Buy & build
Acquisitions as a growth strategy
A buy & build strategy can play a vital role in your company's growth ambitions. By acquiring and integrating complementary businesses, you can create a larger and more competitive company. With this, you can achieve greater synergy and greater efficiency that are often not achievable for the companies individually. Hogenhouck helps entrepreneurs with a well-defined buy & build strategy and finding the perfect match for your growth ambitions. Want to know what a buy & build strategy can add for you and your company? We are happy to discuss this with you.
When is a buy & build strategy
worth considering?
Before you start thinking out a buy & build strategy, it is useful to have a good picture in advance of a number of important issues such as the market position of your company, whether there are any valuable takeover candidates, the state of financial stability of your company and the quality of your management team. We have built a strong track record in assisting entrepreneurs with determining their position and a realistic buy & build strategy. We are happy to share our knowledge and experience to guide you through a successful buy & build strategy.
What is the added value of
buy & build?
A buy & build strategy will be successful if the value of the combined company is more than the value of the individual companies added together; this is often summarized in the M&A world in the term "1 + 1 = 3." The following aspects are important to achieving such value creation:
Accelerated growth
Acquiring other businesses grows your company's revenue faster than is possible organically. In addition, other benefits provide opportunities for accelerated growth such as the expansion of your customer base, up- and cross-selling opportunities, greater geographic reach and options for product and service diversification.
"Upselling, cross-selling and creating economies of scale can significantly improve companies' margins."
Margin improvement
Combining businesses can create economies of scale that can significantly improve your company's (profit) margin. Perhaps you can get volume discounts from your key suppliers, you need fewer people to achieve the desired turnover, certain functions can be used more efficiently or you can work more efficiently by purchasing new technology. These are all examples of economies of scale that you could realize with a buy-and-build strategy.
Multiple arbitration
As a larger and more diversified company, your business is usually valued higher than the smaller acquisition candidates you have your eye on. This is often expressed as so-called "multiple" for company valuation. After an acquisition, your acquisition candidate's multiple grows to the level of your company. The difference between the two multiples and the resulting increased valuation of the acquisition candidate is called 'multiple arbitrage' in the financial world.
Multiple expansion
By effecting the buy & build strategy, your company becomes larger and more diversified. The risk profile of the company decreases because of, for example, the larger customer base, the lower dependence on certain employees and the increased quality of your product and services. This has a positive impact on the multiple people are willing to pay for your company compared to before the buy & build; this is called "multiple expansion.
A buy & build strategy
know what you are getting into
Does a buy & build strategy have only advantages? Of course, a buy & build path is not exclusively rosy, but it offers numerous opportunities. You just have to think carefully about whether it suits you. While not every entrepreneur has the ambition to manage a larger company, it is important to recognize that it can be a logical step for business growth. As an entrepreneur, it is crucial to choose what best suits you and what motivates you.
Why
private equity?
One form of risk spreading in a buy & build project is to work with a private equity party. This way you spread the financial risk and you bring knowledge on board from a party that has already handled this kind of deal before. Private equity parties can help you further outline your buy & build strategy, the acquisitions and the integration of the acquired companies. There are two main categories for collaborating with a private equity party in the buy & build strategy:
Private equity platform
Private equity parties are always interested in new platform investments. These are companies with a strong financial profile, good management and a leading market position. If you, as an entrepreneur, want to set your own course and have a clear vision of how you want to shape a buy & build, you probably prefer to act as a platform for further expansion of your company.
Private equity add-on
Another form of involving private equity in the buy & build strategy is joining an already existing platform. Here, you can already gain immediate synergy and efficiency benefits with the other companies in the group, and you ride on the value creation of the platform as a whole. In this case, your company acts as an add-on investment.
What do we want to do for you?
Do you think a buy & build strategy could be interesting for the next step for you and your company? If so, we'd love to talk to you about that. We are an entrepreneurial and independent M&A firm, where you as a client always come first. Our mission is to advance entrepreneurs who are building their life's work, both professionally and personally.
We unburden you as much as possible so you can keep your focus on your business and strategy and as little as possible with the execution of the buy & build process. We have guided many buy & build processes in various sectors, for different types of entrepreneurs and companies. With our extensive experience we are your sparring partner and together we look at how a buy & build strategy best fits your personal and business ambitions.
