The buy-and-build strategy involves acquiring a platform company and accelerating its growth through a series of targeted bolt-on acquisitions. These typically smaller targets help extend geographic reach (national or international), add customers, vertically integrate, and/or expand the product and service offering.
For private equity, few strategies have been as consistently effective as the buy-and-build model. What began as a niche approach to consolidating fragmented markets has evolved into a core value-creation practice. Today, more than half of private equity platform deals complete at least one add-on acquisition during the hold period, increasing average internal rates of return by ~8.5% (BCG).
The buy-and-build strategy is an engine for growth, but doesn’t always fire flawlessly. In a higher-rate environment and with growing integration complexity, the model requires operational discipline to remain scalable.
The Divers of Returns:
Multiple arbitrage is the central financial mechanism through which buy-and-build strategies create value.
In its simplest form, a sponsor acquires a platform at one multiple (say 10x EBITDA), then adds smaller bolt-ons at lower multiples (for example, between 6–8x EBITDA). The platform will, in general, command a higher entry multiple as the larger business with more scale and management infrastructure.
The sponsor exits the combined, larger group at the platform multiple (10x in this case), or a higher multiple, with larger businesses generally commanding a size premium.
The arbitrage can be understood in two ways. First, each bolt-on lowers the blended entry multiple, as lower multiple acquisitions are folded into a higher-multiple platform. Second, when a business is acquired at, for example, 6x EBITDA and becomes part of a larger group valued at 10x, its earnings are assumed by the higher platform multiple, creating immediate value accretion before any operational improvements are implemented.
Empirical research on buy-and-build portfolios indicates that multiple expansion is a significant driver of returns. Select portfolios in a study by Boston Consulting Group (“The Power of Buy and Build”) achieved returns up to two times higher than those of comparable standalone transactions.
Multiple arbitrage is sensitive to externalities, including the interest rate environment, the liquidity backdrop, and the fragmented nature of markets.
Looking to what’s more within a financial sponsor’s control, the model only works sustainably when three conditions hold:
(i) the platform’s multiple is defensible (through scale, quality of earnings, and strategic positioning);
(ii) bolt-ons are sourced at a meaningful discount to the platform; and
(iii) the equity story at exit is supported by a genuinely consolidated platform, not just a roll-up of undigested deals.
Operational synergies reflect the structural efficiencies from combining two separate businesses. These synergies, in theory, result in margin expansion driven by cost savings.
Examples of operational synergies include:
Consolidated procurement: more efficient sourcing of raw materials – great leverage over suppliers with group-wide supplier agreements and volume discounts
Shared services: centralising middle and back office functions such as finance, HR, IT, legal, and customer support
Systems integration: unifying ERP/CRM platforms and other software subscriptions or underlying digital infrastructure
Commercial synergies enhance the combined group’s ability to grow revenue. They leverage an enlarged customer base, broader product set, and go-to-market strategies to drive more attractive unit economics and accelerated organic growth.
Examples of commercial synergies include:
Cross-selling and bundling: marketing complementary products or services to customers
Unified sales: coordinated sales efforts to win larger customers
Pricing uplift: more consistent, value-driven pricing that reduces internal competition
Brand consolidation: migrating to a single, stronger brand with increased credibility and market presence
Channel optimisation: integrating distribution networks, sales channels, and partner ecosystems
Product roadmap: using acquired capabilities to broaden the offering and accelerate innovation
Customer data: combined datasets that provide better customer analytics, improve targeting, and reduce churn
Scale goes beyond an increase in headline revenue. It creates structural advantages that strengthen almost every aspect of a business.
As a buy-and-build platform grows, it gains the financial and organisational capacity to operate and outcompete smaller businesses.
First, larger platforms can attract and afford more experienced leadership teams and key executives, including seasoned CFOs, CROs, operational specialists, and independent board members who would not typically join or be economically viable for a smaller company. Enhanced leadership depth and stronger governance drive more sophisticated decision-making, which compounds as the platform continues to expand.
Beyond talent, scale delivers a series of other advantages:
Unit economics – larger businesses spread fixed costs across more revenue, improving margins and reinvestment capacity.
Access to capital – scaled businesses command more competitive debt terms, better leverage options, and increased appetite from financial sponsors
Greater resilience and diversification – with a broader offering, customers, and geographies, scaled platforms become more diversified, improving revenue stability
Credibility – larger platforms win bigger contracts, attract enterprise clients, and are seen as lower-risk partners due to greater capability and continuity.
Exit positioning – buyers place a premium on scale, diversification, and institutionalisation. Scaled platforms generally achieve higher valuation multiples
Operational and commercial sophistication – with scale comes the ability to deploy specialist teams (pricing, procurement, data analytics, integration), strengthening the competitive edge.
Ultimately, scale creates the human, financial, and operational bandwidth required to support a valuation multiple at exit.
The buy-and-build model remains one of the most powerful engines of value creation. When executed with discipline, it generates structural competitive advantages for the platform, which drive increased returns.
