Insights & Info

Insights > Breaking Down an Add-On Strategy in Action

Breaking Down an Add-On Strategy in Action

By Generational Equity

Add On Strategy

Several times over the past few years we have examined the strategy of add-on acquisitions by private equity firms. As you’ll recall, this is where a PE firm makes an initial, fairly large, acquisition in an industry and then, over the ensuing years, makes a number of “add-on” acquisitions to the platform, growing their investment into a much larger entity via acquisitions.

Recently, I came across an equity firm that is using this strategy on steroids! First Atlantic Capital has made 15 add-on acquisitions to its platform company, Resource Label, over the past few years, and here’s what the company’s growth looks like:

Resource Label was acquired by First Atlantic in April 2011:

  • Mid South RFID, Franklin, TN (Acquired September 2007)
  • Pamco Label, Chicago, IL (July 2011) 
  • Fox Tag and Label, Providence, RI (July 2011) 
  • Oxford Graphics, Boston, MA (March 2014) 
  • The Label Company, Los Angeles, CA (October 2014) 
  • A1 Label, Toronto, ON (December 2014) 
  • Taylor Made Labels, Portland, OR (October 2015) 
  • LithoFlexo Grafics, Salt Lake City, UT (February 2016)
  • Advanced Labels NW, Seattle, WA (November 2016) 
  • RayPress Corporation, Birmingham, AL (December 2016) 
  • Cellotape/Landmark Label, Newark, CA (March 2017)  
  • Gentler International, Buffalo, NY and Liberty Hill, TX (March 2017)
  • Ingenious Packaging, Toronto, ON (July 2018)
  • Paragon Label, Petaluma, CA (August 2018)
  • Spectrum Label, Hayward, CA (October 2018)

As you may have surmised, Resource Label Group (RLG) is a manufacturer of pressure sensitive labels, shrink sleeves, radio-frequency identification (RFID) and near field communication (NFC) products. The company’s labeling products are used by more than 6,000 customers in the food, beverage, chemical, household products, personal care, nutraceutical, pharmaceutical, medical device, and technology industries.

The Potential of Add-On Strategies

What do all these acquisitions have in common?

They all operate in some niche within the labeling industry.

A couple of things stand out in this list above. First, Resource Label was acquiring companies before First Atlantic made its initial investment in them in 2011. They had a plan in place and most likely needed funding to carry it out. This is a key feature of equity firms that operate in the middle market: They invest in companies to help them grow, in this case pretty dramatically.

Secondly, they have been making around three add-on acquisitions annually since 2011, indicating that they are actively expanding the platform with a goal of consolidating a very fragmented industry.   

Keep in mind that before making an acquisition, most PE firms will look at several dozen companies before narrowing down to one. This means that a PE firm is quite possibly reviewing 36 or more companies to buy just three.

In some cases, PE operations will look at thousands of businesses annually to acquire a handful as part of their add-on strategy. This is why documentation presented to them has to be accurate, well laid out, and in a format that the PE industry likes to see. They simply don’t waste time on companies that don’t match what they are looking for.

Finally, look at the geographic diversity within the portfolio of companies. They literally invested in labeling businesses in every region of the U.S. and even in Canada. They now have a nationwide footprint in an industry that historically has been very geographically focused.

Could an Add-On Strategy Influence Your Exit Plans? 

One final thought: Given the dramatic growth in the use of add-ons by equity firms, odds are pretty good that there is at least one PE funded platform actively making acquisitions in your industry. We often meet with business owners at our exit planning conferences who are surprised to learn that one (or more) of their competitors are actually owned by a PE firm!

Would you like to learn more about PE buyers? Would you like to have a confidential conversation about your exit plans? If so, you should call us at 972-232-1121 and speak with one of our exit planning advisors. Or, visit our website, provide us with your contact information and we will be in touch. 

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

© 2018 Generational Equity, LLC. All Rights Reserved.

Make an informed decision

The best decisions in life are informed decisions. We release educational business insights like this every week. Subscribe to make sure you don’t miss the latest news, views and analysis.

Success

Success, you have been added to our list.

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
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
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
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 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
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
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.
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 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.
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
Generational Equity’s assistance was invaluable in compiling and marketing our business.
Bil MacLeslie, CEO, ipHouse
I would like to thank you and your firm, Generational Equity, for being our valued advisors in our journey.
Bil MacLeslie, CEO, ipHouse
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
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
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
We thank you Eric and Generational Equity making our dream come true.
Larry Moore, Owner, A Company Portable Restrooms
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
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
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.
Your wisdom and experience were invaluable to me during this once-in-a-lifetime transaction.
Ralph Noblin, President of Noblin & Associates
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.
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