Building your way to growth

The ‘buy and build’ model has become a key strategy for private equity and corporate growth.

It typically involves acquiring a strong ‘platform’ business and speeding up growth through targeted ‘bolt-on’ acquisitions.

The benefits are clear through its ability to, typically, achieve greater scale, market penetration, and synergies than organic growth alone. However, the success of a buy and build relies heavily on careful legal execution.

From the beginning, a robust merger and acquisition framework is crucial. Due diligence should be proportionate and focus on risks that could hinder integration or undermine the investment thesis.

Sale agreements need to address risk allocation through warranties, indemnities, and, increasingly, the need for warranty and indemnity insurance on the buy-side.

Earn-outs and management incentives help align key personnel.

Regulatory issues are also critical. Consolidation in fragmented markets may trigger UK or EU merger control or sector-specific approvals, such as in financial services, healthcare, or technology. Early regulatory mapping can prevent delays that
may hinder deal momentum.

Financing arrangements should be set up with repeat transactions in mind.

This allows for accordion features or acquisition facilities while ensuring protection of covenants. Governance frameworks also need attention. Boards and shareholder agreements must allow for quick approval of acquisitions while protecting minority rights.

Finally, integration should not be an afterthought. Transitional services, employee harmonisation, brand/IP migration, and intra-group reorganisations all require thorough legal planning to achieve the anticipated synergies – ultimately, the exit horizon for the main investment should always be kept in mind.

For clients, the buy and build approach presents attractive opportunities but it also brings increased legal complexity.

Co-ordination is essential to preserve value, manage risk, ensure steady growth and plan for any potential views to exit.