Buy-and-Build
Buy-and-build is a private equity strategy in which an investor acquires one company as a platform and then buys several smaller ones in the same market to add to it, integrating them into a larger business that sells for a higher multiple than the pieces were bought for. The value comes from scale, shared costs and the gap between small-company and large-company multiples.
- Also known as
- Buy and build, Platform strategy, Roll-up
- Used at
- fragmented markets with many small operators — payments, insurance brokerage, wealth management, accountancy
- The arithmetic
- platform bought at 10–12× EBITDA, bolt-ons at 5–8×, the whole sold at 12–15×
- Typical programme
- a platform plus 5–20 bolt-on acquisitions over 3–5 years
- Financing
- the platform's debt facility usually includes an acquisition line for the bolt-ons
- The risk
- integration, which is where roll-ups fail
How buy-and-build works in practice
A private equity fund buys a payments company with €10m of EBITDA for €120m — the platform. The same market has forty smaller processors, each with €1–2m of EBITDA, each too small to interest a large buyer and each priced accordingly at 5–7× earnings. The fund buys eight of them over three years for €70m in total, adding €12m of EBITDA. Moved onto the platform's systems, licence and sales team, the acquired businesses shed duplicated costs and the combined EBITDA reaches €28m. Sold at 13×, the group is worth €364m; the fund paid €190m. Multiple arbitrage — buying small and selling large — did some of the work, and integration did the rest.
The strategy's appeal in fintech is the number of sub-scale licensed businesses: payment institutions and e-money institutions that obtained a licence, built a product and never reached the volume their cost base needs. Each is a candidate, and a platform with a licence, a compliance function and a scheme membership can absorb their customers at a marginal cost the standalone company could not match.
Integration is where the model breaks. Eight acquisitions mean eight platforms to migrate, eight sets of merchant contracts to renegotiate, eight compliance histories to inherit, and eight founders who sold to leave. A roll-up that leaves them as eight companies with one holding company has bought EBITDA at a low multiple and will sell it at a low multiple, and the debt taken on to buy them is still there.
Example
A fund acquires a UK payment institution with €9m of EBITDA for €108m (12×) and an acquisition facility of €80m. Over three years it buys six smaller processors for €54m combined (average 6.5× their €8.3m of EBITDA), migrates five onto the platform, and cuts €4m of duplicated cost. Group EBITDA reaches €21.3m, and the fund sells to a listed acquirer at 14× for €298m. Total invested €162m; the sixth acquisition, never migrated, is sold separately for what it cost.
Common mistakes
- Buying bolt-ons faster than the platform can integrate them. - Paying platform multiples for bolt-ons because the seller knows the buyer's strategy. - Counting synergies before the platforms are merged. - Inheriting six compliance histories without diligence on each, and finding the regulator's file after completion. - Assuming the exit multiple: a roll-up sold in a downturn is priced on its debt, not its story.