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You might have come across the term in newspapers or on private equity fund websites: Buy & Build. This term refers to a well-known strategy in the private equity world to generate value by combining various separate companies into a larger group, and then selling that group at a certain premium.
Scaling up
In its most basic form, a buy & build involves purchasing and integrating various companies from a specific sector into a single enterprise. This is often done to reap the benefits of scaling up, such as by managing IT and administration collectively. In practice, we encounter several variations on this theme. Often, a company with some size and a strong brand position is used to lead the merger process. Such a company is then called a "platform," to which other companies are connected. These companies are then referred to as "add-ons." Another form of buy & build involves acquiring not companies of the same type, but those that complement each other to form a vertically integrated chain.
Strong brands
When assembling a Buy & Build, the investor has several important decisions to make, particularly regarding the integration of the group and how the group will be managed. Will the old brand names be retained, and will the companies remain under their own management? The answers to these questions are not set in stone, as they vary for each sector and case. A good example of Buy & Build is the software group Visma. This originally Norwegian company, with the support of private equity, has acquired dozens of software suppliers in recent years. These companies largely operate under their own name and management but do utilize the central services of the group. For instance, there are internal service centers for matters such as HR and software development. Additionally, all the individual companies can benefit from the group's extensive sales network.
Investing in private equity is possible at Marktlink Capital starting from €250,000. Want to know more? Then contact our team.
