Growth: the act or process, or manner of growing. In business, that act or process of increasing in size, revenue, market share, or profitability is vital – particularly in the current economic climate, which is testing the resolve of even the strongest businesses.
There are various types of business growth, including organic, when a company creates the right conditions for expansion; strategic, which focuses on long-term growth through specific initiatives; as well as through acquisitions.
The latter is often referred to as ‘buy and build’ – a concept that sounds straightforward in nature. You acquire a company and, with it, increase your value and grow the business. Easy, right?
Yes, it can be a highly effective way of reaching your strategic objectives in a relatively short amount of time, but it’s not always an easy investment thesis to get right. Each business you buy has a different culture and geographical spread, therefore, the transition of two becoming one requires time and careful consideration. You have to work hard to integrate what you’ve bought.
However, when executed correctly, buy and build can help to accelerate growth – whether that’s adding complementary products, services or skills to your proposition, expanding your geographical footprint, opening the door to new markets, or deepening your sector presence. Typically, it can deliver the sort of growth that could take three to five years to achieve organically.
So, what do businesses need to consider when going down the route of buy and build as part of an overall expansion strategy?
Organic comes first
For buy and build to be successful, it should also complement an organic growth strategy. Without the right foundations in place, a buy and build plan is less likely to succeed. Businesses at their root need to be well-managed, well-capitalised and already delivering strong organic growth. As such, focus on the fundamentals and the rest will come.
Planning and strategy
Making the right buying decisions, at the right price, takes planning. Having an appetite for growth is one thing, but unless you create a road map and bring the future into the present, then your desire to accelerate growth is likely to fail. Be very clear what your objectives are from the beginning and what’s important to you as an individual and for the company. Emphasis should be placed on establishing a value proposition, understanding how defensible you are in the wider market, and the key opportunities and risk facing the business.
Funding ambition
Raising finance to fund your vision is a critical step in the process of buy and build. Funding options vary from business loans to debt finance, private equity and even crowdfunding. Whatever route you choose, finding the most suitable investor who fits with the culture and strategic aims of the business is hugely important. At the core of raising finance is building a relationship with your investor. Make sure they understand what your business stands for and equally that they want to safeguard it. At the same time, consider their approach and if that fits with yours – whether that’s hands off, when needed, one that’s supportive in nature, or one that’s more entrenched in your business. Trust is key.
Hitting the right target
When sourcing potential acquisition targets, it’s essential to carry out thorough due diligence to ensure there are no unexpected problems or unforeseen liabilities down the track. This includes making sure you request full disclosure on all financial and operational aspects of the business you are looking to acquire. Ultimately, when integrating an acquired company, you want to achieve sales and costs synergies that will support future growth, so it’s essential you do your homework so you don’t get saddled with a company that drains you of both time and money.
Market potential
A buy and build strategy will only be a success in a market where there’s space for consolidation. If your target market has experienced rapid consolidation in recent years, with large well-established participants buying up smaller companies and rivals, it can make it more difficult for new entrants to grow by acquisition and build a business of scale.
Timing is everything
Knowing when the time is right is crucial. Is your business at that ‘step-change’ moment? Has it achieved sufficient scale and is trading in such a way that it provides enough width and depth to allow a management team to accelerate growth? It’s easy to underestimate the management bandwidth required to scale a business at pace. Does your strategy require a dedicated integration team? Are there enough middle managers to handle each newly acquired site or business? And does the senior management team have the capacity to execute a seamless acquisition plan while continuing to run the business day to day? If you get your timings wrong, there’s a danger that you won’t have the right team or processes in place to achieve your aims.
There’s no doubt that buy and build is an effective method for ambitious, entrepreneurial businesses looking to scale up – and scale up quickly. Yes, it only works when the opposing parts fit together and complement one another. But, in a short space of time, you can achieve scale through careful and strategic additions. What’s more, the last few years of economic uncertainty have done little to dampen the intent of businesses. Why? Because innovative businesses that take a more risk-welcoming approach, choosing to embrace growth in the face of adversity, are the ones that have and will continue to flourish.
