Buy and Build Strategy
This week's episode of the M&A Science podcast is about how PE firms can ramp up the growth of their businesses using the buy or build strategy. I interviewed Adam Coffey, CEO at CoolSys, Refrigeration and HVAC Systems, and author of The Private Equity Playbook. Here are some of the highlights:
"In a service business, culture is king. Your product is people and you need to talk to people and have a message that resonates with people in the trenches." - Adam Coffey
What is Buy and Build Strategy
A buy and build strategy is essentially PE firms acquiring other businesses that are in the same industry as their platform company, and then integrating them all together. The firms could buy in other industries, but it is a strategic way to add new capabilities to their existing platform and make it scalable.
When to Consider this Strategy
PE firms usually look for 3x multiple of their invested capital. Before they can achieve this, a company needs to be growing 25% to 30% compounded annually. If you are in a highly fragmented industry and your company cannot grow 30% organically, then this is applicable to scale.
Building an M&A Team
If you plan on doing this for a long period of time, you need to do it in-house. It is best to have dedicated people who will continuously learn from past processes and retain their knowledge and information about the strategy.
Importance of Culture
Adam strongly believes that the secret to building top-line growth in a services business is to focus on people and culture. If you are a service company, then your product is people. If you have a good culture, you will get an engaged workforce that will care for your customers, and then revenue will follow.