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Consolidating a fragmented market through M&A

Focusing on growing profits whilst operating in a niche can be challenging. A carefully considered buy-and-build strategy can help a business accelerate its growth in both the UK and internationally.

Growing a business is hard work, particularly if operating in a competitive landscape. Making targeted acquisitions can have a meaningful impact on growth, whether expanding into new geographies or verticals, gaining market share or accessing new resource.

“Acquisitions can go a long way to helping businesses grow faster,” says Mark Williams, Partner at Inflexion. “Where a buy-and-build strategy is right, we support management to identify suitable targets and then bring our experience to bear in negotiating with targets, bringing in appropriate funding and assisting in integration where appropriate.” Indeed, Inflexion has supported over 450 acquisitions for its portfolio, including over 90 internationally.

Medivet– doubling sites and headcount

The successful growth journey of veterinary chain Medivet illustrates the phenomenal impact consolidation can have. The firm partnered with Inflexion in December 2016 when Medivet had around 150 sites, mostly in the south of the UK. This swelled to c300 in the UK and 40 in Spain and 20 in Germany when the business was sold to CVC Capital Partners in September 2021.

Such scale required changes within the business and management drew on Inflexion not just for its flexible funding, but also its experience in scaling, and so invited them to help build out the leadership team, which ultimately included the appointments of a CEO, CFO, CTO and CMO as well as an HR function, which proved critical to the business’s growth.  Inflexion also drew on its digital expertise to help the business’s evolution.

“Inflexion’s capital and support helped Medivet to strengthen its leadership team and grow the businesses materially in the UK. Their support has been invaluable on our growth journey,” recalls Deirdre Burns, Executive Chair of Medivet.

Succession– becoming the largest independent financial adviser

Another success story around consolidating a fragmented domestic market was that of Succession, a wealth manager Inflexion backed in early 2014 and supported to grow into the UK’s largest independent financial adviser. At that time of Inflexion’s investment, Succession had £1.7 billion of assets under advice and management was looking to scale through add-on acquisitions. The business went on to purchase 60 independent managers to ultimately have 200 planners advising c19,000 clients on £9.5 billion of assets at the time of its sale in 2022 to FTSE 100 Aviva plc.

BES Group – growing offering and geographic scope

Some journeys are so good you decide to repeat them, as the partnership of Inflexion and BES illustrates. With their understanding of the fragmented testing, inspection and consultancy services market, Inflexion re-invested in BES in February 2021 after an initial carve-out in 2015 and subsequent five-year partnership saw BES transformed into a unique asset of scale in its market. Management worked with Inflexion’s digital team to create a best-in-class tech-enabled service, while 13 acquisitions to-date have expanded BES’s offering and geographic scope, with more opportunities in its sights.

Huws Gray – becoming the UK’s largest independent builders merchants through acquisition

A minority partnership with Inflexion in 2018 saw Huws Gray embark on an impressive journey which kicked off with the transformational acquisition of Ridgeons, doubling the builders merchants’ revenues overnight. Another 15 acquisitions saw the branch footprint grow from 60 to 100 in total and stretch from its base on Anglesey, Wales to the East Coast of England. Throughout the entire four-year hold period, Huws Gray remained majority owned and led by the existing management team. The firm saw profits increase by 2.5x and headcount more than double to 1,800 before it was sold to Blackstone Group in 2021.

Phenna – tripling headcount and doubling EBITDA

Sprinting towards success can reap great benefits, as was the case with TICC services business Phenna Group. The ambitious Founder and CEO, Paul Barry, led his team on an ambitious journey which saw the firm make 23 acquisitions in just 18 months to create a global player of scale, with the acquisitions part of a clear strategy of building out the core operating areas whilst augmenting the platform. They helped Phenna to expand geographically, with the buy-and-build spanning six countries, whilst also taking the firm into new end-market sectors such as fire, cyber security, HSE and environmental.

Crucial to the pace and success of this growth was minority funding from Inflexion Partnership Capital. “Inflexion’s genuine minority offering combined with the firm’s impressive experience in similar businesses made them the right partner,” Paul says of his decision, referring to Inflexion’s backing of BES, Alcumus and Cawood Scientific. Headcount had tripled and EBITDA more than doubled during Inflexion’s stewardship before the firm was sold to Oakley Capital in a transaction valuing the business at over £1bn in 2022.

Keys to successful M&A

 

Having guided and supported over 440 acquisitions for our portfolio to date, we’ve learned that the journeys are different for each business and that reaching the peak isn’t the end point – integration post-deal is equally important (and challenging). For this reason, most of the acquisitions we support are done within the first year of our partnership, meaning we then take time to work with you to integrate the business. Herein lies the challenge of consolidating a fragmented market:

  • Organic growth remains paramount to a firm’s strategy, and a simple buy-and-build will not succeed if there isn’t parallel organic sales growth to drive the strategy. We support our partners on all aspects of accelerating growth.
  • Consolidation requires capital and skills. It is crucial to have a strong management team in place with the right skills and experience to be able to execute a buy-and-build strategy. We provide more than pure capital; we work with management to understand the requirements and infill talent as required.
  • Technology consolidation is one of the most critical aspects of integration. We have a deeply experienced digital team that can help plan, test and implement these systems.
  • People matter. Above all else, having the right team in place to guide the journey as well as the team they are taking on it is of paramount importance.

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