Brutal discipline aside, three factors determine the success of this value-creation strategy.
The private equity (PE) market, once a niche sector, has become a mainstream investment avenue with a growing number of players that are intensifying competition and driving innovation. This, combined with higher interest rates and shrinking arbitrage, means investors must push the boundaries of traditional investment strategies – as well as of typical industries – to achieve their desired returns.
For one thing, PE firms can no longer rely on leverage as the primary lever for value creation. They must shift towards performance-based improvements in operations, strategy and structure.
One such approach, which lends itself to both non-traditional industries and non-traditional value creation, is the buy-and-build strategy. While often associated with tech, this strategy has proven effective across industries, especially in fragmented markets where consolidation can create outsized returns.
Buy-and-build as a value creation strategy
In the tech sector, rapid innovation cycles and proprietary technology make acquisitions a risky yet necessary strategy for companies to maintain a competitive edge. It is not uncommon to see competitors of a company being acquired to consolidate a fragmented industry, in what is known as a roll-up strategy. A company may also acquire adjacent companies to expand into new geographic or product markets.
At its core, buy-and-build is a scaling play: PE firms acquire a well-positioned platform company and strategically bolt on smaller related firms over time to accelerate growth, enter new markets or consolidate fragmented sectors.
In practice, a PE company might acquire 1-2 portfolio companies per year within 3-5 years and hold on to them for the next 5-7 years – much longer than traditional funds do. At the end of the holding period, the PE will exit the investment via a sale to public investors, be it through an initial public offering (IPO), to a strategic buyer or to another PE firm.
In order to return the capital plus a return to its investors (known as limited partners), PE firms work with the add-on companies’ management to increase the value of the platform company, such that the latter is worth multiple times more by the time of exit. Value creation could be achieved though operational improvements, cost synergies and revenue enhancements, but its success ultimately hinges on how well the companies are integrated. In fact, post-merger integration, which demands deep sector knowledge and a tailored approach, is one of the most critical phases in buy-and-build strategies.
The art of integration
We looked at the best practices from post-merger integration research and spoke to three PE firms headquartered in Europe, which have each acquired 300-500 add-on companies in the last 10 years.
Successful platform companies are not defined by the number of rolled-up companies but by a coherent vision and relentless strategic intent. Of the three companies that we interviewed, one set out to create market leaders in fragmented markets, one focused on helping companies with strong market positions and growth potential to expand internationally, and the last invested in growth-stage software and technology companies that were ready to scale.
Below, we highlight their methods and propose effective strategies for growth and competitive differentiation.
1. Well-supported leadership team
Leadership plays a critical role in the success of the buy-and-build strategy, especially in high-growth and niche industries where specialised knowledge is vital. Retaining and supporting leadership and key talent is not only essential to maintaining continuity and innovation post-acquisition, but also for cultural alignment.
Firstly, it helps to define the management team structure of the combined business before post-merger integration begins, and to appoint a C-level sponsor for the integration. Once the leadership structure is put in place, the PE firm needs to support the management of the platform company, who may not have the necessary post-merger integration experience. Hence, management executives must be provided with the same integration support regardless of prior experience.
It is important that the PE firm provides dedicated integration support led by its operating partners or portfolio operations team. This “integration SWAT team” often includes former operations executives with deep functional expertise, enabling a hands-on approach that bridges strategy and execution. In one of the companies we spoke to, the support team builds an integration plan (including a business plan) and works with the platform company’s COO to create integration cells for specific workstreams. Another company offers peer support by introducing the platform company CEO to the CEOs of its portfolio companies who have carried out similar acquisitions.
2. Speed and accountability
In PE, the optimal timeline to integrate an acquisition is limited by the typical holding period of 5-7 years. At a pace of one, two or even five acquisitions per year, speed is of the essence.
The companies in our study emphasised the importance of initiating post-merger integration within the first 100 days of an add-on acquisition and providing extensive support to the platform company during this critical period. One company we spoke to established high-level integration plans to ensure that finance, governance and controls are integrated within the first three months.
Essentially, integration milestones must be tracked and reported with the same rigour as financial targets, with progress reported to the relevant stakeholders in the platform company. Transparency in reporting is equally important, reinforcing the need for discipline in execution and keeping everyone aligned through the inevitable roadblocks.
For one company that acquires one company every 6-12 months, it standardises integration through a tailored but replicable support structure. It created modular systems (or blocks) that can be implemented immediately upon every acquisition to redefine the business model and operational framework of the add-on company. This process is guided by a dedicated team assigned by the PE firm. Without such structures, integration at such high speed can lead to chaos.
3. Collaboration mechanisms
The importance of culture, communication, collaboration and trust in post-merger integration cannot be overemphasised, particularly in industries such as technology and pharmaceuticals where access to intellectual property and R&D knowledge is key. The most effective PE firms don’t leave these four elements to chance. Intentional collaboration mechanisms between the platform company and acquired company are needed to foster coordination and collaboration.
In particular, colocation and mirroring teams were found to be effective in technology acquisitions. Colocation requires the platform company’s management team to spend significant time onsite at the add-on company. Further, mirroring teams with a balanced composition of members from the platform and acquired companies can be helpful in integrating workstreams, including through the transfer of product or market knowledge.
The need for brutal discipline
While the buy-and-build approach can create significant value, it is also fraught with operational complexities, particularly in portfolio integration and talent management. A recurring theme throughout our research is the importance of leadership, meticulous planning from pre-deal to execution, and a champion with in-depth industry knowledge.
Integration isn’t won with frameworks – it’s won through disciplined leadership, sector fluency, and repeatable and robust support systems that hold up under pressure. Firms that master buy-and-build don’t just manage acquisitions; they operate integration like a core capability. And while the “secret sauce” to portfolio value creation may seem conceptually clear, achieving it in practice requires something rare: rigorous and cohesive execution, guided by what could best be described as brutal discipline.
