28 DEALMAKERS
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“Valuations in these markets are at an all-time high, making such approaches extremely attractive to vendors considering an exit or sale in the near future.”
He adds: “It is a proven effective way to drive significant growth over a period of time. Often, when a PE house makes an initial investment, a buy-and-build strategy will sit at the heart of the long-term plan for the business.”
Steven Kingham, partner and head of transaction services for EY in the North West, agrees. He says: “It’s a very popular route to growth, particularly amongst businesses that are private equity backed or have aggressive growth strategies. It can also be used to build up the value of a business.”
existing investments than starting on entirely new ones.”
Buy-to-build is also used by companies to acquire specific capabilities or technologies they don’t already have. Steven says: “It can be a quicker route than developing these in-house. Sometimes it is to expand into new territories and markets.
“Some businesses are looking for synergies to increase profits. Cross-selling is a big feature for a lot of businesses now.
Organic growth
takes a lot of time and one of the best ways
to accelerate could be with an appropriate M&A deal
“When making a bolt-on deal, you need to get to grips with the business you are acquiring and really understand what it does and what it is all about.”
Kaine Smith
He predicts: “We are likely to see more of it in the post-Covid world where organic growth is hard to find. People will naturally look towards bolt-on deals to fill the gap in growth.
“Private equity houses also have large amounts of money they are sitting on and want to spend. It is easier for them to spend that on building
Inspired Energy’s Mark Dickinson says: “First and foremost you need to think about your organic growth. Once you’ve got plans in place for growing your business organically, the question becomes, ‘how can you accelerate?’
“Organic growth takes a lot of time and one of the best ways to accelerate could be with an appropriate M&A deal.”
He says that in a fragmented market, growth through acquisition can be both more cost and more time effective and accelerate an increase in market share that would take years to reach organically.
Steven Kingham
He says: “We know our market and we have a very structured process to make sure we are reaching out to businesses that are of interest. Businesses we are interested in now may be looking to sell in 2025. It is about keeping the dialogue going.”
He stresses due diligence as “massively important” and adds: “You’ve got to look at the culture of the business, we look at things like staff turnover rates, what their values are and how they deal with employees.”
Inspired will remain on the acquisition trail. Looking ahead to next year Mark says that the business is likely to set its sights on overseas targets with European expansion in mind. “It’s very much a case of watching this space,” he adds.
Other attractions to the strategy include the way acquisitions can also bring in more talent to an organisation.
Mark adds: “The key thing is you need to have a way of building a pipeline.” He describes Inspired’s approach as like that of a football scout with the business tracking and keeping in regular touch with possible future targets.
Expert View WHY ‘CULTURE’ IS SO IMPORTANT by Nick Hodgson Forbes senior associate – corporate
One of the quickest ways to grow a company is through Mergers and Acquisitions (M&As). Bolt-on deals are smaller and less risky than large scale M&As.
There are, however, pitfalls that should be considered throughout the acquisition process.
The thing to remember with bolt-on deals is that the target company should do exactly that – ‘bolt on’ to your company. The target company needs to be easily integrated, otherwise, you may find that the acquisition does not result in the growth you had anticipated.
For example, you could acquire a target company and gain new customers; however,
if you substantially decrease the quality of service that the customer is used to, it is likely that they will take their business elsewhere.
To overcome this, we see a lot of sellers being retained, whether as employees in the management team or on a consultancy basis, to support the integration process.
The same goes for new employees. If your company’s culture is very different to that of the of the target company, it may be difficult to integrate the new employees.
You may end up spending a considerable amount of time and money on attempting to integrate the new employees and there is
always the chance that they will resign.
It is also important to remember that, following the acquisition, you will not only take on the benefits of the target company, but you may be taking their liabilities as well.
It is vital that thorough due diligence is carried out before the acquisition, so that you can determine whether the potential growth outweighs such liabilities.
When considering bolt-on deals it is imperative that you take care in choosing the target company and have proper legal and financial advice throughout the process – especially during due diligence.
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