Posted: 31 August 2021

Buy and build - accelerating growth and building resilience

Buy and build - accelerating growth and building resilience

In this short piece, senior investment manager Edward Minton looks at how WestBridge supports buy and build strategies at portfolio companies and the associated benefits.

Buy and build strategies involve making a number of strategically aligned acquisitions of smaller companies and integrating them into well capitalised and stable platform businesses. They are an effective way of accelerating growth through a combination of increased market access and the expansion of products, services and capabilities.

The private equity landscape today is characterised by strong competition and high pricing multiples, especially for scarce, quality assets. Against this backdrop, buy and build strategies continue to gain in popularity, as they provide investors with the opportunity to put more capital to work whilst enhancing value creation in their underlying portfolios.

At WestBridge, we have a strategic focus on buy and build and are proactively seeking out fragmented markets that are ripe for consolidation. Where appropriate, we define explicit strategies for building value centred around established platforms with exceptional management teams. We partner with management from the outset to develop and refine strategies, often building upon already defined organic growth plans.

We recognise the difficulties in executing a buy and build well. We therefore undertake extensive market mapping before investing in our platforms to ensure that we can credibly articulate the strategic rationale. Key to this is identifying a handful of smaller targets in the same or adjacent markets that have the potential to provide strategic and scale benefits.

Given the often immature nature of the add-ons, we encourage and support proactive integration planning as soon as we have access to the opportunity. The aim is to mitigate, as best as we can, the risk of any value erosion post deal. Pre-deal planning is therefore important, and for us involves focussing, not only on operations, systems, sales and costs, but more importantly on people and culture. This is managed through effective communication. Getting this right ensures that we retain our top talent and maintain staff morale, ultimately positioning the combined group as best as we can to capitalise on the growth opportunity.

Pricing is also a key determinant in maximising value and returns. The benefit of a buy and build strategy is that it provides investors with an opportunity to acquire smaller businesses at lower entry multiples. Buying right and realising cost synergies should contribute to reducing the blended cost of acquisition. Given the market’s tendency to assign higher pricing multiples to larger businesses, this presents significant opportunities to realise a value boost on exit through multiple arbitrage.

Buying to build scale and capabilities at Bespoke Health and Social Care (BHSC)

WestBridge supported the MBO of BHSC in June 2020. The strategy was defined from the outset as a targeted buy and build in the complex and LDA (learning disabilities and autism) at-home care market. Our journey with management started with an immediate target pipeline of five businesses, one of which we acquired within seven months of completing the platform MBO. The add on was a high strategic priority given the opportunity for immediate access to an unserved region and strong capabilities in an underrepresented service line. It also provided the added benefit of scale, contributing c. 25% of the group’s profit.

Clinical excellence and an uncompromising focus on quality of care remain at the heart of BHSC. Therefore, whilst M&A remains a strategic imperative, it is approached on a highly selective basis to ensure quality standards are maintained. With a handful of further targets in sight, the management team are well progressed in achieving their goal of building a leading service provider in a niche growth market.

WestBridge partners with management and typically invests between £10m-£25m in established, profitable and fast-growing UK SMEs with enterprise values of up to £50m. We are always keen to hear from ambitious management teams seeking acquisition funding, support for a management buyout or development capital. Our WestBridge value creation methodology seeks to partner with management to optimise business growth and outcomes for all shareholders. To hear more about our investment criteria or discuss the suitability of a company, do get in touch.

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