Perspectives on executing a successful buy-and-build

Acquisitions can be an effective way to help a company build scale, add a complementary product or service offering, or gain a foothold in a new geography. At Phoenix, we have helped our portfolio companies complete more than 80 bolt-on acquisitions in recent years. Most recently we successfully supported Travel Chapter, the marketing platform for domestic holiday lettings, in completing 20 acquisitions in less than three years. Will Skinner, Partner at Phoenix, provides some perspectives on executing a successful buy-and-build.

1. Do your homework

Before embarking on a buy-and-build strategy, it’s important to understand the market and whether such a strategy is feasible in the first place.

In the case of Travel Chapter, the holiday lettings industry is populated by smaller operators, typically with a specific geographical focus, that have been owned for many years by their founders. In recent years the industry has changed beyond recognition, transitioning away from printed brochures to websites where sophisticated technology and digital marketing capabilities are critical to success. As competing in this new environment became harder, and many of these founders headed towards retirement age, the catalysts for consolidation were created.

Long-term, secular demand drivers also remain important. Part of Phoenix’s rationale for investing in Travel Chapter was the increasing demand for domestic holidays, which were benefiting from several trends. For example, demographic changes - a time-rich ageing population looking to travel, and an increasingly urbanised younger population looking to get away for weekend breaks – along with the increasing propensity for people to take multiple, shorter breaks, often closer to home.

It is also important to understand the scale of the integration challenge from the outset. But at its simplest, the greater the degree of similarity of an acquisition to the existing platform, the easier the integration will be.

2. Back a great team

Successfully completing an acquisition is as much art as it is science, so it’s important to back a team with a high degree of emotional intelligence as well as the requisite technical skills. They need to have the hunger to chase up leads and get on the road for the many meetings necessary for every successful acquisition, and the ability to build a rapport quickly with prospective vendors.

This can be hard to assess, so the best way to get comfort on whether a team has these skills is to look at what they have already achieved. In the case of Travel Chapter, CEO Jamie Morris and the team had already completed and successfully integrated three acquisitions prior to our investment. The opportunity and the challenge was to accelerate this growth strategy.

3. Develop in-house capabilities

Developing the requisite in-house M&A capabilities is critical to executing successful buy-and-builds, not just to ensure an efficient acquisition process, but also to ensure that the CEO and team can continue to focus on the day-to-day running of the business.

We helped Jamie build the infrastructure around him to enable the business to accelerate its acquisition programme, whilst ensuring that organic growth ambitions weren’t overlooked.

“We grew more quickly and did more acquisitions than we’d planned”
Jamie Morris, CEO

A key part of this was working with Jamie to help him identify what additional resources he needed. This led to the creation of a dedicated team responsible for sourcing and executing acquisitions. This team had the capability to both conduct financial due diligence and negotiate legal agreements, allowing acquisitions to be completed in a cost and time efficient manner.

It’s also important to continue to keep a watching eye on resource constraints as the business scales. As Travel Chapter’s growth began to accelerate, it became clear that additional senior capability was required to support the business. In response, a new, COO, role was created to provide additional management bandwidth.

4. Learn from every acquisition

Success breeds confidence. The more acquisitions the team pulled off, the greater their sense of what they could achieve.

At Travel Chapter, the initial focus was on smaller businesses that were lower risk or simpler to integrate. This enabled the acquisitions team to familiarise themselves with the process, and to work out what was – and was not – possible.

Another key part of the process was setting out the parameters around what we were looking to acquire and why. With each acquisition the lens was sharpened. And by closely tracking the performance of each acquisition, Jamie and the team could use that information to inform and improve on their next acquisition – an invaluable feedback loop.

“It was a constant learning curve”
Jamie Morris, CEO

5. Be deliverable

Reputation, credibility and deliverability are critical when negotiating prospective acquisitions. Jeopardising any of these can be terminal for an acquisition-led growth plan.

Management need to be able to engage with prospective vendors with certainty and confidence. This requires several key factors to be in place:

Firstly, certainty of financing. An obvious point but critical to success. Phoenix regularly commits additional capital to its investee companies to support acquisitive growth and will ensure that the business has the headroom to raise further debt financing if appropriate.

Secondly, flexibility. Complicated approval processes or highly leveraged environments are not conducive to rapid buy-and-builds.

Lastly, and perhaps most importantly, ensuring clarity on the focus for M&A and having short lines of communication are critical to enabling management to be fleet of foot when negotiating and winning.

With all the ingredients in place – funding, know-how, capabilities and, of course, a healthy number of willing sellers – the Travel Chapter team were able to accomplish what they had set out to do. With Phoenix’s support, the business grew significantly – it doubled its staff numbers and the number of properties on its platform, and tripled profits, through both acquisition and organic-led growth. This allowed Phoenix to deliver a 3.6x return to its investors and positioned the company for future growth under its new owners.