WHAT IS AN ADD-ON ACQUISITION?

A popular acquisition method used by a private equity group is known as an add-on acquisition. Because add-ons are estimated to constitute 40-60% of private equity buyout transactions, it is very critical for business owners to understand the benefit behind it.

When a private equity group acquires a new platform investment, the group follows a curated strategic plan and ROI target within a specific horizon. Along with such plan comes integrated add-on acquisitions. When fit and synergy make sense, an add-on acquisition would take place – assuming the seller agrees to the terms.

For a business owner, being part of an add-on could be very beneficial.  After the acquisition and as being part of a larger platform, the business would receive smart capital, marketing/sales strategies, advisory services, and access to a bigger network and market presence held by private equity groups.

In many ways, private equity firms act as sales-as-a-service channel partners.  They connect their own portfolio companies with one another enabling them to scale through different avenues. This approach allows a company to expand its reach more quickly than it would have if done alone.