The article discusses the growing trend of PE funds focusing on add-on acquisitions to enhance portfolio company growth amid challenging economic conditions. In 2023, add-on deals constituted 70% of total PE transactions, up from 57% in 2017, highlighting a shift from traditional growth strategies that relied on low-cost debt and financial engineering.
PE funds are now prioritizing transformational strategies to maximize synergies across revenue, costs, and capital. The article outlines three key motivations for pursuing add-ons: achieving revenue synergies through market expansion, enhancing valuation multiples via higher ROIC, and attracting talent by offering enhanced career opportunities.
Successful add-on acquisitions require overcoming several challenges, including protecting existing revenues and ensuring cultural compatibility. To facilitate effective add-on strategies, the authors recommend five key levers for PE funds and portfolio companies:
- Front-load acquisitions: Conduct early acquisitions within the first three years to maximize integration benefits.
- Focus on value drivers: Identify and concentrate on key value drivers like cross-selling and operational consolidation.
- Build a repeatable process: Implement a structured integration approach to evaluate decisions based on ROI and speed of execution.
- Track value delivery: Utilize rigorous performance tracking to enhance transparency and actionable insights during integration.
- Develop M&A capabilities: Invest in training and processes that build internal integration expertise for future deals.
By leveraging these strategies, PE funds can navigate current economic challenges, achieve significant growth in EBITDA, and improve exit valuations through effective add-on acquisitions.
We invite you to read the full article here. It may inspire searchers looking to grow their companies through add-on acquisitions or simply help them understand the strategies of PE funds, particularly if they might consider being a target for one of these funds’ portfolio companies when deciding to exit their businesses in the future:
