Following our article on the Buy-and-Build strategy, we outline how to apply the theory in practice. The theoretical advantages are well known, but in reality, execution is far more nuanced.
At Hyndland Partners, our transaction experience across multiple buy-and-builds has shaped a pragmatic understanding of what actually determines success. We have curated a checklist of key considerations underpinned by the lessons learned from helping management teams and financial sponsors build platforms that scale.
Can we balance the competitiveness for deals with liquidity at exit?
Competition shapes the cost of executing a roll-up and the ease of exiting.
Increased appetite for a particular sector drives up multiples for platform and add-on acquisitions, reducing the accretive nature of the strategy. On the other hand, it provides more certainty about the ability to exit the platform at a premium multiple.
If every attractive target attracts multiple bidders, buyers tend to overpay, accelerate deal timelines, or compromise on diligence to maintain momentum. Conversely, limited competition can create favourable entry pricing but may foreshadow a more difficult exit process.
A roll-up ultimately requires a clear exit path (i.e., IPO, trade sale, or larger financial sponsors with market interest). Competition during the acquisition phase is generally a sign of deeper exit liquidity, although the benefits diminish without the right balance. An ideal market should exhibit characteristics of manageable competition to execute deals efficiently, and precedent transactions highlighting liquidity at exit.
Is customer concentration a feature?
Customer concentration is inherent in some markets (e.g., public sector, government services and defence). In markets where it’s not inherent, there’s an opportunity to create more predictable revenue and lower counterparty risk as the group scales. Reducing customer concentration with add-ons increases earnings stability across the group, making it easier to secure financing and maintain a consistently attractive platform multiple.
Conversely, sectors where few customers account for a large share of revenue introduce significant risk as the roll-up scales. Each acquisition materially increases exposure to key accounts – churn can impact the entire platform. High customer concentration also complicates integration, as pricing, service levels and contract terms may vary across acquired businesses. A successful roll-up is therefore more achievable in markets that reduce customer risk at scale.
To what extent are earnings durable?
The stability and predictability of earnings are fundamental to managing risk in a roll-up.
Businesses with recurring or contracted revenue, long-term customer relationships and low cyclicality provide a solid foundation for scaling. Durable earnings make it easier to secure financing, employ high-quality talent and invest in the central cost base required to support multiple acquisitions.
In sectors where revenue is volatile, lumpy or highly sensitive to market cycles, roll-ups become harder to underwrite and riskier to scale. Valuation becomes more uncertain, lenders show less appetite for leverage, and integration planning becomes more complex.
How easily can we secure financing for a business?
Most acquisitions involve an element of debt. Hence, the feasibility of a roll-up strategy is heavily influenced by the ability to finance businesses in the target sector.
Lenders favour businesses with predictable cash flow (non-cyclical), strong revenue visibility (recurring or re-occurring revenue), and scale. With these characteristics, securing financing for the platform or subsequent add-ons is typically faster, lower cost and more flexible. As the platform scales, the panel of lenders increases, driving competitiveness for lending terms and more creative, less restrictive covenants.
Is there a sufficient number of businesses in a given market?
To provide both a credible platform acquisition and a steady pipeline of add-on opportunities, a market needs to be sufficiently fragmented.
First, there needs to be enough platform-sized targets, or even just one large high-quality platform. If the market lacks large businesses, the roll-up becomes structurally constrained from the outset. Buyers are forced to build a platform from smaller, less mature companies. This increases integration complexity and delays the point at which the platform can command a premium multiple. Those dynamics result in higher execution risk, slower value creation, and a narrower pool of exit options.
Second, there needs to be a sufficient pool of smaller businesses for a disciplined approach to add-on acquisitions. More targets means you can be more selective – acquiring the highest quality assets at the most attractive prices. Sustaining the buy-and-build strategy beyond one or two acquisitions requires a fragmented market. Empirical research shows high returners build in markets with a large group of predominantly founder-owned businesses, where competitive tension is manageable.
Beyond the number of targets, the size and distribution are also important. A viable roll-up requires a healthy tier of sub-scale companies that are small enough to acquire at a discount to the platform but large enough to meaningfully increase the combined group’s financials. If targets are too small, we need to consider opportunity costs. If they are too large, acquisition pricing compresses arbitrage and reduces deal cadence.
Can we manage middle and back office functions centrally?
