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The Buy-and-Build Investment Model: Opportunity to accelerate growth and create wealth

By Gretchen Perkins
Posted: 12th November 2018 08:58
As we make our way through 2018, it’s a good time to reflect on where we’ve been. Your business or operating division survived the worst global recession since the 1930s. With corporate profits near all-time highs your company is making money and things are going well. But, did your recent hard work and profit performance convert to enough accessible, long-term wealth creation for you and your family to make up for lacklustre years of performance during the recession? If not, perhaps it’s time to consider alternatives.
As a business owner, how do you accelerate the power of ownership and equity? The answer: partner with a private equity firm to “buy” your company or division and “build” it by acquiring one or more of your competitors or companies in your supply chain. Your business will serve as a platform investment in a market where you, your leadership team, and your new private equity partner have proven experience.
What is a “Buy-and-Build”?
Buy-and-build refers to the buying of a platform company with a strong management team and established infrastructure, and then leveraging those capabilities to acquire one or more companies to rapidly grow the platform. Private equity firms have been readily employing buy-and-build strategies for many years as it’s an attractive approach to growing revenue and profits more quickly than through a strategy focused solely on organic growth or margin expansion. Further, smaller companies can generally be acquired for lower valuations than larger companies can, which also means that larger companies can be sold for higher valuations than smaller companies. Thus, there is also valuation arbitrage or opportunistic gaps involved in buying low and selling high which can further enhance returns in a buy-and-build situation.
Buy-and-build can be a compelling strategy for business owners and management teams, as well. Typically, in a recapitalisation or management buyout situation, owners and managers acquire full authority for the performance of the business and its impact on shareholder wealth without the influence of corporate bureaucracies. This independence can lead to a direct correlation between performance and management wealth creation; the same operating performance you delivered under a corporate umbrella can produce a significantly better financial outcome for you and your team. Deploying a buy-and-build strategy may magnify these results and lead to more profits and wealth creation in a shorter period of time.
The Importance of Finding the Right Partner
Executing a buy-and-build is hard work and not without its challenges and risks. Buying and integrating companies requires a considerably different skill set than is required to run day-to-day operations. These include having the right team and infrastructure to oversee the combination, setting clear priorities for the integration, and developing and successfully executing a post-close integration strategy.
Larger companies may have internal integration teams, but most middle market companies do not. This is where partnering with a private equity firm who has a successful track record deploying the buy-and-build investment model as part of its overall investment approach is of utmost importance. A private equity firm may leverage its own internal staff to assist with the integration, it may rely on the expertise of outside advisors or board members with deep integration experience, it may hire a third-party firm who specialises in post-merger integration, or it may employ a combination of any three of these tactics.
Further, the additional support afforded by an experienced partner may help you to remain focused on maintaining momentum of the core business, which is of critical importance during the integration process.
Acquisition as Strategy of Choice
Given relative stability and continued recovery in the U.S. economy, you are likely to feel more confident about the overall health of your business and are poised for growth after years of streamlining operations and increasing efficiencies. According to The Golub Capital Middle Market Report, middle market companies experienced year-over-year earnings growth of 12.8% and revenue growth of 11.5% during Q4-2017.
Many owners and managers grow impatient waiting around for organic growth and are beginning to realise that M&A may be the most (and only) optimal way of achieving meaningful growth targets. According to Citizen’s Bank M&A Outlook for 2018, buyers are planning to be more active this year, with 75% of buyers reportedly involved with or open to an acquisition.
As a business owner or manager looking to accelerate the power of your ownership and equity, a recapitalisation or management buyout in partnership with a private equity firm focused on a buy-and-build strategy may be the right choice for you. This could be the perfect time to take control of your wealth creation, run your own show with a motivated, engaged partner, and see just how good you really are.

Gretchen Perkins is responsible for managing Huron’s business development and investment sourcing activities and is also involved in investor relations. These activities include outreach to deal professionals such as business brokers, investment banks, attorneys, accountants and consultants, and outreach to potential limited partners.

Gretchen can be contacted on 313-962-5806 or by email at 

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