The basis of a ‘buy and build‘ approach seems simple; merge a number of companies that fit well together, and the sum is worth more than the parts. However, merging companies is no easy task. From research shows that a large proportion of mergers and acquisitions fail because management fails to bridge cultural differences, among other things, and has to contend with staff departures due to unrest and dissatisfaction. Culture eats strategy for breakfast’ is a well-known saying that relates to this. The key question that must therefore always be asked is: does the company fit strategically, financially and culturally with my current business and what value can it add?

Therefore, to make a “buy and build” strategy a success in practice, the following 4 principles are important:

• Clear strategy and vision
• Strong management team
• Scalable business model
• Fragmented market

These principles can really be seen as hard preconditions for success. We therefore discuss them in more detail below.

Strategy and Vision

The starting point of a successful buy and build is a clear strategy and vision, focused on value creation. Questions that must be answered around the strategy and vision include:

• How is the market divided and in which market segments do we want to grow?
• What competitive position do we want to take after implementation?
• What are opportunities and shortcomings in our portfolio, services and expertise?
• What geographical areas are strategically important to us?
• Do we want acquired companies to integrate, or operate stand-alone?
• How can we take advantage of economies of scale and synergies?

Strategic reasons for a “buy and build” could include:

• Standardization
• One-stop-shop
• Digitization
• Pooling of expertise
• Growth through acquisitions
• Increasing competition
• Chain formation

Strong management

Integration of acquired companies should not be underestimated. A strong management team with a proven track record of acquisitions and integrations is therefore essential to the success of a “buy and build.

Purchasing a business is only a small step in the value creation process. It is precisely the integration phase, which comes after every transaction, that is essential. As stated earlier, bringing different corporate cultures together is a challenge that cannot be underestimated. Leadership and experience are needed to point the faces of both companies in the same direction. Once the staff sees the value of the combination and is willing to make adjustments, the challenge of joining forces and creating synergies begins.

Scalable business model

With strong management and a clear strategy, value creation is possible in many different areas. For example, depending on the situation, the following economies of scale and synergies can be realized.

Some examples of synergy:

• More effective use of staff personnel
• Knowledge Sharing
• Housing and facilities
• Cross-selling
• More customers and segments

Some examples of economies of scale include:

• Improving bargaining power
• Deploying technology on a broader scale
• Strengthening competitiveness
• Quality of personnel

Fragmented market

In a fragmented market, there is much room for market consolidation provided there are companies operating that offer similar services or products. Consolidate literally means to merge. Market consolidation occurs when firms merge through mergers and acquisitions, reducing the total number of providers in the market.