That explanation is transaction-cost economics, the branch of theory concerned with why some exchanges are organised through the market and others inside the firm. Where the resource-based view says which resources matter, transaction-cost economics says why a platform brings them inside through ownership rather than renting them. This note develops that complement, applies it to the build-borrow-buy choice, and tests it against the obvious objection that a long-term contract would be cheaper.

Why firms exist, and why they buy

The question is older than buy-and-build. Coase (1937) asked why firms exist at all, given that markets are supposed to coordinate production efficiently, and answered that using the market is itself costly: there are costs to discovering prices, negotiating, and enforcing contracts, and when those costs are high enough it is cheaper to organise the activity inside a firm under managerial direction. The boundary of the firm sits where the cost of one more internal transaction equals the cost of carrying it out through the market.

Williamson (1979) made that boundary operational. Three features push an exchange out of the market and inside the firm: asset specificity, when the parties must invest in assets specialised to the relationship; uncertainty, when contingencies cannot all be written into a contract; and the hazard of opportunism, when one party can exploit the other once both are committed. The greater these are, the more an arm’s-length contract leaves a firm exposed to hold-up, and the more attractive ownership becomes, because common ownership aligns incentives and lets disputes be settled by fiat rather than by renegotiation.

Build, borrow, or buy

For a growing platform this abstract make-or-buy choice takes a concrete form: build the capability internally, borrow it through a contract or alliance, or buy it through acquisition (Capron & Mitchell, 2012). Their argument is that firms default too readily to one mode, usually the one they know best, and that disciplined growth means matching the mode to the resource. Build when internal resources are close to what is needed; borrow when a capable partner exists and the relationship can be governed by contract; buy when the resource is deeply embedded in another organisation and cannot be cleanly separated from it.

In a platform the choice is recursive, which is what makes it interesting. Capabilities assembled through early add-ons change the calculus for later ones. A capability the platform once had to buy, because it had no foundation to build on, it may later be able to build, because earlier deals supplied the foundation. Conversely, a relationship the platform was happy to borrow through a contract can become specific enough, as volumes grow, that leaving it in the market becomes the riskier option.

Why platforms internalise

Transaction-cost reasoning explains several recurring buy-and-build patterns that a pure synergy story leaves vague. Vertical integration is the clearest. A platform that depends on a distributor or a specialist installer, and that has invested in assets specific to that relationship, faces hold-up risk: the partner can extract value precisely because the platform cannot easily switch. Acquiring the partner removes the hazard by bringing the transaction inside the firm. The same logic explains why platforms internalise scarce capabilities, such as a regional service network or a proprietary product line, rather than contracting for them, once those capabilities become specific to the platform’s strategy and too important to leave exposed to a counterparty’s incentives.

This is also where transaction-cost economics and the resource-based view fit together rather than compete. The resource-based view explains which capabilities are worth controlling, because they are valuable and hard to imitate (Barney, 1991; Dierickx & Cool, 1989); transaction-cost economics explains the governance form, ownership rather than contract, through which the platform secures them. Recent theory casts private equity itself as a specialised intermediary in the market for corporate assets, whose comparative advantage lies in reallocating and governing assets that markets price poorly (Nary & Kaul, 2023), which is a transaction-cost argument about the sponsor as much as about the platform.

A worked illustration: from supplier to subsidiary

Consider a building-products platform that for years has bought a specialised component from an independent regional manufacturer under an ordinary supply contract. Early on this is a textbook borrow: the component is available from several sources, the relationship is non-specific, and a contract governs it cheaply.

As the platform grows, the relationship changes character. The platform redesigns its installed product around this manufacturer’s specification, trains its branch staff on it, and markets it to customers, investments that are specific to this supplier and worth little if the relationship ends. The manufacturer, aware of this, presses for better terms at each renewal. The platform now faces classic hold-up: it is committed, the asset is specific, and the contract cannot anticipate every future contingency. Transaction-cost logic predicts what happens next. The platform acquires the manufacturer, not because the manufacturer is a wonderful standalone business but because internalising the transaction removes a hazard that had become too costly to manage through the market. The borrow became a buy when specificity and uncertainty crossed a threshold.

