How does buy-and-build work?
A core Private Equity interview question — asked in analyst and associate interviews across IB, PE, and the Big 4.
THE SHORT ANSWER
Acquire a 'platform' company with management infrastructure. Then bolt-on 3-7 smaller competitors over 2-4 years at lower multiples. Integrate (shared back office, cross-selling, unified brand). Exit the combined group at the platform multiple or higher. The arbitrage: buy bolt-ons at 5-7x, exit the group at 9-12x. Can add 3-5% IRR and significantly de-risks the investment.
WHAT INTERVIEWERS LISTEN FOR
- ✓Acquire platform company
- ✓Bolt-on smaller competitors
- ✓Integration and synergies
- ✓Multiple arbitrage
- ✓Exit at higher multiple
COMMON MISTAKES
- ✗Buying all at once
- ✗Ignoring integration costs
- ✗Assuming no multiple compression
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