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Buy and Build Strategy

Definition - What does Buy and Build Strategy mean?

A buy and build strategy is typically deployed by private equity to generate value and increase their returns. It entails buying a platform company with established management and systems, and leveraging off this company to acquire subsequent tuck-in acquisitions.

Usually, a buy and build strategy works in industries where the private equity firm has significant experience, and where there are good management teams available that can transition their company into a platform. This transition is not easy and requires a unique skill set as sometimes competitors are acquired in order to vertically integrate the supply chain. The buy and build approach entails significant change and, therefore, management teams capable of building cohesive teams and further developing a scalable structure are a must.

Divestopedia explains Buy and Build Strategy

Buy and build strategies are becoming more common in a slower economy as private equity groups seek to improve returns. This is because organic growth and operational efficiency may not be enough to generate significant pop on liquidity. However, these strategies can be challenging. For one, they take longer (sometimes up to 10 years) to properly acquire several companies and integrate them together.

The most important step is to find a CEO and a management team that is experienced in acquisition integration. Often, the owners of the individual companies believe they can be the CEO of the buy and build platform company. This is often not the best step, as integrating and running a buy and build company requires considerably different skills (change management, specific operational metrics, risk management), which the founders don't usually posess.

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