Especially in markets with few dominant market players, small and medium-sized enterprises (SMEs) are faced with the question of how to position themselves for future challenges. In competitive markets, SMEs rarely succeed in achieving significant sales growth and meaningful margin improvement.
Buy-and-build is an investment strategy of financial investors that results from a shift in value creation from financial engineering to operational excellence. Potential for value creation is sought not only in restructuring the capital side of corporate balance sheets, but also in consolidating fragmented markets. This strategy is implemented by acquiring a company as a platform that has a core technology and is already well positioned in the market. Through follow-up acquisitions, smaller companies, so-called add-ons, are taken over and integrated to expand the business areas. On the one hand, the merger of several companies enables a rapid expansion of new products and services in new markets and regions. On the other hand, cost savings can be realised by merging corporate functions, such as accounting.
Both, platform companies and smaller add-on companies, benefit from this strategy in many ways. For platform companies, buy-and-build offers the opportunity to overtake their direct and indirect competitors through additional inorganic growth. By pooling sourcing volumes, the group strengthens its negotiating position with suppliers in purchasing and can improve its payment terms. When research & development activities are combined, the Group gains skills and expertise for which each company would have spent significantly more individually. When production capacities and personnel are combined, the companies can smooth out their utilisation during peak and downtime periods. Smaller companies in particular benefit from a stronger perception by the customer and, with the financial strength of the group, have the security of being able to act as an independent brand.
Kloepfel Corporate Finance is currently supporting the establishment of a group of companies in the fire protection sector. With the sale of MULTIMON in August 2020, the financial investor Deutsche Beteiligungs AG is taking over one of Europe’s leading suppliers of fire extinguishing systems. With the industry expertise of the old management and the financial strength of the new investor, a new platform company in active fire protection is created with FIRE Holding. By selectively acquiring market companions, FIRE Holding can expand its market regionally, while add-ons benefit from the advantages of a group. While retaining their operational structures, they can hand over administrative tasks to the group and accept and execute orders beyond their own capacities. TBS Brandschutzanlagen took this step in December 2020 and joined FIRE Holding. Both companies retain their employees and management.
In a buy-and-build strategy, the services of a financial investor go beyond the mere provision of equity capital and also include the provision of management services. As a succession arrangement involving the roll-over of key personnel (management buy-out), buy-and-build offers SMEs the opportunity to sustainably position themselves in the long term while preserving their own identity in competition.