Buy and build or transformational acquisition?

THE different reasons for acquisition – to buy and build or to diversify the business model – and the benefits each approach brings were discussed by top North West business owners at our round table event.

Jonathan Boyers, partner – corporate finance, KPMG Enterprise, said that mergers and acquisitions generally are driving a lot of business growth.

“The deal market is still strong and the multiples sellers are getting are high. Manchester is still a centre for private equity and the largest outside London – that is stimulating growth,” he said.

Boyers highlighted the difference between acquisition models. “There are two acquisition strategies – where acquisition becomes like organic growth as you know the model. Or one where it is a transformational acquisition as it takes the business into a new area – here people are more cautious and getting it right is more important.”

£80m turnover Chess Telecom has completed 90 deals in the last 10 years including 70 to 75 customer base transfers.

“Chess is an integration machine and they are selling their businesses into a business established around customer care,” said Chess director Richard Btesh.

“Buy and build is low risk. Our acquisition of telecoms businesses has become organic growth. In this sector it is really the only way to grow. When we buy something like billing services – then that’s more like an acquisition.”

The Alderley Edge-based company, which employs 450 staff, is now making the transition to ICT through acquisitions.

“We have done some 10 to 15 strategic deals which have allowed us to diversify and give us a platform for growth by cross selling in an ever changing technological space. Our acquisition strategy has allowed us to acquire key employees and indeed more than half of our current workforce have come as a result of deals.”

It most recently bought Scottish Microsoft consultancy IRW Systems, in a move that will increase its annual turnover by £3m.

The full discussion, along with other features on driving private business growth are available to download for free as a PDF supplement, which has been sponsored by TLT Solicitors and KPMG.

Read the driving private business supplement

Brian Higgins, founding director of acquisitive building products company Amicus, highlighted that buy and build only works if the acquirer has robust
infrastructure and systems in place to cope with the integration and growth.

“If you buy three basket cases all you have is a bigger basket case,” he said.

He added that growth is not about buying businesses but what you do with them thereafter.

In September, technology entrepreneur Lawrence Jones, owner of UKFast, the Manchester-based internet hosting and data centres firm, invested more than £1m in taking a 10.5% stake in loss-making listed cloud computing firm Outsourcery.

The deal, which sees Jones investing in a personal capacity, means he has become the third-largest shareholder in Outsourcery behinds its co-chief executives Piers Linney and Simon Newton.

UKFast managing director Jonathan Bowers said: “That belies one side of our strategy at the moment, which is quite polar. We built our business working with fast moving privately owned SMEs but we find ourselves in a position with that where we have now got great data centres with all the qualities and ability to sell to the public sector.

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