One of the ways to boost growth is through acquisition, but what makes for a successful ‘buy-and-build’ strategy?
Firstly, the acquirer must be aware of the entry point into the new business.
Is it a pure start-up or an established entity?
For start-ups, there is a great opportunity for the incoming owner to clarify the business’ ambitions, support its culture, and help develop its platform, processes and technology. However, this takes a significant investment of both time and money.
An established business may already have these functional elements in place and working well, but it may also have legacy issues, which could make growth challenging.
Taking a start-up to a multi-site model is a big challenge, and a successful multi-site management team might be different to a single-site team. A multi-site model needs more robust, clearly defined systems, processes and operating models, which can be rolled out to new sites and managed remotely. What works for a single-site business may not be appropriate as a business begins to grow and scale, and the acquiring business leader needs to be aware of, and plan for this shift in approach.
It is usually an owner/founder entrepreneur at the head of the acquisitive business.
Entrepreneurs are driven by passion, and working through the challenges of running an SME is part of their day-to-day work. Moving from running to scaling a business requires capital, knowledge and experience to drive growth of the systems, people, data, technology etc, and often, there will be more investment, flexibility and pragmatism required than the entrepreneur initially realises.
Malcolm Hughes: A Chair’s view
The head of our Leadership Dynamics team, Johnathan Massey, recently interviewed Malcolm Hughes; Chair in a number of businesses across different sectors, and the driving force behind several successful buy-and-build strategies, including the Hesira Dental Group, Oasis Healthcare and currently with Thrive Childcare and Education.
Malcolm thinks the most common reason for failure of an acquisition strategy is poor integration. Acquiring businesses might be relatively straight forward, but scaling a platform and getting consistency across that platform can be difficult, particularly if the people in the ‘acquired’ business become frustrated at a perceived lack of support and value-add from the new framework.
Having played in a key role in several buy-and-build journeys in the healthcare, dentistry and veterinary sectors, when Malcolm works with businesses as an executive he focuses on M+A, the broader Finance function, and operations.
Malcolm stresses that service businesses – which make up the majority of ‘buy-and-builds’ – need to be run and developed with a customer focus in the same way that, for example, a retail business would. Although in the sectors he has worked in, customers might be referred to as ‘clients’ or ‘patients’, they are still responsible for providing revenue for the business, and should be treated as such; with the same focus on customer service.
Malcolm’s two biggest pieces of advice for executing a successful buy-and-build are:
- Choose the management team for the newly acquired business carefully. The chemistry has to be good, functional skills need to be strong and there needs to be an understanding of the growth journey ahead.
- Make sure correct funding is in place with the right partner. The level of investment needed is often more than the SME leader will realise in the early stages, which is why experienced partners and leadership teams are vital to supporting the acquired business on its integration and growth journey.
Rowan works with business owners who are looking to drive growth, and we have deep experience in appointing both management teams and executives that can successfully execute an acquisitive, ‘buy-and-build’ strategy.
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