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The ins and outs of a successful buy & build-strategy according to Kiwa CEO Paul Hesselink

Buy & Build

10 February 2017

Kiwa is one of the fastest-growing companies in the NPM Capital portfolio. As its CEO Paul Hesselink explains, this growth is predicated on a carefully managed buy-and-build strategy. He sheds light on the ins and outs of this approach by zoning in on ten keywords: ‘There’s something inherently opportunistic about a buy-and- build strategy.’

1. Consolidation

‘Our plan for 2014 was initially to focus on achieving organic growth, improving operational excellence and integration, but all that fell by the wayside when three companies which had been on our wish list for a while all came up for sale at the same time. So we decided to take a serious look at those three candidates, since opportunities like that don’t come along every day.

We ended up acquiring Inspecta in the spring of 2015 – it was a major transaction. After making that sizeable acquisition, we knew we needed to exercise some restraint and take the time to catch up with ourselves before moving on to the next big adventure. This turned out to be the right decision, as it has allowed us to optimise our corporate framework and make the kinds of changes we don’t normally get around to. For example, we are currently in the process of integrating fourteen different financial accounting systems into one centralised system. That’s very much a necessary move, as it will enable us to monitor things much more effectively. We are doing the same for our various IT platforms. I want the control framework to be fully back on track before we venture into any new territory. But I do admit that managing the dynamic in the organisation can be tricky. People here are very gung-ho – they have a real get-up-and-go attitude, and are keen to move on to the next exciting challenge.’

2. Rebranding

‘We also used this “downtime” for a major rebranding effort: we updated our company logo and introduced a new corporate identity, and we prefixed all of our company names with the Kiwa branding, as this happens to be the name in the market with the highest brand recognition. Norway recently became the First country to complete the changeover. I happened to be at a trade fair there last week, and clients told me: “We’re only now realising that you’re all part of the same family of companies and that you can provide more services as a single entity than we initially thought.” In other words: people are becoming aware of the real size of the organisation and the scope of our portfolio of services. I wouldn’t go so far as to say this was “overdue maintenance”, but I do feel this is something we may not have given sufficient priority in the past. We were already doing well before, which may have blinded us to some of the gains to be made from changing the status quo.’

3. Wish list

‘To get a buy-and-build strategy right, you always need to be on your toes. That’s why we have compiled a list within the company of businesses we consider viable alliance partners or merger targets if we decide to step up our growth. Some of these are smaller companies, which could serve to fill a gap in our product portfolio or country network. An example is the acquisition of R2B – they were an established name in the field of fire safety inspection, and we did not have that type of expertise available in-house at the time. But we have also earmarked a number of larger players, real game changers that would help us to take our business to the next level. Inspecta was one of those acquisitions: we took on their staff of 1,600, establishing a presence in new markets and significantly expanding our service portfolio in the process, particularly in the manufacturing industry. To use an analogy, rather than picking up a few pearls here and there we’re going for a full necklace straight away.’

“We keep a list of companies we consider suitable potential alliance partners or merger targets if we want to step up our growth”

4. Offensive

‘Our strategy is strictly offensive, never defensive. We have a plan for where we want to go and we stick to that plan. And we don’t let anyone rush us into anything; we’re not about to make any acquisitions simply to protect our market share, and we also do a lot more than simply purchasing a company’s revenue. Acquisitions are fine for getting a foot in the door, but once you’ve achieved that you need to be able to grow organically to become the market leader or second-largest player in your market. The way to do that is by generating strong sales and providing high-quality products and services.’

5. Opportunism

‘There’s something inherently opportunistic about a buy-and-build strategy, in the sense that both parties need to have something to gain from it. In most cases, it takes two to tango, unless you’re dealing with an investor who is looking to get rid of a company. That changes the whole dynamic of the meeting and the financial terms agreed between the parties. At the end of the day all you can do is keep an eye out for opportunities, companies that might go on sale or are offered to you. Fortunately, the market is aware of our plans for growth, so we’ve had our share of offers. At the same time, you can’t control timing and availability, and you have no  quarantee that the other party is willing to take a chance on you, nor that this will lead to everlasting love.’

