In a period characterised by subdued economic growth and elevated interest rates, SME business owners are increasingly pursuing buy-and-build strategies as an alternative to purely organic expansion. From a lender’s perspective, these strategies can be attractive when executed correctly, as they unlock economies of scale, professionalise fragmented sectors, and deploy capital into productive assets.
However, execution risk remains high in the SME market. Based on market observations, there are several recurring issues that lenders consistently encounter when underwriting buy-and-build transactions.
A common early weakness is insufficient discipline around target selection. Acquirers often pursue transactions opportunistically rather than strategically, without a clear articulation of how the target fits within the wider group.
From a lender’s perspective, acquisition targets must demonstrate:
There is a frequent misconception that acquisition funding can be secured prior to the execution of a Share Purchase Agreement. In reality, the SPA is a critical underwriting document, as it defines deal structure, risk allocation, and the commercial terms that lenders must support.
Transactions commonly falter at this stage due to misalignment between buyer and seller expectations, leading to protracted negotiations. Extended timelines often erode lender confidence and can invalidate prior underwriting work, increasing execution risk and deal fatigue.
First-time acquirers frequently underestimate the importance of equity participation. In practice, lenders will not fund 100% of an acquisition, as doing so transfers disproportionate risk to the credit provider.
An appropriate equity contribution:
In the SME context, buy-and-build strategies are most compelling when acquisitions are sector-adjacent or complementary, rather than diversifying. Lenders place significant weight on demonstrable synergies, including shared customers, systems, management expertise, and cost structures.
Acquisitions in unrelated sectors materially increase execution and integration risk and are typically unsuitable for leveraged SME transactions.
Buy-and-build strategies can represent an attractive growth mechanism in the SME market when supported by disciplined execution, clear strategic logic, and appropriate risk alignment. From a lender’s perspective, the most successful transactions are those that prioritise focus over scale, structure over speed, and alignment over ambition.
In the current environment of subdued economic growth and elevated interest rates, purely organic expansion has become more challenging. Buy-and-build strategies offer an attractive alternative by unlocking economies of scale, professionalising fragmented sectors, and deploying capital into productive assets. When executed with discipline, they can accelerate growth in ways that organic expansion cannot match under current market conditions.
There is a common misconception that acquisition funding can be secured before the SPA is executed. In reality, the SPA is a critical underwriting document that defines deal structure, risk allocation, and the commercial terms lenders must support. Transactions frequently falter when buyer and seller expectations are misaligned, leading to protracted negotiations. These extended timelines erode lender confidence, can invalidate prior underwriting work, and significantly increase execution risk.
