30.03.21

Buy-and-build: Pemba Accelerate

Mark Bryan

Pemba Capital is an acknowledged leader in buy-and-build growth partnerships, having conducted well over 100 partnerships in recent years. The combination of a strong organic growth outlook supplemented with strategically aligned buy and build initiatives can be extremely value-accretive for founders.

The Pemba Accelerate team focusses on three core value-propositions for our partner companies;

  1. driving a buy-and-build strategy where appropriate;
  2. strategic and operational insights; and
  3. early preparation for a value-accretive exit process.

Pemba can deliver decades of experience to help founders realise a successful buy-and-build strategy. In addition, Pemba has a deep network of well credentialed experts that can be parachuted in to ensure the buy-and-build is well executed.

Inevitably, a buy-and-build strategy carries risk. Harvard Business Review has flagged that between 70-90% of M&A deals fail to deliver value. Within this backdrop it is worth sharing some of the key reasons why Pemba has been able to create a strong track-record of value-accretion by leveraging the buy-and-build strategy.

Sector selection is a critical preliminary stage: Pemba takes a top-down thematically driven approach to investing. We focus in five key defensive growth sectors that typically have a high level of recurring revenue. These qualities provide increased confidence when assimilating a buy-and -build strategy. We invest in sectors where we see consolidation opportunities due to industry fragmentation that naturally lends itself to a buy-and-build.

Strong platform is crucial: our investment model is hinged around identifying a strong platform candidate as the primary investment that will provide a solid foundation to build upon. We then add smaller bolt-on businesses to this platform that make strategic sense. Significant resource is dedicated to understanding the industry and the business to ensure any bolt-on activity makes complete strategic sense and is feasibly possible to integrate in a seamless fashion.

Build a compelling value-creation case: the buy-and-build must be well thought-out from a strategic standpoint. Significant resource is dedicated to understanding the industry leveraging both internal resource and industry experts. The buy-and-build should make sense form a customer perspective and drive an increased customer value proposition from a breadth product and/or service angle and/or improve distribution capabilities.

Management breadth and capability: the core management team of the platform must exhibit an ability to scale and have the foresight to manage various buy-and-build integrations from an operational and financial reporting standpoint. A core component of the Pemba-DNA is a “Sherpa mentality”, in that we dedicate significant resource to helping management teams prepare for the integration process of a buy-and-build strategy. Naturally, an early focus is to put the customer at the centre of the strategy to ensure continued value-creation.

Building a sustainable operational structure: developing a single source of truth for management information is a critical tool to aid strategic direction. Implementing and adopting a mid-market general ledger product is frequently encouraged to speed up decision-making and provide an ability to check the pulse of the business. This is typically one of the first anchor points of the Pemba Accelerate playbook for new platform investments, and materially reduces the risks associated with a buy-and-build strategy. Early in the due-diligence phase and investment rationale process we carefully consider organisational and operational structures.

Organisation structure and managing for synergy: as part of the operational positioning, developing a sustainable and manageable org-structure within the new business is critical. Key positions need to be appointed early for clarity. Typically, we encourage management teams to clearly define responsibilities connected with an integration early in the process.  Further, having built a compelling value-creation initiative we would over-invest in communicating this strategy at the outset to all stakeholders. Customer communication on the merit of the buy-and-build is key. This should enable the combined group to leverage synergies and opportunities for transformation, meaning newco can target higher profitability and growth.

Cross-sell and driving revenue growth: the buy-and-build should ideally involve a clear path to achieving cross-sell benefits to increase visibility and exit valuation. The introduction of new products also facilitates a land-and-expand growth opportunity and helps promote operating leverage into the business model. Pemba Accelerate works with founders to help deploy a strategy around cross-sell and upsell on the back of new product investment during the buy-and-build phase.

In short, a well-thought out strategically sensible buy-and-build plan can add immense value to a business and compliments organic growth. Pemba is a seasoned buy-and-build investor and Pemba Accelerate is well resourced to support founders assimilate a buy-and-build strategy.

If you would like to find out more about Pemba or you are a founder contemplating a buy-and-build strategy or generally want to take your business to the next level, please InMail me on LinkedIn.

Photo by Randy Fath on Unsplash

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