Adam Lewis, Partner, Horizon Capital
Why pursue an M&A strategy?
M&A is a key strategy used by CEOs the world over in pursuit of growth. Whether the objective is to broaden service capabilities, acquire market share, expand geographic reach, acquire IP or increase recurring revenue to re-rate a business to a higher multiple. The reasons are often strategic and economic. Generally scale pays and M&A is a key route to achieving scale and quickly building a more valuable business.
However, there is much to be said for the pitfalls and risks of such a strategy. There is no point in doing M&A for the sake of it. So, what are the three key ingredients for a successful buy and build M&A strategy?
At Horizon Capital, we back successful buy and build strategies in the technology and services sectors and have completed over 60 add on acquisitions across our portfolio in the past three years. Here are some of the key ingredients that we believe are important for success…
The market opportunity & the right strategy
Firstly, the market environment in which a business operates has to be conducive for an M&A strategy. We have found that high levels of industry fragmentation, an international ‘pull’ factor or a growth opportunity in close adjacencies often create external environments rich in potential M&A targets.
There must be absolute strategic clarity about what you want to buy, and why. This understanding needs to be shared across the entire senior executive management team. Above all, it is important to be disciplined. Have an eye for opportunity and be prepared to revisit your plan to adapt to the market environment, but ensure you have a clear plan and stick to it.
Build on solid foundations
Invest in the foundations. Without a robust and scalable platform, the benefits of any acquisitions are unlikely to be captured. This encompasses management talent and bandwidth, systems, operations and processes. Invest early and ahead of the curve. People make it happen, and people make it a success over the long-term. Surround yourself with the best people and trusted partners - it will pay dividends in the future.
Be systematic in execution
Be systematic in your approach to M&A sourcing, execution and integration. Run the M&A pipeline like a world class B2B sales team would run its pipeline. Have a playbook and clear responsibilities from execution through to integration that are well understood across the management team. As buy and build investors, we are focussed on building these capabilities within our portfolio so that they will endure. Executed systematically, M&A led growth becomes akin to and as repeatable as business as usual organic growth.
Horizon Capital is a buy and build specialist backing ambitious growth strategies in technology and services. Follow the link to learn more about how we support our businesses:
