Build-up strategy: how an SME changes scale through acquisitions

In many of the sectors where SMEs and mid-market companies operate, the market is fragmented: a multitude of regional players, owners approaching retirement, clients expecting national coverage. Business services, home care services, engineering and software publishing are all examples. For a well-positioned company, that fragmentation is an opportunity: to become the platform around which the sector consolidates.

Why consolidate a fragmented market

Acquisitive growth meets objectives that organic growth reaches more slowly, or not at all:

• Extend geographic coverage by acquiring players established in new territories.
• Add complementary skills or offerings to broaden the value proposition.
• Gain critical mass in dealing with large accounts, tender processes and suppliers.
• Create value through size: a structured group is valued on higher multiples than any of its individual parts.

That last point explains why private equity funds are drawn to build-up strategies: after an LBO on a platform company, successive acquisitions accelerate value creation.

Defining the acquisition thesis

Before looking for targets, you need to be precise about what you are looking for. An acquisition thesis sets out the role of each transaction within the group’s plan and translates into concrete criteria.

Criterion	Questions to ask
Activity	The same business, to add density, or an adjacent one, to broaden the offering?
Size	What minimum and maximum revenue can the group absorb?
Geography	Which territories come first, in France or internationally?
Profitability	What level of margin and of recurring revenue?
The owner’s position	Full exit, partnership, or staying on to run the subsidiary?

A clear thesis makes it possible to say no quickly to opportunities that do not serve the plan, and to explain the overall logic to funders.

Mapping and approaching targets

Sourcing begins with a market map: identifying the players that meet the criteria, qualifying them from public data and sector knowledge, then setting priorities. Senior Advisors drawn from the sector bring a valuable reading of the players and of their owners at this stage.

Then comes the approach. A large share of the relevant targets are not formally for sale. Direct, confidential contact with their owner, carried by an industrial plan rather than a simple offer to buy, opens discussions that a conventional sale process would never have allowed. The M&A adviser handles that approach while keeping the buyer anonymous until interest is confirmed.

Valuing and structuring the offer

Once interest is established and initial information has been exchanged, the buyer sets out a letter of intent. It specifies the valuation, its assumptions (net debt, normalised working capital) and the structure proposed.

In a build-up, the structure of the offer often matters as much as the price:

• An earn-out aligns interests where the seller stays in post.
• Reinvestment by the seller in the group’s equity makes them a partner in the next stage of the plan.
• A vendor loan eases the financing and signals the seller’s confidence in the business.

The aim is to acquire at the right price, without overpaying for a target whose value to the group rests on synergies still to be delivered.

Financing an acquisition programme

A build-up is financed at the scale of the programme, not only of the first transaction. The resources are combined:

1. Equity from the group and its shareholders, strengthened where appropriate by a growth capital investor or within an LBO.
2. Acquisition debt, from banks or from a debt fund (unitranche), often with a dedicated line for future acquisitions.
3. Public funding, notably from Bpifrance, alongside the banking pool.
4. Vendor loans and earn-outs, which spread part of the burden over time.

Putting financial partners in competition on the basis of a well-structured file secures appropriate terms: quantum, maturity and covenants compatible with the intended pace of acquisitions.

Preparing integration before signing

The value of a build-up comes from integration, not from signing. The due diligence workstreams (financial, legal, employment, operational) also serve to prepare the first hundred days:

• Define the role of the selling owner and of the key people.
• Harmonise tools, processes and support functions, step by step.
• Preserve what makes the target valuable: its client relationships, its local brand, its know-how.
• Measure the synergies actually achieved, to refine the thesis for the acquisitions that follow.

The key point A successful build-up combines a clear acquisition thesis, active sourcing among targets that are not for sale, an offer structure that aligns interests, and financing designed for the programme as a whole.

From the seller’s side: joining a consolidator

For the owner of an SME approached by a consolidator, the transaction deserves the same rigour as a conventional sale. Comparing several potential buyers, checking the strength of the plan and of the financing, negotiating the terms of their stake in the group and the future of their teams: an independent adviser turns an approach into a genuine succession transaction, on market terms.