The buy and build strategy
Buy-and-build strategy and multiple arbitrage
A key component of the buy-and-build strategy is something called multiple arbitrage.
EBITDA multiples prevalent in transactions typically increase with the size of business in question (some research/analysis suggests there are certain revenue/EBITDA thresholds where this is clearly observed). As an example, large Company A (£20m EBITDA) owned by a private equity firm may undertake a bolt-on acquisition to acquire Company B (£2m EBITDA) at a 6x EBITDA multiple.
Due to the size of Company A (which would now generate £22m EBITDA), it can demand a 10x multiple from a buyer and as such, from an enterprise value perspective, the private equity firm has gained an additional 4x (10x minus 6x) on Company B’s EBITDA of £2m (i.e.£8m enterprise value ‘gain’).
Due to the above, the buy-and-build strategy can be very beneficial to improving the IRR achieved by the PE firm on its investments.
All you need to know
The below information pack (60+ page document with accompanying example Excel databook) will benefit any individual looking into a potential move into the financial due diligence profession (often referred to as transaction services or transaction advisory services in the market). The information pack will prove useful for potential interview questions or even simply establishing a general understanding of the typical financial due diligence thought-process.
The pack will also be beneficial for any already successful FDD candidate who is looking to acquire a strong technical understanding in order to hit the ground running.
FDD Interview Preparation Pack and Example Excel Databook
Complete FDD (Transaction Services) interview preparation pack (60+ page document + example Excel databook). Insights into the FDD process and detailed technical examples covering all three key FDD workstreams: Quality of Earnings, Net Debt and Net Working Capital.
Candidate feedback on the interview preparation pack:
“I have passed my interview as a consultant in corporate finance. I was asked to prepare the "clean" EBITDA and Working capital. The information pack helped me a lot!” - H Yue, May 2023
“Informative and to the point, gave me the confidence I needed.” - Harkirat K, November 2022
I was able to secure 2 full time offers from my interviews for TAS roles while reviewing the course pack. Most of the recruiters / managers interviewed with were impressed that I had a baseline understanding of FDD coming from an audit background at a big 4" - Jose V, August 2022