The objection: wouldn’t a contract be cheaper?

The natural objection is that acquisition is an expensive and clumsy way to solve a contracting problem. Long-term agreements, exclusivity clauses, and well-designed incentives can manage most supplier relationships without the cost and integration burden of ownership, and often they should. Transaction-cost economics agrees: where specificity and uncertainty are low, the market is the right governance form, and a platform that acquires everything it transacts with will overpay and overload its integration capacity.

The objection fails only at the margin transaction-cost economics actually identifies. When assets are highly specific, contingencies cannot be fully specified, and opportunism is a live risk, contracts become incomplete in ways no clause fully closes, and the cost of repeated renegotiation and the exposure to hold-up exceed the cost of ownership. There is also a resource-based limit the contract cannot reach: some of what the platform wants, the tacit know-how and routines embedded in the target, cannot be transferred by contract at all, only by acquiring the organisation that holds them. The discipline cuts both ways, and the failure case proves it. When bidders lack the keystone resources needed to unlock a target’s value, the right move is not to own it; firms that announce deals and then find they cannot create the value divest the target-related resources rather than absorb them (Gibbs et al., 2026). Transaction-cost economics is not an argument for buying; it is an argument for buying only when the market is the costlier option.

Four propositions

Stated plainly, so they can be argued with and tested against cases:

1. Governance, not just resources. The resource-based view says which capabilities to control; transaction-cost economics says when to control them through ownership rather than contract or alliance.

2. Specificity drives internalisation. Platforms acquire, rather than contract, when asset specificity, uncertainty, and the hazard of opportunism make the market exchange too costly to govern.

3. The mode choice is recursive. Capabilities accumulated through early add-ons shift later build-borrow-buy decisions, converting some buys into builds and some borrows into buys.

4. Buy is not the default. Where specificity and uncertainty are low the market is the right form; acquiring everything overloads capacity and destroys value, and the failure case is divestiture.

Why this matters

Read alongside the resource-based view, transaction-cost economics turns buy-and-build from a series of opportunistic purchases into a governed sequence of make-or-buy decisions. It explains why platforms internalise distribution, why a comfortable supplier relationship suddenly becomes an acquisition target, and why the discipline is knowing when not to buy. The companion question, once the platform has decided to acquire, of which target to choose, is the subject of the target-selection note; and the constraint that every internalisation quietly draws down is the absorptive capacity examined later in the Notebook. Ownership solves a governance problem, but it spends the one resource a platform cannot easily replace.

References

Barney, J. (1991). Firm resources and sustained competitive advantage. Journal of Management, 17(1), 99–120.

Capron, L., & Mitchell, W. (2012). Build, borrow, or buy: Solving the growth dilemma. Harvard Business Review Press.

Coase, R. H. (1937). The nature of the firm. Economica, 4(16), 386–405.

Dierickx, I., & Cool, K. (1989). Asset stock accumulation and sustainability of competitive advantage. Management Science, 35(12), 1504–1511.

Gibbs, A., Byun, H., & Lim, K. (2026). Build, borrow, buy… or bail: Divestiture following merger and acquisition deal termination. Strategy Science. Advance online publication.

Nary, P., & Kaul, A. (2023). Private equity as an intermediary in the market for corporate assets. Academy of Management Review, 48(4), 719–748.

Williamson, O. E. (1979).Transaction-cost economics: The governance of contractual relations. The Journal of Law and Economics, 22(2), 233–261.

The Resource-Based View (RBV) of the firm offers the most rigorous available answer. It conceptualises acquisitions not as market-entry moves or scale plays but as the deliberate accumulation of heterogeneous, imperfectly mobile resource bundles under uncertainty. That framing fits buy-and-build unusually well, because in a platform assembled through a sequence of deals, advantage depends far less on any single transaction than on the construction of a resource base over time.

