Buy and build strategy: how private equity platforms create value, and where they go wrong

What is a buy and build strategy?

In a buy and build, an investor, usually private equity, acquires a platform company with strong management and systems, then acquires smaller add on businesses and integrates them into it. Value comes from buying the add ons at lower multiples than the combined group can later be sold for, from revenue and cost synergies, and from building a larger, more professional business.

Where the value comes from

• Multiple arbitrage: smaller companies usually change hands at lower multiples than larger ones
• Revenue synergies: cross selling, wider geography and access to bigger customers
• Cost synergies: procurement, a shared back office, property and systems
• Professionalisation: finance, reporting, governance and management depth that support a better exit

What the platform needs before the first add on

• A finance function and chart of accounts that can absorb new entities quickly
• Systems that scale, ideally one ERP with a standard design
• A repeatable integration playbook and a small integration team
• Clear decisions on what is integrated and what stays local
• Management capacity, because integration competes with running the business

Where buy and build goes wrong

• Acquisitions outpace integration, leaving a collection of businesses rather than a group
• Systems multiply, with each add on keeping its own ERP and spreadsheets
• Synergies sit in the model but nobody owns delivering them
• Culture and key people are lost in the first months
• Reporting cannot show which parts of the group make money

Integration that keeps pace

The strongest buy and build platforms treat integration as a capability rather than a project: a standard day one checklist, a hundred day plan, a target operating model and systems blueprint that each add on moves onto, and a tracker that reports synergies against the deal model. See our post acquisition integration checklist and what determines success in the first 100 days.

Related reading: post merger integration and due diligence, value creation planning, the technology due diligence checklist.

Common questions

What is a buy and build strategy?

A private equity strategy in which a platform company is acquired and then grown by buying and integrating smaller add on businesses, to create a larger group worth more than the sum of its parts.

What is a platform company in private equity?

The first, usually larger, acquisition in a buy and build, chosen for its management, systems and market position, onto which add on acquisitions are integrated.

What is multiple arbitrage?

Buying smaller businesses at lower valuation multiples and selling the larger combined group at a higher multiple, which creates value even before synergies.

Why do buy and build strategies fail?

Most often because integration falls behind the pace of acquisitions, systems multiply, synergies are not owned and the group cannot report reliably on its own performance.

If your platform is about to start its add on programme, the integration model is worth settling before the second deal, not after the fifth.

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