Five top tips for unlocking growth: Maximising efficiency in buy-and-build acquisition strategies

Buy-and-build acquisition strategies have emerged as a powerful means for companies to expand their market presence and accelerate growth. However, executing this efficiently is vital to ensure you are creating value from an effective and successful bolt-on strategy. In this article, we delve into key tactics and provide some top tips for optimising efficiency in buy-and-build acquisition processes.

Heads of terms

Invest in your precedent

Investing time to work up a precedent with your advisers can significantly streamline negotiations and can avoid incurring unnecessary fees in drafting and exchanging contrasting positions across multiple turns of long-form corporate documents. Having a precedent that you are familiar with will enable you to open a constructive and commercially focussed position with the sell-side team.

Avoid the temptation to 'park' the key issues

Addressing key points such as de minimis and basket claims thresholds, restrictive covenants, and earn-out mechanics at the outset is essential. In a market where deferred and contingent consideration mechanics are more and more prevalent, conditionality and protections are a hotbed for negotiation. Having these early discussions not only saves time and professional fees but enables you to foster smoother and more co-operative negotiations, particularly before inevitable seller transaction fatigue kicks in.

Legal due diligence

Have an effective kick-off call

An initial kick-off call with representatives from all adviser teams led by management allows the parties to introduce the business, its history, the product and the people, enabling the parties to identify material focus points from the outset, saving significant time for both the buy-side and sell-side. We've seen this used effectively as a tool for getting advisers up to speed quickly, which enables them to address common questions early, reducing repetition and streamlining the process.

Scope legal due diligence (DD)

It's important to work with your advisers to:

  • Ensure that diligence scopes are proportionate and sensible having regard to the size and risk profile of the target business (avoiding overlaps where possible).
  • In the context of legal DD, agree on a materiality threshold and style of reporting that works for you and your internal/external stakeholders. We have worked closely with our clients to develop a sensible targeted scope, dovetailed with a tailored legal DD questionnaire, which is a vital tool in ensuring that the legal DD process can be completed within the project timeline, and we regularly adapt reporting styles to meet our clients' needs. In certain deals, it can be useful to request that particular areas of DD be accelerated/prioritised to allow the identification of deal breakers or to confirm that there are no issues in these areas at the earliest opportunity.

Transaction documents

Provide a reasonable starting point

It sounds obvious, but providing a reasonable starting point for the long-form corporate documents allows you to have a genuine conversation with the sell-side team around streamlining the negotiation process and minimising any issues raised in relation to material points. We have worked with a number of PE portfolio companies to agree on sensible precedents that can be rolled out without material or prolonged negotiation. This approach also allows reporting to internal stakeholders/investment committees on a 'by exceptions' basis, which can streamline the process further.

Take a practical approach to warranties

In practice, the number of warranty claims that we see is relatively low and a number of our repeat acquirer clients have never brought one. With that backdrop, offering a sensible basket and de minimis threshold as part of a reasonable package of limitations will give the sell-side team confidence that you have no intention of bringing claims for minor issues, as well as streamlining the warranty negotiation process. Closing down some of the points at heads of terms stage will also provide for positive foundation for dealing with some of the more contentious points.

Use key issue summaries

At the appropriate stage in the process, the use of key issues summaries along with a constructive call involving all parties, can be useful tools which can help to resolve points early rather than the parties becoming entrenched on points of principle rather than fundamental legal or commercial concerns.

Robust integration planning

A robust integration plan that outlines specific timelines, milestones, and responsibilities for integrating the acquired business and its workforce seamlessly into your group is vital to creating value with a successful buy-and-build strategy. From the outset, it's important that both companies recognise and acknowledge their differences and work together to create a unified culture that reflects the best of both organisations. In doing this, your people will feel like they are part of the journey towards a bigger and better combined business and be invested in the process. See our article on how to achieve successful post-acquisition integration here.

Leveraging technology and data analytics

Technology and data analytics play a pivotal role in enhancing efficiency throughout the transaction process. Consider developing relationships directly with key technology partners (e.g. data room providers) to benefit from cost efficiencies and bespoke buy-side data analytic tools during the acquisition process, as well as enabling you to continue to develop the business throughout the investment lifecycle and towards exit.

If you have any questions or would like to discuss the issues in this article, please get in touch.

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