An interesting concept that quite a few business owners are unaware of is the idea of additive growth via planned, strategic acquisitions. Unless you are familiar with how private equity firms tend to operate, the idea of creating a platform and growing it from a business development standpoint can be new.
Older business owners are likely familiar with the Harold Geneen conglomerate roll-up strategy of the 60s and 70s. Geneen, CEO of ITT at the time, literally acquired hundreds of companies in dozens of industries and created a massive business of many related and nonrelated parts. He grew the company from a medium-sized business with $765 million sales in 1961 into a multinational conglomerate with $17 billion sales in 1970. “Under Geneen's management, ITT became the archetypal modern multinational conglomerate. ITT grew primarily through a series of approximately 350 acquisitions and mergers in 80 countries,” reports his Wikipedia page.
To some analysts this proved to be highly successful, while others disagree.
For a variety of reasons that method of corporate growth fell out of favor and was replaced with a model that stressed strategic expansion via organic growth and well planned, highly targeted acquisitions (as opposed to the ITT model of unrelated acquisitions for the sake of growth alone).
“Highly targeted acquisitions” are what private equity firms now do on a regular basis. They focus on a fragmented industry with good growth prospects, acquiring a “platform company,” which is generally larger, and spending the next 5-7 years “bolting on” or “adding on” to the platform via well planned, clearly reasoned acquisitions of smaller businesses – sometimes quite a bit smaller – than the original platform.
Throughout the years we have examined a number of equity firms that have perfected this method of expansion AND Generational Equity has helped many of these private equity groups (PEGS) in their strategic growth initiatives.
As the following chart from Pitchbook’s 4th Quarter 2015 U.S. PE Breakdown illustrates, the add-on strategy has become extremely popular with equity firms:
Since 2006 add-ons, also called bolt-ons, have become a dominate way to grow for many equity players. “Why?” you might ask. The answer is simple: The era of acquiring a billion-dollar player and hoping to help it grow is relatively rare now. Today, equity firms are moving downstream into smaller transactions because quite frankly it is far easier to integrate a few smaller firms during a 5-year period to create a larger entity than it is to try to hit a home run with a mega transaction.
The equity firms we deal with, many of which specialize in transactions valued below $100 million, are brilliant in their methods. The research that they conduct, which unearths tremendous integration opportunities, leads them to invest in industries with great upside that are comprised of many smaller players who simply need professional management to thrive and grow.
If you own a privately held company today, and you have great ideas about your company’s growth but lack capital, support, and marketing/sales experience to reach your goals, partnering with an equity firm building a platform can be a great idea.
Interested in learning more? Spend some time reviewing our complimentary research library and after doing so, if you still have more questions, then consider attending one of our exit planning conferences where we delve into great detail on add-on strategies as well as other deal structures that may be innovative to you.
Carl Doerksen is the Director of Corporate Development at Generational Equity.
© 2015 Generational Equity, LLC. All Rights Reserved.
Thanks again Phil and feel free to have a future client call me if they would like a referral. You are a true professional!Andy Graham, Vice President, Modern Heating & Plumbing
Thank you again for all your guidance and support. Any company will achieve what they intend, if they have you on their team!Rick Nowak, President/CEO, Kurz Electric Solutions, Inc.
I couldn’t have asked for a better team than Michael and Deborah. We couldn’t have done it without them.Robert Evans, President and CEO of Mealtracker Dietary Software
Greetings Mike. Thank you for the captivating and compelling presentation you made at the Phoenix presentation last week. Over many years in business yours was the most informative and well-presented presentation, on any subject, that I have ever attended! Your energy and enthusiasm combined with your concise and captivating support of your positions with easily understood examples and data was compelling.Pete L.
We will highly recommend Generational Equity and Musa Jagne to any business owner about to embark on the same process.Karen S. Williams, CFO, BW Manufacturing
I must say that I have never worked with a more driven, competent and focused individual as Don Ho.Jay Dinnison, Owner of Sharpe Mixers
The process was much more involved than I expected and your help, experience and advice was a big factor in making the negotiations go as smoothly as possible.Terry D. Wickman, President, Keytroller
We are extremely pleased with the way Generational Equity handled the sale of our company. Your associates, Tom and Chris, did an outstanding job of getting us (me) through the process.Michael J Polarek, President, Paragon Packaging
Your wisdom and experience were invaluable to me during this once-in-a-lifetime transaction.Ralph Noblin, President of Noblin & Associates
Michael worked tirelessly, He followed every lead meticulously and urgently to make sure nothing was missed.Robert Evans, President and CEO of Mealtracker Dietary Software
We were happy to see the interest in our company and what we cherished has not just a valuable company but an important company to the communities we served in.Larry Moore, Owner, A Company Portable Restrooms
Tom Staszak is one of the most professional people I have dealt with in my last forty years of business. You’ve got a great group of people and you have built a truly professional organization.Michael J Polarek, President, Paragon Packaging
I wanted to write you a quick letter to express our appreciation and our delight on the outcome of helping us through the process of our recent sale. We are very happy with the end result, and are very happy to be able to move forward with all of our future growth plans.Terry D. Wickman, President, Keytroller
Generational Equity educated and informed us – so that we could be on the upside of a good decision (to sell).Bil MacLeslie, CEO, ipHouse
We thank you Eric and Generational Equity making our dream come true.Larry Moore, Owner, A Company Portable Restrooms
Generational Equity’s assistance was invaluable in compiling and marketing our business.Bil MacLeslie, CEO, ipHouse
The help you provided us during each step of this process made us feel very comfortable and confident we were selecting the right approach to transition our Company.Andy Graham, Vice President, Modern Heating & Plumbing
I quickly recognized that Don was working for Sharpe Mixers above all else, and held our interests above others.Jay Dinnison, Owner of Sharpe Mixers
We knew it would be a difficult task to have someone really understand our business and our market, prior to researching a possible buyer, so it was imperative that we found someone of your caliber, with definite proven experience in this area.Rick Nowak, President/CEO, Kurz Electric Solutions, Inc.
I would like to thank you and your firm, Generational Equity, for being our valued advisors in our journey.Bil MacLeslie, CEO, ipHouse
Bruce and I wanted to take this opportunity to thank Generational Equity for assigning Musa Jagne to our transaction. In Bruce’s words, “Musa did one hell of a job for us!”Karen S. Williams, CFO, BW Manufacturing
We are very happy with the end result, and are very happy to be able to move forward with all of our future growth plans.Rick Nowak, President/CEO, Kurz Electric Solutions, Inc.
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