This note positions RBV as the primary analytical lens for value creation in buy-and-build. It also takes the lens seriously enough to test it: to ask where its assumptions hold, where the evidence is thinner than its advocates suggest, and where its sharpest critics are right. Dynamic Capabilities enters later as a disciplined extension rather than a competing framework, and the note’s central claims are stated as explicit propositions at the end. A lens worth using is a lens worth holding to account.

Origins of the Resource-Based View

The intellectual roots of RBV trace to Edith Penrose (1959), who argued that a firm is best understood as a collection of productive resources whose deployment both constrains and enables growth. Growth, in her account, is bounded not by the market but by the firm’s own capacity to absorb and direct new resources, the limit later writers called the “Penrose effect.” That idea is the seed of everything this note argues: a platform can only acquire as fast as it can absorb.

Wernerfelt (1984) formalised the insight, proposing that analysing a firm through its resource positions, rather than its product-market positions, yields different and often sharper strategic conclusions. Four of his propositions bear directly on buy-and-build:

• Firms differ systematically in the resources they control.

• Those differences persist because factor markets are imperfect.

• Acquisitions are purchases of resource bundles, not just businesses.

• Strategy is the balance between exploiting existing resources and developing new ones.

Barney (1986, 1991) then specified the conditions under which resources generate sustained advantage, and later folded in the organisational dimension: the “O” of the VRIO test, meaning the firm’s capacity to actually exploit what it holds (Barney, 1995).

Core assumptions

RBV rests on two foundational assumptions (Barney, 1991). The first is resource heterogeneity: firms in the same industry control different bundles of assets, capabilities, and knowledge. The second is resource immobility: some of those resources are costly to trade, imitate, or redeploy across firms. From these follows the central proposition: sustained competitive advantage arises when a firm controls resources that are valuable, rare, imperfectly imitable, and non-substitutable (the VRIN criteria) and has the organisational capacity to deploy them.

Resources are defined broadly: tangible assets, intangible assets such as reputation and relationships, organisational processes, and embedded knowledge and routines. That breadth matters for buy-and-build, because much of what creates value in a platform sits in non-codified, tacit, or relational assets that are not easily visible in a data room. A target’s management depth, its installed-base relationships, its tacit operating know-how: these rarely appear cleanly on a quality-of-earnings schedule, yet they are often what determines whether an add-on compounds or disappoints.

Acquisitions as resource transactions, and the problem of efficient factor markets

RBV’s most underappreciated contribution is its treatment of acquisitions. Barney (1986) argued that resources are bought and sold in strategic factor markets, the markets for the inputs needed to execute a strategy, and that these markets price resources according to buyers’ expectations of the value they will create. The same target may be worth materially different amounts to different buyers; synergy is not intrinsic to the target but buyer-specific; and overpayment is common when expectations converge or optimism dominates.

This framing aligns closely with observed buy-and-build dynamics. Platforms repeatedly acquire similar firms; value depends on how well a target’s resources complement the existing base; and sequencing matters because earlier acquisitions shape the platform’s capacity to absorb the next one. Read through RBV, a successful buy-and-build assembles complementary resource positions that competitors cannot easily replicate; it is not simply buying cheap assets.

But Barney’s own argument contains the sharpest objection to the whole enterprise. If a strategic factor market is efficient, the price of a resource already impounds its expected value, and the acquirer earns only a normal return: the advantage is competed away at the auction. This is not an abstract worry for buy-and-build. Most targets are sold through organised processes rather than surfacing at random (Boone & Mulherin, 2007), and the more intermediated and competitive the process, the more fully the price should capture the value any disciplined buyer expects to extract. So how can a platform earn excess returns at all?

RBV offers three answers, and buy-and-build relies on all of them. First, value is buyer-specific because the platform can do something with the target that other bidders cannot: a target’s worth depends on the acquirer’s capacity to deploy its own complementary resources against it (Kaul & Wu, 2016). Second, the platform reduces the competition it faces, through proprietary origination and through private targets, which trade at a discount that compensates for greater information asymmetry (Capron & Shen, 2007). Third, and most importantly, the resources that matter most are not for sale in the factor market at all.

