Add-On Acquisitions – A Growing Private Equity Strategy

By Generational Equity

10/12/2016

A few weeks ago, PitchBook, a leading research firm focusing on venture capital and private equity activity, released their 2nd Quarter Private Equity (PE) report. As always, their research and analysis was insightful and accurate, full of great data on trends impacting the PE world. One table really stood out to me as it reflects the same trends the Generational Group and its dealmakers have been seeing so far this year. Namely, that smaller add-on transactions have become extremely popular with PE buyers:

As illustrated above, the dynamic we have been tracking for several years has become even more apparent in 2016: Add-on acquisitions are now a favorite method of growth for PE firms to pursue. This strategic direction is being driven by several parallel factors:

• In an era of tepid organic economic growth, PE firms realize that making synergistic acquisitions to bolt on to existing platforms is the most effective way to grow an organization.
• Integration of a smaller entity into a larger one is far less complex than merging two larger firms.
• Many lower middle-market privately held companies face restrained growth because of two issues – lack of capital and managerial/marketing/sales expertise; PE firms can provide all of these items.
• Because of this, the upside to many smaller add-ons is significant when doing post integration analysis.

It is this last point that is lost on many owners of privately held companies today. They often lament to us at our exit planning conferences, “Who would want to buy my company?” They say this because they are usually burned out, are too close to the company’s “warts” to see its potential, and have been led to believe that the ONLY buyer for their company will be the competitor up the street who made a low-ball offer several years ago at a trade show.

Ultimately the optimal buyer for your business may in fact be your competitor. However, unless you hire an experienced, professional M&A advisory firm, one that can expand your thinking to include a wide range of buyers, how will you ultimately know you got the best deal? You can’t.

Generational Equity’s dealmakers specialize in “out of the box” thinking when it comes to creating buyer lists. Our success can be seen in our recent track record:

• Thomson Reuters M&A Rankings
• 2015 Valuation Firm of the Year
• 2015 Financial Services Deal of the Year
• 2014 M&A Deal of the Year
• A Sampling of our Completed Transactions

The reality is that becoming a good dealmaker takes years of experience and becoming a leading M&A firm requires recruiting, hiring, mentoring and developing great people. Generational Equity has a proven track record of doing all of these things.

If you are the owner of a privately held business in North America, and the concept of an add-on strategy is new to you, then you really need to reach out to Generational Equity and attend one of our educational, M&A seminars. One of the many topics we introduce business owners to is how add-ons function and how critical it is to create a broad marketing effort when looking for buyers rather than a narrow focus on a few assumed targets.

To attend one, please call us at 972-232-1121 or fill out a contact form and we will be in touch.

By Carl Doerksen, Director of Corporate Development at Generational Equity.

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