Buy and build

A buy and build starts with a platform, meaning a company with the management, systems and market position to absorb others, and then acquires smaller businesses in the same sector over the hold. Two things are supposed to happen. The acquired earnings are re valued at the platform's multiple, which is multiple arbitrage, and the enlarged group becomes genuinely more valuable through purchasing scale, shared overheads, cross selling and a wider footprint.

It is popular with sponsors for reasons beyond the arbitrage. It deploys capital into a business the sponsor already understands, it grows EBITDA without requiring the platform to grow organically, and it can be funded with incremental debt rather than a second equity cheque, which keeps the money at work rather than adding to the amount invested.

The failure modes are consistent enough to be worth listing. Integration is the whole thesis and is frequently under resourced, leaving a holding company rather than a business. Acquisition multiples rise as the obvious targets are taken. Leverage creeps upward because each acquisition is debt funded and individually modest. And management bandwidth, rather than capital, is usually the binding constraint on how many acquisitions can be absorbed at once.

In interviews the strategy is a good test of whether a candidate can separate arithmetic from execution. The value created on paper is the acquired EBITDA multiplied by the difference in turns. Whether it survives to the exit depends on integration, and an answer that gives the first without the second is only half of the question.