Resource accumulation and time

Dierickx and Cool (1989) supplied the refinement that makes RBV usable for buy-and-build. They challenged the assumption that strategically valuable assets can simply be purchased, arguing that the resources that matter most, such as reputation, culture, routines, and integration know-how, are stocks accumulated over time through path-dependent flows. As they put it:

“Strategic asset stocks are accumulated by choosing appropriate time paths of flows over a period of time.”

Three of their mechanisms travel directly into the platform setting. Time-compression diseconomies mean a capability built over five years cannot be bought in one; asset-mass efficiencies mean those who already hold a stock accumulate further stock more cheaply; and interconnectedness means stocks reinforce one another, so an integration capability and a reputation for being a good acquirer grow together. The implication is blunt: not all resources are tradable, acquisition alone does not confer capability, and the order and pacing of deals matter as much as selection itself.

This is why integration capability is, in a buy-and-build platform, a strategic asset in its own right. It cannot be acquired wholesale; it is built through repeated execution, and it is learned deliberately, since firms that codify and accumulate integration experience develop a capability that measurably improves later acquisitions (Zollo & Singh, 2004). The same logic governs what a platform can even recognise as a good target: its capacity to absorb new resources depends on the related knowledge it already holds (Cohen & Levinthal, 1990). Because these accumulated stocks are exactly the resources a competitor cannot buy at auction, they are also the ones the efficient-factor-market objection cannot erode.

A worked illustration: two platforms, one thesis

The mechanism is easier to see in a concrete case. The following is stylised, a composite rather than a specific company, but every move in it is drawn from the dynamics above.

Consider two private-equity platforms pursuing the same thesis: consolidate a fragmented regional market of building-products distributors and installers. Both target the same fundamentals, namely recurring renovation demand, sub-scale independents with no succession plan, and purchasing fragmentation that promises procurement synergy. On paper, their pipelines are nearly identical, and they often bid for the same assets at similar multiples.

Platform A treats its first two acquisitions as capability-building exercises rather than scale plays. It uses them to construct a repeatable template: a shared procurement function, a common branch-operating model, and a standardised onboarding sequence for acquired management. It deliberately holds cadence below what its capital could support until that template works. By the time it accelerates, each new add-on is worth more to A than to any other bidder, because A can drop it onto an operating system that already exists. The same target, valued by a financial buyer with no template, is worth less, because the synergy lives in A’s resource base, not in the target.

Platform B front-loads cadence to put capital to work and show early momentum. Each acquisition is integrated ad hoc, by whichever executive is free. Integration debt compounds: systems never converge, acquired managers leave, and the procurement synergy that justified the premiums is only partly captured. B is not buying worse companies or paying materially more; it is failing to accumulate the capability that converts a target into value. Three years in, the two platforms hold similar assets bought at similar prices and have diverged sharply in performance.

RBV explains that divergence in a way operational accounts cannot. The difference is not asset quality, price discipline, or market timing, since those were comparable. It is the stock of integration capability A accumulated and B did not, and the buyer-specific value that capability created. The advantage was built, not bought.

What the evidence actually says

The illustration is consistent with the empirical record, though that record is more qualified than RBV’s advocates sometimes imply. Capron (1999), studying horizontal acquisitions, found that the redeployment of resources between acquirer and target, in both directions, improves long-term performance, which is the redeployment-and-recombination logic at the centre of this note. Whether acquirers should prefer targets whose resources are similar to their own or complementary to them is contingent on strategic aim (Yu et al., 2016), and a target’s value depends on the acquirer’s capacity to deploy resources against it rather than on standalone quality (Kaul & Wu, 2016).

