How does a buy-and-build strategy work?
Short Answer
You acquire a platform business, then add a series of smaller bolt-on acquisitions to it over time, compounding scale and, often, re-rating the enlarged group to a higher multiple than the parts commanded alone.
Full Explanation
Buy-and-build is a strategy for growing by acquisition through one platform and many bolt-ons.
You start by acquiring a platform company — a business with the management, systems and market position to absorb others. You then acquire a series of smaller, complementary businesses (bolt-ons or add-ons) and integrate them into the platform. Two effects compound. First, scale: the group grows faster than it could organically, adding customers, capability and geography. Second, a re-rating: larger, more diversified, better-run groups often command a higher earnings multiple than the small businesses that were rolled into them, so the whole becomes worth more than the sum of the parts — sometimes called multiple arbitrage.
The discipline that makes it work is repeatability: a clear thesis about where synergies come from, a standard diligence and integration process, and a 100-day plan applied to every deal. Poor integration is where buy-and-build fails, because the intangible value acquired can leak away in the transition.
See grow by acquisition and the buy-and-build strategy definition.
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