Dry Powder: The Private Equity Podcast Buy-and-Build: Deal Breakers and Deal Makers
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Aug 22, 2024 Discover the buy-and-build strategy in private equity, which drives over half of 2023's deals. Learn how steady industry growth and market fragmentation create unique investment opportunities. Explore case studies that showcase the challenges of mergers, from cultural fit to integration risks. The discussion also addresses the impact of high market multiples and the importance of targeting fragmented industries to maximize value. Tune in for insights on strategic thinking that can navigate the complexities of successful acquisitions.
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Buy-and-Build Popularity and Risk
- Buy-and-build deals are increasingly popular, rising from under 30% of all deals in 2005 to over half today.
- This strategy can be profitable but carries risks, as some investors experience capital impairment.
Buy-and-Build Prerequisites
- Ensure synergistic reasons exist for combining business pieces.
- Pressure-test assumptions about platform attractiveness, industry fragmentation, and lower acquisition multiples.
Industry Selection for Buy-and-Build
- Target large, fragmented, and non-cyclical industries for buy-and-build.
- Avoid cyclical industries where factors like commodity prices or competition can significantly impact earnings.