Honesty requires a caveat the earlier version of this note glossed. The broader claim that resource or strategic “fit” reliably predicts acquisition performance is not settled; the relatedness literature is genuinely mixed, with effects that vary by measure, period, and context. The defensible version is narrower, and is stated as a proposition below: fit matters when it is operationalised as the acquirer’s demonstrated capacity to deploy complementary resources, not as abstract industry similarity.

The private-equity literature adds the setting-specific evidence. Operational engineering, the industry and operating expertise a sponsor applies to its portfolio, is the capability that distinguishes leading firms (Kaplan & Strömberg, 2009), and inorganic growth through add-ons has become central to the PE business model (Hammer et al., 2017). Sponsors can earn above-average returns despite paying premiums for add-ons, through a combination of top-line growth and multiple expansion (Hammer et al., 2022), and the strategy creates value under identifiable industry and platform conditions (Bansraj & Smit, 2017). Recent theory casts private equity as a specialised intermediary in the market for corporate assets, whose selection logic differs systematically from that of strategic acquirers (Nary & Kaul, 2023), which is precisely why a resource-deployment account, rather than a generic synergy account, is the right lens.

The limits of the lens, taken seriously

RBV has real critics, and the strongest of them deserve a hearing rather than a footnote. The most damaging charge is near-tautology: if valuable resources are those that produce advantage, and advantage is the evidence that resources were valuable, the theory risks explaining outcomes by relabelling them (Priem & Butler, 2001). Reviews of the empirical literature reinforce the worry from a different angle, since intangible resources are hard to operationalise, the expected duration of advantage is left vague, and overall empirical support is modest and uneven (Armstrong & Shimizu, 2007; Newbert, 2007). And the efficient-factor-market objection, raised above, never fully goes away.

These critiques bite hardest against predictive uses of RBV, attempts to forecast which firm will win from a checklist of resources. They bite far less against explanatory use, where the goal is to understand the mechanism by which advantage is constructed across a sequence of deals. The defence is not to wave the critiques away but to accept the discipline they imply: specify the resource and the deployment mechanism in advance, rather than inferring them from the outcome. That is the point of stating propositions before observing cases, and it is the standard the rest of this Notebook tries to hold to.

RBV and Dynamic Capabilities: a disciplined extension

Dynamic Capabilities theory (Teece et al., 1997) extends RBV by emphasising a firm’s ability to sense opportunities, seize them, and reconfigure its resource base as the environment changes. Applied carefully it adds genuine explanatory power; applied loosely it becomes an all-purpose hand-wave for “the platform is good at adapting.” Even its proponents worry about this: Eisenhardt and Martin (2000) recast dynamic capabilities as specific, identifiable processes precisely to rescue the concept from tautology, while Helfat and Peteraf (2003) offered the RBV-compatible notion of capability lifecycles to describe how capabilities are founded, developed, and mature over time.

In a buy-and-build context the framework is best held narrowly: as a second-order capability that conditions the effectiveness of resource accumulation, and as the explanation for why some platforms integrate repeatedly while others stall after the first add-on. RBV explains which resources matter and why they may generate advantage; Dynamic Capabilities explains whether the firm can keep redeploying them as complexity rises. Both lenses are needed; neither alone is sufficient; and the second should not be stretched past its evidence to cover gaps in the first.

Four propositions

Stated plainly, so they can be argued with and tested against cases:

1. Buyer-specific value. In buy-and-build, a target’s value is buyer-specific and rises with the platform’s capacity to deploy complementary resources against it, not with the target’s standalone quality.

2. Accumulation, not purchase. The resources most decisive for platform advantage, such as integration capability, reputation, and operating routines, are accumulated through path-dependent execution and cannot be acquired wholesale; they are therefore not competed away in factor markets.

3. Sequencing as a constraint. The order and pacing of acquisitions shape future feasibility; early deals expand or narrow the set of targets a platform can later absorb.

4. Heterogeneity from capability. Performance differences across platforms pursuing nominally identical theses are explained primarily by differences in accumulated capability, not by differences in asset quality, price paid, or market timing.

