Buy-and- Build Integration: Add-on activity in the German M&A market increases significantly
27 Apr 2023
27 Apr 2023
In times of adverse financing conditions, buy-and-build strategies have gained significantly in importance in the M&A business worldwide.
In addition to the traditionally dominant market of North America, the shift in value creation towards buy-and-build strategies is evident in Europe, especially in Germany, where the growing importance of the buy-and-build strategy for investors is reflected in the development of the absolute figures: In the past eight years, the number of acquisitions rose from 62 (2015) to 282 (2022) and thus by around 355%. The transaction volumes for buy-and-build deals in Germany show a similar picture: the values have been rising steadily for years, except for a slight dip in the crisis year 2020, and were at a five-year high of almost €14 billion in 2022. Just under 8.5 billion of this was accounted for by cross-border deals.
The increasing importance of add-ons for the growth strategy and the professionalisation of the integration of the acquired companies has led to more target companies being acquired on average. In 2015, platform companies acquired an average of 2.9 companies on a global level, this value increased to 3.4 from 2019 and reached 4.0 in 2022. In Germany, the values developed slightly upwards from 2.0 in 2019 to 2.4 companies in 2022.
Highly fragmented sectors characterised by strong growth and a large number of competitors are popular with investors who grow a platform company via add-on acquisition and integration of suitable other companies. In Germany, the focus of buy-and-build investors last year was particularly on TMT (112 transactions), business services (40 transactions) and the health sector (30 transactions). The business services sector was the busiest, accounting for 19% of all transactions: almost every fifth transaction was an add-on in the course of a buy-and-build strategy. In the TMT (112 out of 749 ) and Construction & Manufacturing (25 out of 167 ) sectors, the number of add-ons was 15% of M&A transactions each, and in the Chemicals & Materials sector, with 9 out of 64 transactions, it was around 14%. Less suitable for buy-and-build strategies are complex industries with mostly cyclical business models, including mechanical engineering or utilities & energy. In the tech industry, too, there are often difficulties with integration, as companies are very different, product applications differ from each other, making it more difficult to align systems.
Buy-and-build Integration Programmes can be challenging due to the added complexity they bring to single acquisition integrations, and the risks that come with it. The process involves carefully choreographing changes in business processes, systems, and culture to ensure a smooth transition. However, the benefit of these programmes is their repeatability, allowing teams to replicate and improve a proven methodology playbook in delivery.
At Eight Advisory, we leverage our proven integration methodology to create a customized M&A Playbook for businesses. This approach enables our clients to replicate future integrations with minimal external support. Our latest whitepaper, “Buy-and-Build Integration: How to Deliver a Buy-and-Build Programme that Maximizes Value,” outlines the key requirements for building a successful platform business, the differences between buy-and-build integration and traditional integration, and how an M&A Integration Playbook can help teams deliver integrations in a coordinated and efficient manner. Additionally, we provide guidelines on how to mitigate value erosion during these programmes.
We hope you find our whitepaper informative and valuable. We welcome the opportunity to discuss how we can help your team navigate these economic challenges.
To read our report, Click here.