As experts in the area of mergers and acquisitions, we offer entrepreneurs, investors, buyers and sellers a wide range of professional services. Our nationwide and international network lays the foundation for highly efficient processes. A possible pillar for such a process could be expanding your company’s business activities using a “buy and build” strategy.
“Buy” and “Build” stands for the acquisition of several companies in order to build a larger group/holding company. Not necessarily fixed by definition, but for the use of the phrase “buy and build strategy”; It has become common to use this as a technical term for the process when a company expands its business through a purchase and subsequent consolidation (build).
The combination of terms is used primarily in the area of private equity, i.e. in off-market company investments. Here, private equity companies act as a corporation that acquires various companies in the same industry with at least a majority stake and merges them into a new entity.
However, buy-and-build strategies do not necessarily have to be initiated and carried out exclusively by private equity companies; The impulse can also arise from a company that is planning expansion. Such a strategy then involves gaining access to additional customers, products, sales channels or other competencies by merging with (or acquiring) a so-called platform company and making them part of the company’s own activities. This means that further smaller company acquisitions are “docked” onto this platform investment, so-called add-ons, which are intended to give the desired growth greater momentum (“add-on transactions”).
Strategies for selecting projects
In order to generate acquisitions of companies, the industry should offer sufficient opportunities so that the company’s value can be increased accordingly. At the same time, they must not be too big to be bought out. In a buy and build strategy, it is envisaged that the “first” company acquired as a platform will finance the acquisitions with its own cash flow. Attempts are being made to avoid additional capital being required for acquisitions.
This consideration results in a first condition for choosing the industry for this type of “portfolio management”. Highly cyclical industries should be avoided because then you may not have enough capital available for a particularly suitable acquisition. For a “buy and build” strategy, a professional assessment of the market situation is crucial, both on the supply and demand sides.
For example, on the supply side you can find out whether a large number of company owners will reach retirement age in the foreseeable future. Another criterion for a “buy and build” strategy can be industry-specific pressure on smaller companies, for which further independence can be difficult as a result. Such companies are ideal candidates for takeover.
On the demand side for acquisitions, there are other players in the market who pursue a comparable strategy for their portfolio management. Acquisitions for a buy and build strategy are pursued in the same way by other investors. If there are too many, prices will rise to levels that are no longer economically viable.
If you have any questions or want to implement a “buy and build” strategy, our network of experts will be happy to help you.
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Your,
Norbert Duwe