A core component impacting scalability and margin accretion is the ability to manage operations at a group level. For example, customer support, finance, HR, marketing, procurement, and sales are often consolidated by platforms that achieve true scale. The ability to run some or all of those functions from one central point allows acquired businesses to focus on their core mission. Overall, it creates a standardised and more efficient organisation.
Each acquired business is focused on what drives value – maintaining customer relationships, improving service delivery and retaining local autonomy.
This structure reduces duplication, improves consistency and enables meaningful cost synergies without disrupting the core revenue drivers of each acquired business.
Central operations have a positive impact on (a) the ease of management; (b) integration complexity; (c) the ability to continue scaling; and (d) cohesiveness – understanding group-level analytics.
Do margins create sufficient room for error?
Healthy margins are crucial in a roll-up, as they create the buffer needed to absorb transaction costs, integration costs, operational disruptions and provide a safety net in the event of an acquisition underperforming. Sectors with inherently strong margins offer greater resilience and provide room for error as the platform scales. They also make it easier to reinvest in key elements of the strategy (i.e., central functions, systems and leadership).
High margins also enhance the impact of cost savings from day one. Benefits such as bulk purchasing, centralised back-office functions and shared systems can quickly expand profitability across the group. In lower-margin sectors, however, they may be insufficient to offset inherently low margins, making the roll-up harder to execute successfully.
Can we form a grounded view on multiples?
A roll-up strategy relies on entering at valuation levels that become increasingly accretive at scale. Understanding the prevailing multiples for both platform businesses and smaller add-ons is essential, as these underpin the entire strategy. If platform multiples are already elevated relative to the sector’s long-term norms, the scope for arbitrage and margin-driven uplift becomes much narrower, making it harder for the roll-up to achieve its targeted return profile.
It is also important to assess the stability and predictability of multiples. A sector with historical valuation anchors enables buyers to price acquisitions with greater confidence and build a reliable model of accretion. In contrast, sectors with erratic valuation behaviour introduce uncertainty and increase the risk that early deals set the platform on an unfavourable cost base.
Is there scope for add-on acquisitions to be accretive?
Price arbitrage is a core driver of excess returns, but only when the sector exhibits a valuation gap between smaller and larger businesses. You must understand the extent of variance in multiples between small and large businesses in a given industry. The smaller the gap, the less accretive add-on acquisitions become.
In some industries, sub-scale companies trade at materially lower EBITDA multiples than established platforms, while in others the uplift is marginal.
Does the sector exhibit pricing power?
Maintaining or increasing multiple at exit for the platform requires a market where product/service pricing is stable or improving over time. Businesses that can maintain prices or pass on price increases to customers benefit from consolidation, in contrast to those with margin erosion over time.
Even with effective integration, declining margins limit value creation. Value accrues in industries where pricing dynamics are predictable, and margins can be protected or enhanced as the platform grows.
Is the roll-up easier or harder as it grows?
The key to understanding if a roll-up is scalable is the marginal effort for integrating later deals. For those where integrating the 3rd or 4th acquisition becomes programmatic, we can say it becomes easier with scale.
Early acquisitions typically require the most effort, as the platform is still building its central infrastructure, systems and integration capabilities. Once a solid operating model is in place, the marginal effort to integrate each new add-on decreases. At this stage, the roll-up benefits from repeatable processes, playbooks and a team that has already completed multiple deals.
As the group grows larger and more complex, the risk is that integrations become harder again if governance, leadership bandwidth or systems fail to keep pace. Over time, acquisitions may also become more diverse in terms of size or geography, thereby increasing complexity. The most successful roll-ups therefore build scalable infrastructure early and continually develop, ensuring that each incremental acquisition can be absorbed with less friction, not more.
How challenging is diligence?
The extent to which diligence is challenging is a direct proxy for complexity.
Some businesses are inherently complex. It becomes time-intensive and expensive to diligence those businesses as part of a buy-and-build strategy. There is an increased scope for error, and integration is exponentially harder and more costly.
While complexity can create a competitive moat, the viability of buy-and-build is heavily influenced by how difficult or time-consuming it is to diligence companies in the sector.
We typically see a lower cadence of acquisitions in more complex markets, which can dampen expected returns.
Many attributes contribute to executing a successful buy-and-build strategy. Hyndland Partners has executed this strategy for institutional investors over the last decade. We help in every aspect of the process, from origination through to post-transaction integration. If you’re executing your 15th deal or just starting to consider a rollup, we welcome a discussion.