Why this lens matters

Positioning RBV as the primary lens clarifies several things operational framings tend to obscure: acquisitions are resource bets, not growth events; value creation is buyer-specific and path-dependent; sequencing shapes future optionality; and integration capacity is itself a strategic asset (a claim Integration Capacity Is the Binding Constraintdevelops from the platform side, and Why We Acquire: Motives Before Targets takes forward into how targets are actually chosen).

Used carefully, as an explanatory lens disciplined by propositions rather than a predictive checklist, RBV makes buy-and-build legible as a systematic process of building advantage under constraint. That legibility is what the rest of the Thesis Notebook builds on: Real Options, where the lens strains and reversibility is overstated; Absorptive Capacity, where learning becomes the binding mechanism; and the pre-deal research, where the resource-bundle framing meets selection in practice. My own view, stated once and plainly, is that the resource-based account is the most honest description we have of why two platforms running the same playbook end up so far apart, and that its looseness is a fair price for getting the mechanism right.

References

Armstrong, C. E., & Shimizu, K. (2007). A review of approaches to empirical research on the resource-based view of the firm. Journal of Management, 33(6), 959–986.

Bansraj, D. S., & Smit, H. T. J. (2017). Optimal conditions for buy-and-build acquisitions [Preliminary version]. Erasmus School of Economics.

Barney, J. B. (1986). Strategic factor markets: Expectations, luck, and business strategy. Management Science, 32(10), 1231–1241.

Barney, J. (1991). Firm resources and sustained competitive advantage. Journal of Management, 17(1), 99–120.

Barney, J. B. (1995). Looking inside for competitive advantage. Academy of Management Executive, 9(4), 49–61.

Boone, A. L., & Mulherin, J. H. (2007). How are firms sold?. The Journal of Finance, 62(2), 847–875.

Capron, L. (1999). The long-term performance of horizontal acquisitions. Strategic Management Journal, 20(11), 987–1018.

Capron, L., & Shen, J. C. (2007). Acquisitions of private vs. public firms: Private information, target selection, and acquirer returns. Strategic Management Journal, 28(9), 891–911.

Cohen, W. M., & Levinthal, D. A. (1990). Absorptive capacity: A new perspective on learning and innovation. Administrative Science Quarterly, 35(1), 128–152.

Dierickx, I., & Cool, K. (1989). Asset stock accumulation and sustainability of competitive advantage. Management Science, 35(12), 1504–1511.

Eisenhardt, K. M., & Martin, J. A. (2000). Dynamic capabilities: What are they?. Strategic Management Journal, 21(10–11), 1105–1121.

Hammer, B., Knauer, A., Pflücke, M., & Schwetzler, B. (2017). Inorganic growth strategies and the evolution of the private equity business model. Journal of Corporate Finance, 45, 31–63.

Hammer, B., Marcotty-Dehm, N., Schweizer, D., & Schwetzler, B. (2022). Pricing and value creation in private equity-backed buy-and-build strategies. Journal of Corporate Finance, 77, 102285.

Helfat, C. E., & Peteraf, M. A. (2003). The dynamic resource-based view: Capability lifecycles. Strategic Management Journal, 24(10), 997–1010.

Kaplan, S. N., & Strömberg, P. (2009). Leveraged buyouts and private equity. Journal of Economic Perspectives, 23(1), 121–146.

Kaul, A., & Wu, B. (2016). A capabilities-based perspective on target selection in acquisitions. Strategic Management Journal, 37(7), 1220–1239.

Nary, P., & Kaul, A. (2023). Private equity as an intermediary in the market for corporate assets. Academy of Management Review, 48(4), 719–748.

Newbert, S. L. (2007). Empirical research on the resource-based view of the firm: An assessment and suggestions for future research. Strategic Management Journal, 28(2), 121–146.

Penrose, E. T. (1959). The theory of the growth of the firm. Oxford University Press.

Priem, R. L., & Butler, J. E. (2001). Is the resource-based “view” a useful perspective for strategic management research?. Academy of Management Review, 26(1), 22–40.

