Buy & Build
This month, we participated in an event organized by the M&A Community of House of Executives. It was a great opportunity to explore the world of Buy and Build—a growth strategy aimed at acquiring a platform company and expanding it through a series of acquisitions to achieve greater scale within a few years. Professionals from the private equity sector and various industries shared their experiences in leading these processes.
While there seems to be a straightforward process to carry out this strategy—from deal sourcing to due diligence and integration—the approach to value creation varies significantly among professionals. Some focus solely on cost-saving initiatives as the primary driver of their strategy, while others emphasize revenue enhancement opportunities, such as cross-selling or upselling. Both approaches are quantified and incorporated into the acquisition thesis. This, of course, constitutes the theoretical framework—but it’s a framework with its own expectations and objectives. The true challenge lies in the integration, where the real work happens.
Many studies have shown that acquisitions have a poor track record of achieving their desired outcomes. This can often be attributed to unrealistic objectives, poorly executed integrations, or a combination of both. Ultimately, an acquisition represents a disruptive change to an established business with its own structure and culture, which follows what we call path dependency—a path that can be highly advantageous. However, acquisitions disrupt this equilibrium, requiring significant effort to forge a new path toward realizing the desired vision. This process begins with decisions about the type of integration to pursue and continues throughout the integration itself.
Some businesses opt for aggressive integrations, focusing on reducing costs—mainly fixed costs. Those who follow this approach often select targets that align with this specific integration strategy. For example, one private equity professional at the event highlighted how they target one specific sector with a clear cost-cutting initiative in mind. Others, however, tailor their integration strategies to fit the industry and, more importantly, their own operational approach and assumptions. Similarly, organizational structures—whether centralized or decentralized—vary depending on the market, customer base, brand equity, and long-term vision.
At the end of the day, it’s a risk-reward game, and the formula is unique to each business. Even within the same company, a new add-on acquisition might require adjustments to the integration strategy. This is something Ted Clark experienced first-hand in building a $650 million business, starting with a $35 million platform company*. In a previous article, I introduced the concept of the convex deal—where the downside is capped, and the upside remains open, allowing businesses to reap the benefits of future unknown dynamics. Taking the opposite approach could jeopardize the success of the operation.
The event made it clear that, even in a seemingly straightforward Buy and Build strategy—characterized initially by an aggressive approach—there is no one-size-fits-all formula for generating value. It all depends. Initial integration plans should be adaptive and evolutionary. Leaders must continuously assess their targets, evaluate integration dynamics, and remain open to changing their course of action when necessary. Creating value through scale demands informed, flexible, and sometimes hybrid strategies that leverage the potential of sequential acquisitions in an increasingly complex and uncertain world.
* Clark. T (2022). Buy & build CEO: Leveraging Private Equity to Build a Winning Global Business. Dudley Court Press.
