19 November 2021

Buy and build: All of the key steps for a successful growth through acquisition strategy

There’s no doubt that owning a business throughout the pandemic has been challenging. But for many, their businesses have navigated their way through the recovery phase, and are now setting their sights on growth.

While organic growth involves making improvements to your business by increasing sales and cutting costs, it can be a much slower process than growing by acquisition.

What is a growth through acquisition strategy?

A growth by acquisition strategy involves acquiring other companies and incorporating them into your existing business or group. As such, it’s often referred to as ‘buy and build’.

As a whole, the strategy is very much similar to building blocks, insofar as they are put together and once they are assembled their value is greater than the sum of all of the individual parts.

Growing a business through acquisition only works when all of the parts fit together and complement one another. The main advantage of this strategy is that in a relatively short frame of time, significant scale can be achieved through careful and strategic additions to your business.

Is growing through acquisition the right option for my business?

If your business operates in a really congested and competitive market sector, a buy and build strategy could be the most effective way for you to grow.

It could also be the right route for you if you’re looking to achieve critical mass quickly – an advantage that organic growth doesn’t allow for. Ultimately, this would also lead to a better valuation multiple for the business if you’re looking to exit.

How to carry out a successful acquisition strategy

There are several steps involved in creating a successful buy and build, including:

Planning and strategy:

There needs to be an appetite for growth within your firm; a detailed strategic plan for the strategy and clear objectives established from the outset, which align with the overriding objectives of the acquiring business.
Without these, your strategy isn’t likely to make headway.

Value proposition:

Analysing your competitors whilst also retaining a focus on the strengths; core customer base and revenues of the business you are acquiring is key when it comes to building a clear and robust value proposition.

Funding:

Once you’ve outline a clear strategy and have your plan in place, you need to consider how it is going to be funded, which involves considering several items:


• Timing – The business needs to have achieved sufficient scale and to be training successfully in order to afford your management team the opportunity to accelerate growth. A capable management team and robust processes need to be in place to achieve the objective of an acquisition.

• The business case – The business you’re acquiring needs to be portrayed in the best light possible in order to secure funding. Which means you need to be really clear on the business’ key strengths and opportunities and how its strategy and structure are defined. A lot of businesses struggle to articulate the business case, which can have a huge impact on their ability to scale to the next level.

• Your management information – Having management information and business data of excellent quality is absolutely critical when securing funding. Being able to deliver high quality management information is crucial for any deal process and creates the best foundation for your business’ future.

Executing the strategy with success

After the funding is in place, the next step is actually executing the buy and build strategy. The reality is that this execution isn’t always straightforward, because each target business could have different cultures and geographic locations.

The key considerations to keep in mind are:

• The target – Selecting the right target businesses is crucial. Whether it’s increasing market share; securing a key product or service that your business doesn’t currently offer; or cost savings for integrating the two businesses together, it’s important to have a strong reasoning for selecting your target business/businesses. It’s vital to choose the right target business and to attach the correct valuation to it.

• Due diligence – As the acquirer, you’ll need to complete a thorough due diligence process, including full disclosure on all financial and operation aspects of the business, to make sure there are no unexpected issues or liabilities.

• Management of high growth – You need to be more than prepared for a high growth strategy, from a personnel, process and financial perspective. There’s a lot to be done in order to make the strategy work, often to very tight deadlines, so preparations are key.

The value of finding the right advisor

When executed correctly, a buy and build strategy is a proven concept. It has real potential to help your business access new markets and achieve expansion at a rapid rate.

However, it’s worth noting that a buy and build acquisition strategy is a very specialist area, and one in which there is room for significant pitfalls. With this in mind, it’s crucial to have the right advisor by your side, to ensure that the process is executed as efficiently as possible.

Our team of Corporate Finance experts can help you with everything from preparing a business plan and offering a direction for it, to selecting and approaching the target businesses, securing funding and negotiating, delivering and closing the deal.

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