Teece, D. J., Pisano, G., & Shuen, A. (1997). Dynamic capabilities and strategic management. Strategic Management Journal, 18(7), 509–533.

Wernerfelt, B. (1984). A resource-based view of the firm. Strategic Management Journal, 5(2), 171–180.

Yu, Y., Umashankar, N., & Rao, V. R. (2016). Choosing the right target: Relative preferences for resource similarity and complementarity in acquisition choice. Strategic Management Journal, 37(8), 1808–1825.

Zollo, M., & Singh, H. (2004).Deliberate learning in corporate acquisitions: Post-acquisition strategies and integration capability in U.S. bank mergers. Strategic Management Journal, 25(13), 1233–1256.

Neither a comprehensive literature review nor a set of best practices, the Notebook uses established theory to clarify the mechanisms, constraints, and trade-offs that shape buy-and-build as it is actually executed. Each note isolates one academic lens and asks what it helps explain, and where the lens strains when applied to serial acquisition environments.

Three commitments shape the Notebook:

First, buy-and-build is treated as a system, not a deal type. Value creation arises from the interaction of strategy, selection, integration, learning, and governance over time, not from any single acquisition. This is closer to what researchers call an acquisition-programme perspective, in which performance is judged across a sequence of deals rather than one at a time (Laamanen & Keil, 2008).

Second, theory is used as a diagnostic tool, not an answer key. Each lens highlights certain dynamics and obscures others, and the aim is sharper judgment rather than theoretical completeness.

Third, organisational limits are taken seriously. Much of the divergence between intended and realised outcomes in buy-and-build traces to constraints on attention, learning, integration capacity, and sequencing, not to bad strategy.

The seven essays in the Notebook

Resource-Based View Revisited establishes the primary lens. Buy-and-build advantage comes from accumulating and recombining heterogeneous, imperfectly mobile resources under constraint (Penrose, 1959; Wernerfelt, 1984; Barney, 1991), built through path-dependent accumulation rather than residing in the assets themselves (Dierickx & Cool, 1989).

Transaction-Cost Economics and the Build-Borrow-Buy Choice asks why a platform acquires rather than builds or contracts. Ownership wins when asset specificity, uncertainty, and the hazard of opportunism make the market too costly to govern (Coase, 1937; Williamson, 1979), a recursive make-or-buy choice that shifts as the platform grows (Capron & Mitchell, 2012).

The Pre-Deal Phase and Target Selection reframes selection as a resource-matching problem rather than a quality screen (Welch et al., 2020; Kaul & Wu, 2016). In buy-and-build, selection is the first integration decision, embedding feasibility and governance long before diligence begins. (Related: Why We Acquire: Motives Before Targets.)

Deliberate and Emergent: How the Add-On Thesis Forms shows that a platform’s acquisition strategy is neither fully planned nor accidental. It is an umbrella strategy whose specifics emerge as opportunities arrive (Mintzberg & Waters, 1985), best studied as a process rather than a discrete event (Langley, 1999).

Absorptive Capacity under Cumulative Load addresses learning directly. Acquisition experience doesn’t always compound (Cohen & Levinthal, 1990; Zollo & Singh, 2004); under sustained integration pressure, capacity can plateau or degrade, and it, not the supply of deals, is usually the binding constraint. (Related: Integration Capacity Is the Binding Constraint.)

Real Options and Buy-and-Build examines a framework that is frequently invoked but often overstated. Optionality is a useful way to think about staged investment (Kogut, 1991; Smit & Moraitis, 2010), but it overstates reversibility and discretion in serial acquisition, where commitments narrow flexibility faster than financial theory implies (Adner & Levinthal, 2004).

Buy-and-Build in the Literature steps back to assess the field. The academic work is strong at documenting prevalence, drivers, and pricing (Hammer et al., 2017, 2022; Bansraj & Smit, 2017), and weaker at explaining how repeated acquisition remains additive rather than degrading over time.

