Key Takeaways
- • Buy-and-build strategies have become the dominant value creation approach for private equity firms facing record-high asset prices and compressed growth prospects, as detailed in Bain & Company's 2019 Global Private Equity Report.
- • The Berlin Packaging case study demonstrates the strategy's potential: Investcorp acquired the company for ~$410 million in 2007, executed four strategic add-on acquisitions over seven years, and sold to Oak Hill Capital Partners for $1.43 billion—generating more than 3x returns.
- • Buy-and-build creates value through multiple arbitrage, operational synergies, and expense reduction without depending on traditional tailwinds like falling interest rates or GDP expansion—critical in an environment where PE firms cannot rely on expanding valuation multiples alone.
- • Successful execution requires strong due diligence, robust post-acquisition planning, and understanding operational pitfalls; Oak Hill has since completed four additional major acquisitions and smaller deals, securing $500 million in fresh capital from Canada Pension Plan Investment Board in November 2018 for North American and European expansion.
Summary
Private equity firms are increasingly turning to buy-and-build strategies as a proven method for generating returns in an environment characterized by elevated asset valuations and uncertain economic growth. According to Bain & Company's 2019 Global Private Equity Report, this approach has become popular precisely because it delivers value creation independently of traditional market tailwinds. As valuations have reached record highs and economic prospects remain ambiguous, PE firms can no longer rely on expanding price multiples to justify acquisitions—making disciplined, operationally-driven value creation essential.
The Berlin Packaging transaction exemplifies the buy-and-build model's execution potential. When Investcorp acquired the Chicago-based packaging company for approximately $410 million in 2007, it was already an established platform in the container sector. Over the subsequent seven years, Investcorp paired the platform with four strategic add-on acquisitions, then sold the combined entity to Oak Hill Capital Partners for $1.43 billion—achieving better than 3x returns on its original investment. This success demonstrates how structured acquisition sequencing and operational integration can compound value significantly.
Oak Hill's ownership has accelerated the strategy further, completing four additional major acquisitions alongside several smaller deals. In November 2018, the firm raised $500 million in fresh capital from the Canada Pension Plan Investment Board specifically to fund continued expansion across North American and European markets. The continued backing from institutional capital highlights investor confidence in the platform's management, led by CEO Andrew Berlin, and the repeatability of the buy-and-build approach.
At its core, buy-and-build creates value through three primary mechanisms: multiple arbitrage (acquiring add-ons at lower valuations than the platform and consolidating at higher multiples), synergy capture (eliminating redundancies and sharing best practices across portfolio companies), and expense reduction (consolidating back-office and overhead functions). However, Bain emphasizes that success is far from automatic. Strong due diligence, detailed post-acquisition integration planning, and an understanding of sector-specific operational challenges are prerequisites for consistent execution. In the current environment of compressed returns and constrained organic growth, the rigor with which PE firms execute buy-and-build strategies will largely determine competitive returns.
The Berlin Packaging transaction exemplifies the buy-and-build model's execution potential. When Investcorp acquired the Chicago-based packaging company for approximately $410 million in 2007, it was already an established platform in the container sector. Over the subsequent seven years, Investcorp paired the platform with four strategic add-on acquisitions, then sold the combined entity to Oak Hill Capital Partners for $1.43 billion—achieving better than 3x returns on its original investment. This success demonstrates how structured acquisition sequencing and operational integration can compound value significantly.
Oak Hill's ownership has accelerated the strategy further, completing four additional major acquisitions alongside several smaller deals. In November 2018, the firm raised $500 million in fresh capital from the Canada Pension Plan Investment Board specifically to fund continued expansion across North American and European markets. The continued backing from institutional capital highlights investor confidence in the platform's management, led by CEO Andrew Berlin, and the repeatability of the buy-and-build approach.
At its core, buy-and-build creates value through three primary mechanisms: multiple arbitrage (acquiring add-ons at lower valuations than the platform and consolidating at higher multiples), synergy capture (eliminating redundancies and sharing best practices across portfolio companies), and expense reduction (consolidating back-office and overhead functions). However, Bain emphasizes that success is far from automatic. Strong due diligence, detailed post-acquisition integration planning, and an understanding of sector-specific operational challenges are prerequisites for consistent execution. In the current environment of compressed returns and constrained organic growth, the rigor with which PE firms execute buy-and-build strategies will largely determine competitive returns.
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