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Why are Private Equity Add-Ons on a Record Pace?

By Generational Equity

01/20/2020

Middle market private equity firms are more and more using aggressive add-on (aka bolt-on) strategies for growth. This is how our friends with Pitchbook recently put it:

Private equity firms are living in the age of the add-on. Through the first nine months of 2019, add-ons to existing portfolio companies accounted for 68% of all private equity investments in the US—the highest annual rate on record—according to PitchBook's 3Q 2019 US PE Breakdown. With deal multiples spiking across the broader buyout market, this inorganic growth is one of the few ways left for investors to find the potential for value creation to which they've grown accustomed.

They also listed the top PE firms deploying add-on strategies in 2019 based on number of add-on acquisitions through Q3 2019, and the numbers are astounding:

These numbers are remarkable because it proves how valuable the bolt-on strategy has become for these firms. And it is great news for owners of lower middle market businesses because most PE firms in this niche have very low (if any) size criteria for add-ons.

But one key item to remember is this: To complete 56 add-on acquisitions through Q3 last year, Audax would have looked at thousands of opportunities. How can a business owner ensure that his/her proposal is even reviewed by the PE firm? Certainly you can do your research to determine who has holdings in your space and send them some info on your business.

But that won’t ensure you will be considered.

No, by far the best way to ensure success in marketing to these firms is by hiring an experienced M&A firm, like Generational Equity, to guide you on your exit journey. A good percentage of our clients are acquired by PE firms. Our dealmakers know how to reach them, talk to them, and create documentation that matches what these buyers are looking for.

That really sets us apart!!

If you would like to learn more about how we can help you reach these types of buyers, call us at 972-232-1121 or visit our contact page, leave your confidential contact information, and we will be in touch. If you want to learn more about why we are leaders in the M&A industry, use these links:

Carl Doerksen is the Director of Corporate Development at Generational Equity.

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