Taken together, these pieces don’t form a grand theory. They map where buy-and-build tends to hold, strain, or fail when read through the available academic work.

How to read the Notebook

The Notebook isn’t meant to be read linearly or exhaustively, though the order builds: the first five notes construct an account, the sixth tests a rival lens against it, and the last assesses the field. Which lens is most useful usually depends on the reader’s role: investors gravitate toward pricing, selection, and system-level constraints; operators focus on integration, learning, and cumulative load; scholars engage with the boundaries between theory and observed behaviour. What unites these perspectives is a shared problem: how to make sound decisions under uncertainty when organisational capacity, not opportunity, is the binding constraint. (If you’re new here, How to Read This Project lays out the full structure and the recommended reading paths across sections.)

Buy-and-build rewards clarity more than cleverness. The Thesis Notebook is my attempt to use established research to improve the quality of that clarity, while staying honest about where the research itself hasn’t yet caught up to what operators are actually dealing with.

References

Adner, R., & Levinthal, D. A. (2004). What is not a real option: Considering boundary conditions for the application of real options to business strategy. Academy of Management Review, 29(1), 74–85.

Bansraj, D. S., & Smit, H. T. J. (2017). Optimal conditions for buy-and-build acquisitions [Preliminary version]. Erasmus School of Economics.

Barney, J. (1991). Firm resources and sustained competitive advantage. Journal of Management, 17(1), 99–120.

Capron, L., & Mitchell, W. (2012). Build, borrow, or buy: Solving the growth dilemma. Harvard Business Review Press.

Coase, R. H. (1937). The nature of the firm. Economica, 4(16), 386–405.

Cohen, W. M., & Levinthal, D. A. (1990). Absorptive capacity: A new perspective on learning and innovation. Administrative Science Quarterly, 35(1), 128–152.

Dierickx, I., & Cool, K. (1989). Asset stock accumulation and sustainability of competitive advantage. Management Science, 35(12), 1504–1511.

Hammer, B., Knauer, A., Pflücke, M., & Schwetzler, B. (2017). Inorganic growth strategies and the evolution of the private equity business model. Journal of Corporate Finance, 45, 31–63.

Hammer, B., Marcotty-Dehm, N., Schweizer, D., & Schwetzler, B. (2022). Pricing and value creation in private equity-backed buy-and-build strategies. Journal of Corporate Finance, 77, 102285.

Kaul, A., & Wu, B. (2016). A capabilities-based perspective on target selection in acquisitions. Strategic Management Journal, 37(7), 1220–1239.

Kogut, B. (1991). Joint ventures and the option to expand and acquire. Management Science, 37(1), 19–33.

Laamanen, T., & Keil, T. (2008). Performance of serial acquirers: Toward an acquisition program perspective. Strategic Management Journal, 29(6), 663–672.

Langley, A. (1999). Strategies for theorizing from process data. Academy of Management Review, 24(4), 691–710.

Mintzberg, H., & Waters, J. A. (1985). Of strategies, deliberate and emergent. Strategic Management Journal, 6(3), 257–272.

Penrose, E. T. (1959). The theory of the growth of the firm. Oxford University Press.

Smit, H. T. J., & Moraitis, T. (2010). Serial acquisition options. Long Range Planning, 43(1), 85–103.

Welch, X., Pavićević, S., Keil, T., & Laamanen, T. (2020). The pre-deal phase of mergers and acquisitions: A review and research agenda. Journal of Management, 46(6), 843–878.

Wernerfelt, B. (1984). A resource-based view of the firm. Strategic Management Journal, 5(2), 171–180.

Williamson, O. E. (1979). Transaction-cost economics: The governance of contractual relations. The Journal of Law and Economics, 22(2), 233–261.

Zollo, M., & Singh, H. (2004). Deliberate learning in corporate acquisitions: Post-acquisition strategies and integration capability in U.S. bank mergers. Strategic Management Journal, 25(13), 1233–1256.