Priorities for buy and build strategies in a changing landscape
For over 25 years, the Livingbridge team has worked alongside businesses as they have grown through acquisition. We have supported leaders to complete and integrate hundreds of acquisitions, and we’re always on-hand to help build a business case for expansion and see it put into practice. That support can range from sourcing and executing transactions to working out how M&A should fit into a company’s long-term strategy.
Here, our investors Gareth Molloy and Dom Leighton share their top tips on how to develop thoughtful and effective buy and build strategies in today’s market. The piece includes insights on the current M&A landscape and emerging trends, and shares three top tips for teams looking to make strategic growth acquisitions.
The Evolving M&A Landscape: Key Insights from 2024
1. Market Activity on the Rise
After a challenging 24 months of slow deal activity, the services sector is seeing an uptick in deals. Optimism is returning to the market despite a still-challenging interest rate environment. High-quality assets with clear growth strategies are fetching strong valuations, signalling increased confidence among buyers.
Dom explains: “With the rise in interest rates the total cost of debt has increased by 50%+. As a result, acquirers are even more focused on companies that offer solid value and a clear growth strategy. The premium for organic growth has increased and means inorganic growth has to deliver real value.”
2. Strategic M&A Decisions Take Centre Stage
While overall deal timelines haven't changed dramatically, companies are taking a more strategic approach to bolt-on acquisitions. Acquirers are spending more time on due diligence, ensuring their buy-and-build strategies are well thought out.
Dom emphasises this point: “At Livingbridge, we’ve always believed in supporting companies with a thoughtful M&A approach. When developing an acquisition strategy, we are keen to ensure that value is being added for clients, customers, and shareholders and is more than just the sum of the parts. Recently, we've seen success in targeting acquisitions that help companies expand their customer base, add new service lines, or broaden their geographic reach."
3. High Competition and Valuations for Top-Tier Businesses
Competition for high-performing businesses remains fierce, driving up valuations. However, currently there is reluctance from many family-owned and founder-led businesses to sell, given current market conditions.
Gareth explains: “It’s a bit harder to get businesses to the altar versus a couple of years ago. In 2020/2021, founders and shareholders were reading about how great valuations were, but now those market perceptions have softened… so we are having to do more work to get deals over the line.”
Three Tips for Firms Executing Buy-and-Build Strategies
In today's competitive landscape, companies need to approach buy-and-build strategies with increased discipline and care. Gareth and Dom share their top considerations for businesses looking to navigate M&A successfully:
1. Focus on Quality and Strategic Fit
Ensuring that every acquisition will actively drive value is key. Dom says: “Be laser focused on making sure that any acquisitions you do aligns with your strategy. It’s easy to get caught up in a deal but you need to stop for a moment and reflect on its merits once you have all the information. After going through this process, you might find that you need to pivot or triage more companies, and that's fine.”
2. Consider the Impact on all the Stakeholders of a Target Company
Too often, M&A strategies overlook the impact of acquisition on a company’s customers and employees. In our experience, it’s really important to emphasise why being acquired will be better for all stakeholders. Key points include new opportunities for employees, expanded market access, and increased stability for the acquired company.
Another point to highlight, is that the acquisition is likely not the end in terms of value / exit rewards for the shareholders. Gareth adds: “Many founders view selling as a complete exit, but that's not always the case. Some structures provide founders with further upside, unlocking future value that they wouldn't have achieved standalone.”
3. Ensure Cultural and Strategic Alignment
Cultural fit and shared vision are essential for a successful acquisition. Gareth explains, "Once you've found the right company, the real challenge is ensuring everyone is aligned on the vision. This alignment is crucial from day one—it helps avoid potential roadblocks during integration and ensures everyone is working toward the same goals."
By investing time upfront in aligning on culture, vision, and strategy, companies can prevent challenges post-acquisition and ensure a smoother transition.
Buy and Build In Action: Stowe Family Law's M&A Journey
Stowe Family Law is the UK’s largest specialist family law firm. The business operates from 90 locations across the United Kingdom with nearly 400 staff supporting 5,000 clients a year.
Livingbridge invested in Stowe in 2017 and recently exited the business. In the early part of our investment, we supported the team in evolving its operating model, including development of a digital demand generation engine and a regional resource model centred on team-working. In recent years, we have worked with the firm to build out its M&A capabilities to accelerate the scaling of the business, bringing critical talent into the business and build local presence across regions.
Stowe has made four acquisitions. Notable recent moves include Stowe's acquisition in December 2023 of Crisp & Co Solicitors, a firm with 10 fee earners and 17 offices across England, including 10 London locations and a significant operation in Manchester. In June 2024, the firm completed the acquisition of Hawkins Family Law in June 2024, which further expanded its presence in key regions including Greater London and the South East.
Investment Director, Lizzie Alderson, says: "The hard work done by the team to establish a scalable operating model and a compelling EVP has unlocked the ability to deliver highly value-accretive M&A. Acquisitions are fully integrated into the Stowe model, ensuring alignment of both culture and ways-of-working. M&A has been a valuable growth lever, enabling Stowe to accelerate the growth of its fee earner base and presence in sub-regions throughout the UK”.