation, an effective buy and build strategy could help raise the profile of your business. If you’re planning to exit down the line, this can also attract attention from potential buyers and increase rate of return at exit.

Key considerations for buy and build strategies

If successful, the buy and build approach has the potential to strengthen, scale and add value to your business, while making your company more attractive to potential buyers. But it’s not as straightforward as it might sound. As with all business acquisitions, growth objectives, timing, and funding are all important considerations. But you should also consider these points:

Horizontal vs vertical integration

Many buy and build strategies involve acquiring companies that operate at a similar level in the supply chain, achieving ‘horizontal integration’. But this isn’t the only option. Acquiring a company with upstream or downstream activities (‘vertical integration’) can also have a big impact on the value and performance of your business. So you may want to consider this, when identifying acquisition targets.

Management team

As part of a successful buy and build, the management of the platform company will need to work with the newly acquired businesses, to create synergies that benefit the combined business. If there’s a clash of management styles among the acquired businesses or with your own, your buy and build strategy could fail. So building a strong, high-performing, and aligned management team is critical.

Motivations of business owners

Entrepreneurs might look to sell their businesses to an acquirer for a number of reasons. They may want to be part of a larger organisation (to take on more responsibility, for instance) or they might want to exit altogether. In either case, as part of your due diligence, try to understand the motivations of business owners, so that you can make the integration process as smooth as possible.

What do investors look for in a buy and build strategy?

Many businesses will need external capital to fund their buy and build strategy. You might look to raise equity investment (from venture capital or private equity firms, for instance) or debt funding perhaps — or a combination of the two. So, how can you prepare your business for this part of the buy and build process?

BGF is the most active growth capital investor in the UK and Ireland, and there are certain things our investors always look for, when considering a company with a buy and build growth strategy:

1. Management track record

The key to a successful buy and build is to be able to integrate acquired businesses into your company, so that you can achieve the expected sales and cost synergies to support future growth. If you can’t do this, it will be very challenging to make your buy and build work.

So, the first thing our investors look for in a business with a buy and build growth strategy is a management team that has made successful acquisitions before.

2. Market potential

As a buy and build involves making a series of acquisitions, it will only work in a market with space for consolidation. Some sectors, such as veterinary healthcare, have seen rapid consolidation in the UK in recent years, with large, well-established firms buying up small businesses and sites. This can make it difficult for newer or smaller companies in this market to pursue an acquisitive growth strategy.

When we’re speaking to businesses with buy and build strategies, we’ll look at the size of the market they’re operating in, as well as barriers to entry and the potential for disruption.

3. Acquisition targets

It’s important to identify the right acquisition targets for a buy and build strategy, to avoid wasting time and money on unsuitable acquisitions. Before speaking to investors, you should have a clear idea of what a ‘good’ acquisition target looks like for your business.

4. Cultural alignment

With this kind of growth strategy, one of the main hurdles for strategic buyers is in the integration process: combining multiple companies, with different teams and cultures, to work together as one. Few employees would want a big, impersonal takeover or merger; instead, the acquired companies should feel they’re joining the core business.

Alignment with your acquisition targets is important here. We’ll also want to see strong leadership, and your ability to articulate a clear vision for the company.

5. Ability to move quickly

It’s easy to underestimate the bandwidth required to carry out a successful buy and build, to scale your business at pace. You’ll need sufficient resources and the ability to act quickly.

Say you want to acquire a new business each month; you’d need a seamless acquisition plan, a dedicated integration team, and enough middle managers to handle each newly acquired company or site. Typically, without these elements, integrations aren’t successful, synergies and efficiencies aren’t delivered, and earnings could ultimately go in the wrong direction.

6. Willingness to learn

The integration process provides a unique opportunity to pick up valuable knowledge and skills from acquired businesses. Instead of imposing new operating procedures on day one, it may be a better idea to observe the way that acquired businesses run first. What can be learned?

Before backing a buy and build strategy, we want to see a willingness to learn from entrepreneurs and the wider management team.

A collaborative, thoughtful approach is often an advantage at the acquisition stage too — as a seller will want to feel they’re leaving their business in the right hands. Few owners will be motivated purely by money; they may be concerned about their employees and customers, as well as their legacies.

Examples of successful buy and build strategies

Many of our portfolio companies have delivered successful buy and build growth strategies, with investment and guidance from our team.

Environmental Essentials, for instance, has acquired four companies in three years (with more on the horizon) to cement its position in the UK as a ‘one-stop shop’ for key compliance services, including asbestos and fire risk management, and water hygiene. The business has raised significant investment from BGF to support its buy and build growth strategy. Read our interview with the company’s leadership team to learn more.

Then there’s Kids Planet, a fast-growing nursery group that’s scaled from a couple of sites in Cheshire to more than 190 locations. Its founder and CEO, Clare Roberts, shares her story (including more detail on the company’s buy and build growth strategy) on The Good Growth Podcast below:

Bayfields Opticians & Audiologists is another great example. When we first invested in the company in 2020, it had already completed 18 acquisitions of smaller businesses. By mid-2022, this figure had grown to 43. Bayfields operates in a big market, has a clear strategy in place, and knows how to integrate businesses well, delivering strong growth post-investment. Its CEO, Royston Bayfield, is also a highly effective leader, who can articulate his vision for the business very well.

Buy and build strategies can be a powerful tool for growth and value creation, but only when executed well. If you want to put two and two together and make five, you have to make the right buying decisions, at the right price, and work hard to integrate what you’ve bought.

Looking for investment and support for your own company’s buy and build? Get in touch with our team to learn how we could help.

The information contained in this article is for general information and use. It does not constitute any form of advice and is not intended to be relied upon in making any investment decision. Independent advice should always be sought as to whether a particular transaction is suitable having regard to your personal and financial circumstances.

Parts of this article have been adapted from buy & build pieces produced for the Yorkshire Post, Growth Business, and Business Matters.