Buy and build strategies: ten top tips

1. Make sure this is the best use of funds

The starting point of any consideration of a buy and build strategy is to really think through whether this is the best use of the company’s funds or whether it is just a vanity exercise in terms of growing the company but not improving profits or performance.

2. Don’t over leverage

Once the decision has been taken, don’t over gear to try and rush through acquisitions or achieve your goal in record time. New acquisitions should be given time to bed down before the management team moves on to the next one.

3. Get the economic analysis right

Consider the economic backdrop. Does today’s business environment offer excellent conditions for a buy and build strategy? Do pockets of the economy look ripe for consolidation and are valuations for sub-scale businesses at realistic levels?

4. Choose the right sector

Assess whether the sector has the right conditions to support a buy and build strategy. If it is a mature, stable sector without much room to capitalise on new technology to drive profitability, then it’s probably best to think again.

5. Look for fragmentation

A sector that has already consolidated should be avoided. Look for a fragmented sector where there are lots of  suppliers and service providers and where consolidation can offer real cost-saving and service-enhancement benefits for clients.

6. Focus on pricing

Make sure there is scope to flex pricing and that there are no intense price wars occurring.

7. Develop a coherent strategy

Buy and build strategies work best when they are supporting some new initiative or the development or enhancement of a service (where demand has been identified), not just general expansion.

8. Target acquisitions that fit

Be certain that you are targeting the right companies. Often management teams can be dazzled by companies with good brands or reputations in their sector, or firms that are growing quickly, instead of focusing on companies that will really improve their service and offer.

9. Gel with the management team

Once a company has been acquired, it’s crucial to focus on developing a chemistry with the incumbent management team. They are absolutely critical to a buy and build strategy. Don’t just assume that you have their trust and confidence – earn it. Be open, inform them on any plans and consider their thoughts. Demonstrate that, combined, the new team has the credentials and the ambition to grow the business. 

10. Deliver for your clients

Having started a buy and build strategy, keep clients informed of what is happening, update them on service offer improvements and, above all, deliver on your promises. Otherwise the whole exercise could be self-defeating.

Daniel Sasaki is managing director of the London Office of LDC, the private equity arm of Lloyds Banking Group.

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