“You have no guarantee that the other party is willing to take a chance on you, or that it will lead to everlasting love.”

6. Chemistry

‘Other than the due diligence process, the main factors involved in a successful acquisition are commercial and operational in nature, and the two companies also need to be sympathetic in terms of their corporate cultures. You always know your reasons for wanting to buy a particular company, but the question is whether your plans are realistic. I always tell middle managers to take their potential partners out for dinner, just to see if you have chemistry and whether it could work out. If you don’t have that kind of rapport with them, you’ll find that you can’t get anything done after the acquisition without a lot of arguing, and you end up having to put your foot down – which of course is no way to go about things. Although we’re careful not to rush into anything, we’ve also had situations in the past where things turned out differently than we had expected. You might find out that a company’s director-majority shareholder is unwilling to embrace change and turns out to be completely intransigent when the crunch comes. It’s a little like a job application process in that sense: after two or three interviews with a candidate, you may feel they are a good fit, but once they start their probationary period you may find things don’t go as well as expected. With people you always have the choice to let them go, but if you’ve just acquired a company, you’re stuck with it. That’s why I would always advise: better look twice.’

7. Theory vs practice

‘The literature out there on buy-and-build investments tends to focus heavily on the preliminary process and integration strategies. However, as we’ve experienced time and again, the reality is a different ball game altogether. The goals you want to achieve may remain the same,  but the path you take to get there is different each time. You need to think about the types of people you’re dealing with, the other organisation’s interests and vantage point, and so on. The company you’re acquiring could very well be ahead of you in sub-areas such as web strategy, IT or accounting. In those situations there’s little you can do other than ask the company to take a step back. Buy-and-build does not necessarily mean the newcomer will be better off in every way.’

8. Market

‘Something you rarely read about is that, if you use a buy-and-build strategy to break into new countries and tap new markets, you also run a greater risk of having to deal with specific markets going through a rough patch. We’re currently seeing this with the division of Inspecta that operates in the oil and gas industry. This industry has taken a bit of a battering lately, so profits in that particular division are currently down. That means you need to intervene and change tack at an earlier stage than you might want to. That’s something you’re always reluctant to do, of course, but sometimes you have no choice.’

9. Game

‘When we first embarked on our growth trajectory 12 years ago, we could only do so by finding niche markets and establishing a presence there. The next step, then, is to enter a related niche market, or the same market in a neighbouring country. This strategy has certainly paid off – as evidenced by our spectacular growth over the past decade – but it’s also true that the game has changed. We’ve become more critical, and sometimes we’ll pass on a deal for Financial reasons. When a company is being auctioned, I sometimes see competitors outbidding us just for the hell of it. When I’m then told the price afterwards, I tend to think: it’s all well and good, but you’ll be operating at a loss for the first ten years. And you can’t afford for anything to go wrong, or else you’ll never turn a profit.’

10. Management

‘We generally keep the management in place, particularly if we’re not familiar with the local market or if we’re adding new services to our own portfolio. It pays off to invest time and energy in supporting the current management. This is particularly true for a decentralised business model like Kiwa’s, where everyone is essentially free to run the business as they see fit. That’s when personal relationships matter the most: you need to be able to have blind trust in your people. In that sense, I would describe our approach as “letting a thousand flowers bloom”.

But I know from experience that not everyone goes about it that way. I used to work for a major competitor in the TIC industry. Whenever they made an acquisition, they would plough up the entire garden, so to speak, and start sowing from scratch. But that’s not our style at all: we think it’s fine to leave a few plants scattered around here and there.’

See also the vision of NPM’s Bart Coopmans on buy-and-build as a sophisticated growth strategy.