Corporate compounding is an M&A strategy in which buyers acquire and integrate businesses in order to consistently compound earnings, revenues and value over time, with M&A forming the core of the business’ growth strategy.
While similar in many ways to private equity acquisition models, our exclusive October insight looks at the facets that mark the compounder model out as unique in its own right, as well as how compounders may become an increasingly viable exit option for UK owners.
Members can read the full report here
Compounders are, above all, disciplined buyers. Rather than relentlessly expanding into new sectors and markets, they typically focus on acquisitions of companies that are complementary to their existing operations.
Most importantly, they target stable companies in established markets that are able to demonstrate a strong track record of performance over many years. This is an approach that helps to ensure stability, security and, crucially, consistent long-term returns.
Strong compatibility is vital for compounders, meaning that integration plays a vital role both in how they structure and carry out their deal origination and due diligence and in the meticulous integration processes they have in place for the post-deal period.
Perhaps the key difference with private equity firms is the long-term focus that compounders have. Whereas private equity firms will be seeking to exit their investments within a few years, compounders usually won’t have an end date in mind.
This means that their investments into the companies they acquire are focused on stable, long-term growth and they will often seek to nurture and support existing management teams, rather than making wholesale changes.
In our full report we take an in-depth look at these aspects of the compounder model, as well as exploring:
Other features of the compounder approach, including capital allocation strategy, the level of centralisation and scalability factors
The advantages that the model can offer, both to the compounder and to owners at acquired companies
The challenges that compounders might face and how they can work to overcome them
Detailed case studies on two of the UK’s most active corporate compounders
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