Financing buy and build in a volatile market

At a time when UK private equity firms have had to navigate choppy M&A markets, buy and build acquisition strategies have enabled certain sponsors to sustain deployment and tap into growth against an uncertain backdrop.

UK buyout and secondary buyout deal value fell for two consecutive years following the 2021 peak in the market. Although UK deal value rallied strong in 2024, global trade uncertainty and stock market volatility saw deal numbers drop again in early 2025, with UK buyout deal value falling to around £9.3bn in the first quarter from around £26.1bn in Q4 2024, according to data from White & Case¹.

Through this sustained period of economic uncertainty, valuation gaps between sellers and vendors have persisted, resulting in a greater focus from sponsors on operational value creation strategies, boosting the popularity of buy and build .

Indeed, according to Grant Thornton analysis, bolt-on deals ranked as the most popular deal-type for UK private equity firms in 2024, with managers closing 1,090 bolt-ons through the year to account for close to two-thirds of overall UK buyout deal volume².

Buy and build bolt-on acquisitions are a good option for sponsors through periods of volatility, as entry multiples for smaller deal targets will usually be lower than those commanded by larger assets. These deals can also be secured with a lower initial capital outlay, and provide sponsors with a value creation runway, as they can unlock both synergies and a multiple arbitrage uplift as a platform company scales through a buy and build programme.

Financing bolt-on deals through a period of higher interest rates and tighter liquidity can also be easier than trying to secure a large debt package for a bigger deal, and bearing the higher risk and associated debt servicing costs.

From a lending perspective, buy and build presents an attractive opportunity, especially so for a lender like Shawbrook, that likes to operate in the less liquid lower mid-market lending in primary buyout situations. On smaller deals, the focus on accelerating scale through inorganic growth means is arguably even more pertinent. Indeed, approximately two-thirds of the sponsor-backed businesses Shawbrook works with have completed at least one bolt-on deal³.

For lenders, buy and build appeals as multiple acquisitions allow for layered financing opportunities on a single platform. As the platform company expands and makes acquisitions, the debt provision can be expanded and leverage multiples increased accordingly. This provides an enhanced level of comfort for lenders when advancing capital to a familiar asset to fund an established acquisition strategy.

When a portfolio company has a buy and build track record and a credible list of target acquisitions still to pursue, it also becomes easier to refinance, as lenders can see an ongoing growth plan. This supports the case for a successful exit, or to extend a maturity or provide additional financing to support a longer hold period.

In a market where private equity portfolio company hold periods are sitting above long-term averages, the smoother pathways to refinancing have emerged as another benefit of a buy and build strategy.

For lenders, however, financing a buy and build does require a thoughtful approach to underwriting.

Lenders will want to make packages sufficiently flexible such that sponsors can execute buy and build deals at the right pace with a reliable funding line. At the same time, funders will want to prevent the scenario where the buy and build platform is performing below par yet the sponsor continues with the cadence of acquisitions, potentially building up an unsustainable pool of earn-out and deferred consideration obligations.

Lenders who are successful in the buy and build space strike this balance by taking the time to diligently assess areas like the sponsor’s sector and buy and build capability, as well as the capacity of the platform company and its management team to execute and integrate multiple acquisitions through the life of the deal.

Striking this balance presents a unique underwriting proposition for a lender, and makes buy and build deals more complex to fund than “vanilla” buyout transactions. For lenders that do it well, however, there is an attractive pipeline of deals to pursue, across all periods of the investment cycle.

View some examples of how Shawbrook has supported businesses and their sponsors with buy and build acquisitions.

1 https://whcs.law/4lWgxmY

2 https://www.grantthornton.co.uk/insights/private-equity-review-2024/. See Chart 1

3 Figure taken from prior Shawbrook Q&A (filed 2024/07/09).