Is Acquisition Entrepreneurship Right For You?
As a business owner, you’re always looking for ways to grow or plan for the future. Have you considered growing your business by buying other companies? Or perhaps you’re thinking about selling to someone who can take your business further? The buy-and-build strategy could be the key. You start by buying an already strong company and adding smaller businesses to it, creating a larger, more valuable enterprise. This approach works well in fragmented industries served by many small firms, like healthcare, professional services, or facilities management.
If you’re considering selling, being part of a buy-and-build strategy can ensure your staff keep their jobs, your brand lives on, and you get a fair deal, often with payments over time. At Sonnet Capital, we help business owners like you use this strategy to grow or exit successfully.
In this article, we’ll walk you through a simple seven-step plan to make buy-and-build work for your business. We’ll use examples from the dental industry to show how it’s done, as the UK dental market is full of small practices ripe for growth. We’ll also share a checklist to see if this exciting path could be appropriate for you and your business.
Why This Matters to You
Growing your business through acquisitions can open new doors. You could access better technology, reach more customers, or save money by combining operations. If you’re thinking of selling, a buy-and-build firm might offer a better deal than a competitor, with benefits like keeping your team employed or sharing future profits. This strategy could be a win-win, whether you want to expand or exit.
The Seven-Step Buy-and-Build Plan
Here’s a straightforward (simple) plan to grow your business through acquisitions, with examples from a dental practice management company to make it clear.
1. Find and Buy a Strong Base Company
What to Do: Start by buying a solid company to act as your foundation. Look for one in a fragmented industry with lots of small businesses that could potentially be combined. It should have healthy finances, a good team, and room to grow.
Why It Matters: A strong base sets you up for successful growth, giving you a stable platform to add more businesses.
Example: Sonnet Capital buys SmileCare Group, a company running 3 dental practices in Southeast England. The UK dental industry has thousands of small practices, making it perfect for growth through acquisitions.
Takeaway: Choose a company with a strong foundation to build your growth on.
2. Make a Growth Plan
What to Do: Create a clear plan for how you’ll grow. Decide if you’ll buy similar businesses in new areas, suppliers, or companies offering different services. Set goals to save money (e.g. by buying supplies together in greater quantities) or make more (e.g. by offering new services).
Why It Matters: A plan keeps you focused and ensures every acquisition adds value to your business.
Example: SmileCare plans to buy more dental practices in the Southwest and Midlands and offer high-demand services like braces and teeth whitening. The goal is to triple revenues in three years by adding six practices.
Takeaway: A clear plan helps you grow strategically and efficiently.
3. Find Smaller Businesses to Buy
What to Do: Look for smaller companies that fit your plan. Use your industry contacts, hire brokers, or reach out directly to owners who might want to sell. Check their finances, customer satisfaction, and how well they match your business.
Why It Matters: Finding the right businesses ensures smooth integration and growth without headaches.
Example: Sonnet Capital works with dental brokers to find small practices with loyal patients and retiring owners. They shortlist three practices – BrightSmile, HappyTeeth, and SmileEasy – for their strong patient bases and good fit.
Takeaway: Be selective to find businesses that strengthen your platform.
4. Buy the Businesses
What to Do: Before buying, pay a professional firm to run thorough checks on the company’s finances, contracts, and risks. Agree on a fair price, possibly paying some now and some later, based on performance. Use cash, loans, or the company’s assets to finance the deal.
Why It Matters: Careful checks and smart financing protect your investment and keep sellers motivated to help during the transition.
Example: In year 2, Sonnet Capital buys the three dental practices for £3m-£5m each, using a mix of cash, bank loans, and payments tied to patient retention. This ensures the sellers help keep patients happy post-sale. Sonnet Capital buys another 3 practices in year 3.
Takeaway: Structure deals to minimise risks and align interests.
5. Bring the Businesses Together
What to Do: With each acquisition, integrate the new companies into your operations. Use the same software for tasks like scheduling or accounting, train staff to work as a team, and offer bonuses to keep key employees.
Why It Matters: Smooth integration keeps customers happy and operations running without disruption.
Example: SmileCare moves all practices to one patient management system, centralises payroll, and offers bonuses to retain key dentists. This keeps 95% of staff and improves patient satisfaction.
Takeaway: Plan integration carefully to maintain quality and retain talent.
6. Grow and Save Money
What to Do: Make your business more efficient by buying supplies in bulk or centralising tasks like marketing. Focus on utilisation and implement a waitlist for patients who can come in on short notice, keeping seats filled and reducing missed appointments and lost revenue. Offer new services across all locations to boost revenue. Use technology to streamline operations.
Why It Matters: Combining resources saves money and helps you serve more customers, increasing your business’s value.
Example: SmileCare buys dental supplies for all practices together, saving 15%, and promotes braces across all locations, increasing organic revenue by 12%. A shared waitlist system can reduce missed appointments by 20-30%.
Takeaway: Use scale to cut costs and grow revenue.
7. Prepare to Sell
What to Do: Get your business ready to sell at a higher value. Show how it’s grown, highlight strong profits, and find the right buyer, like a larger company or investor.
Why It Matters: A well-prepared sale maximises your return, rewarding your hard work.
Example: After growing to 9 practices with better profits, SmileCare is sold to a national dental chain. Assuming each of the 9 practices was purchased for £4m at an EBITDA multiple of 4x, total investment would be £36m. If you could improve EBITDA from 18% to 21.6% ( an improvement of 20%), then based on the multiple uplift 1.5x for a larger more sustainable and 20% more profitable business, plus some organic growth (3%), Sonnet Capital could sell the portfolio for 4×1.5×1.2×1.03= 7.42m x 9 practices in the portfolio equals £66.7m. Due to its strong growth performance, this translates into an ROI of 85% and an IRR of 22.8% annual growth. These are only indicative examples, and do not include taking any management fees out of the business.
Takeaway: Build a valuable business to attract top buyers.
Is Your Business Ready for Buy-and-Build?
Use this checklist to see if your business could benefit from this strategy:
- Is your industry full of small businesses that could be combined? Yes / No
- Does your company have a strong market position? Yes / No
- Do you have a capable management team? Yes / No
- Are your finances healthy enough to support buying other companies? Yes / No
- Are there clear opportunities to grow by acquiring other businesses? Yes / No
- Could a larger, combined company attract a buyer in the future? Yes / No
If you answered “Yes” to 3 or 4 of these, your business might be a great fit for a buy-and-build strategy. Reach out to explore how we can help.
Conclusion
The buy-and-build strategy is a powerful way to grow your business or prepare it for a successful sale. By following these seven steps: finding a strong base, planning growth, buying and integrating businesses, scaling operations, and preparing to sell – you can create a larger, more valuable company. Whether you want to expand or exit, this approach offers exciting opportunities.
At Sonnet Capital, we guide business owners through this process, ensuring every step is handled with care. If you’re curious about how buy-and-build could work for you, connect with us to discuss your goals. Your business could be the next big success story.