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The success factors of buy & build-strategies according to Bart Coopmans

Buy & Build

12 October 2016

What is the secret behind a successful buy-and-build strategy, and which of these factors are decisive for successful integration? We asked NPM Capital’s Investment Director Bart Coopmans to answer five of our most pressing questions.

1. Some would argue that buy-and-build strategies appeal mainly to private equity firms looking to quickly increase the revenue and profitability of an equity investment so as to facilitate a successful and relatively swift exit. What is your take on this?

‘We tend to use buy-and-build strategies primarily for companies that have a scalable business model, by which I mean that increasing their scale would be disproportionally beneficial for their operations. This might be because it provides them with cross-selling opportunities (‘cross-selling’ refers to selling additional products to existing customers – Ed.), which results in quick revenue growth. Another advantage might be that the company can implement a specific technology on a larger scale – or there may be other cost-saving opportunities involved. In these cases, buy-and-build is a way to enable a company to benefit from these advantages sooner, and become a more effective and successful business in the process.’

2. There’s no such thing as the ‘perfect’ strategy, but if you had to name the five success factors of a typical buy-and-build strategy, what would they be?

‘First of all, you need a company with a clear strategy and an explicit role for buy-and-build so as to improve the business and make it more effective. You also need a clear vision on making acquisitions and the approach to integrating these. Secondly, you need a strong management team at the helm to successfully implement the strategy. 

And a third success factor is the one I just mentioned: a scalable business model, preferably one that can be implemented internationally. A fourth factor is that the company operates in a fragmented industry with a sufficient number of potential takeover candidates. And finally, the company should preferably already have experience with acquisitions and their successful integration.

3. Which of these success factors would you say are decisive for NPM, and why?

‘NPM focuses strongly on a solid management team that can support this strategy, the scalability of the business model and the extent to which there is a really clear and there is a specific plan in place to successfully integrate the acquisitions.’

4. Private equity firms have been known to make changes to – and sometimes replace – the current management team soon after acquiring a company. What are your views on this?

‘Whenever we invest in a new company, we essentially also invest in that company’s management. 
That is to say, we must believe the management is able to successfully implement the strategy presented. In other words, strategy and management are both important factors. Sure, a company’s management needs may change significantly during the investment period, to the point where the management structure that was in place at the time the company was established is no longer effective. Start-up companies are rarely successful in continuing to manage their business effectively once they have hit one billion in revenues. So what we do is rely on the management, while at the same time remaining alert together that the combination of company and management continues to be effective.’

5. Do you feel there are any particular benefits to making bolt-on acquisitions compared with more generic buy-and-build strategies?

‘I would say there’s a grey area between bolt-on acquisitions and buy-and-build strategies. I see bolt-on acquisitions as involving a number of smaller acquisitions made by a larger company, for example to add specific capabilities. The objective here is different than with a standard buy-and-build strategy, which focuses more on making repeated acquisitions to increase the company’s scale and taking advantage of the benefits this brings.’