A buy-and-build strategy is an effective method of growing a business, provided you identify the right acquisition candidates. This strategy, in which a platform company expands by making strategic acquisitions (so-called "add-ons"), is increasingly used by entrepreneurs seeking economies of scale and a strengthened market position.
However, obviously not every business is suitable as an add-on within a buy-and-build strategy. How do you determine whether a company actually adds value to a platform? In this expert contribution, we share practical insights and criteria to better assess this.
At MKB Fonds, we have a proven track record in successfully implementing buy-and-build strategies. Since 2012, we have successfully completed more than 100 transactions, more than half of which are add-ons. A striking example of this is Futureproof Group, a group of IT service providers (MSP sector). Since joining in 2013, we have grown this group by completing more than 30 acquisitions. Another success story is P&D Group, active in the packaging industry. Since our involvement in 2017, we have strengthened this group with 15 add-ons.
Based on our experience, we have identified 4 essential conditions that a successful buy-and-build candidate must meet.
1. Active in saturated market with economies of scale.
Buy-and-build strategies are most effective in saturated markets where economies of scale are essential. In these markets, organic growth is often more difficult to achieve, while consolidation offers opportunities to reduce costs, realize synergies and strengthen competitiveness.
Example: in the packaging industry, centralized purchasing yields major cost advantages, while shared logistics improves efficiency. In the MSP industry, bundling customer portfolios leads to economies of scale and a broader service offering, benefiting both the customers and the platform.
2. Strategic fit
A successful add-on fits seamlessly into the platform's long-term strategy. This is more than a logical addition; the business must strengthen the platform's unique value proposition.
Example: at P&D Group we focus on businesses with complementary (niche) products that strengthen the current product range or offer access to new customer segments and markets. For Futureproof Group, we look for companies that add value through innovative cloud solutions or specialized IT services, among other things, as well as expansion into new geographic regions.
3. Synergy benefits
Synergies are the foundation of a successful buy-and-build strategy. These can be both operational advantages, such as joint purchasing, shared technologies or more efficient logistics processes, and commercial advantages. Think of introducing new services for existing customers, exploiting cross-sell opportunities or relieving employees by creating central support functions.
Example: at P&D Group, we experienced how economies of scale in procurement and logistics not only save costs, but also strengthen customer relationships. Within Futureproof Group, integrated technology platforms provide more efficient services and new commercial opportunities.
4. Demonstrable growth potential
While financial stability is important, a successful buy-and-build strategy revolves primarily around the growth potential of an acquisition candidate. A good add-on offers concrete opportunities to achieve top-line growth or improve operational efficiency. This may come from expansion into new markets, a larger customer base or adding valuable product or service.
Smaller, regional players often experience accelerated growth once they become part of a larger platform. Economies of scale, strategic support and access to a broader network allow them to achieve growth that would not be feasible on their own.
Practical tips for entrepreneurs
For buyers: take a structured approach to assessing acquisition candidates. Combine financial due diligence with an analysis of strategic and operational fit. Look for businesses that offer synergy benefits and growth potential, and make sure they align with the platform's long-term strategy.
For sellers: do you want to make your business attractive to a buy-and-build platform? Provide transparency in finances, a clear growth strategy and a solid organization. Show how your business adds value to a platform, for example through synergies or market access.
