There are many benefits that can be reaped from the buy and build strategy. In addition to providing a ready-made platform for Durandisse Industries to expand and grow, it also allows our subsidiaries to expand by acquiring other firms that add value to our subsidiary’s business. It takes time for the employees of a company to develop the proper skills to do their jobs competently, but acquiring companies that are already proficient in the needed areas of growth can greatly accelerate the learning curve. This is the primary appeal of the buy and build strategy, because it allows companies to quickly acquire the needed expertise to expand the business in the direction that it desires.
Needless to say, the success of the buy and build strategy depends heavily upon how successfully and efficiently the acquired businesses can perform. The companies that are bought should be able to work well with each other as they become part of a larger team that needs their operational efficiencies to mesh smoothly.
This is why buy and build strategies are commonly employed by private equity firms with a time frame of three to five years. Funds that are available for this time frame can expect to see a reasonably fast return on capital because of this strategy.
Private equity firms generally use this strategy more often than anyone else, but it is also used by strategic buyers, publicly traded companies and closely held businesses. Buy and build deals can generate returns of over 30% from start to finish, while standalone deals usually only generate returns of about 23%. Because of the myriad of changes that are implemented into the companies being bought out, the structure and transitional phase of a buy and build deal must be handled with great care by the buying firm. If the transition phase does not go smoothly, then the value of the buying firm may decline.