Insights & Info

Insights > The Art of the Add-On Acquisition

The Art of the Add-On Acquisition

By Generational Equity

Add-On Acquisitions

From time-to-time, we like to bring completed transactions to your attention in order to highlight key features of how buyers operate and plan their transaction activity. Recently a deal caught my attention because it is a perfect example of exactly how a private equity firm pursues an add-on strategy.

The equity firm is named Guardian Capital Partners (Guardian) and it recently acquired PetFusion via its platform company, Cosmic Pet. PetFusion is an online seller of dog and cat products including cat furniture, dog beds, litter solutions, and toys. PetFusion is the fourth add-on investment for Cosmic Pet, further transforming Cosmic Pet into one of the largest pet hardgoods and accessories companies in North America.

The original platform company was acquired by Guardian in 2016. The Company now has a large portfolio of brands including Hyper Pet, Pet Zone, OurPet’s, Aussie Naturals, Wild Eats, Ultra Paws, and Mad Cat.

According to Peter Haabestad, co-founder and Managing Partner of Guardian and Chairman of Cosmic Pet:

“The addition of PetFusion enhances the offering Cosmic Pet can provide to its valued end-customers and we are incredibly enthusiastic to have the PetFusion executive management team join Cosmic Pet’s extended management team. This most recent add-on investment continues to demonstrate how much Guardian believes in Cosmic Pet as an outstanding platform company.”

Although the sizes of the add-on companies are not disclosed, in typical add-on scenarios, the companies added to the platform tend to be far smaller than the original platform acquisition. In fact, according to Guardian’s investment criteria on their website, they have no minimum revenue or EBITDA requirement’s for add-ons

The Role of Add-Ons in Middle Market M&A

The goal of equity firms like Guardian that focus on companies in the middle market is building value through investing capital in a firm and enriching its business model by bringing professional marketing processes, sales, and financial experience honed over countless years to the acquired firm. This gives the added companies access to skillsets that normally would not be available to them.

This is a real benefit to business owners that have built a legacy in their company and would like to see the legacy continue and grow. In addition, in many cases, the equity firm retains the management team under a newly capitalized format as partial owners, allowing them to participate later in a second bite of the apple when the much larger entity is sold or taken public.

If you and your team are not interested in an immediate exit, then the add-on scenario as practiced by Guardian might make sense for you. And odds are good that there are equity firms, like Guardian, operating in your industry as well. In fact, quite often clients are surprised when we create buyer lists that have equity firms with holdings in their industry that they were not aware of.

And one other item to consider, equity firms are not just operating in the “sexy” industries. Guardian is an excellent example of this. They are strategically expanding in the pet products industry because their research demonstrates that pet ownership is on the rise and will be for years AND that Americans are spending more on their pets than ever before.

Definitely not a “sexy” industry, but one with huge upside. Other industries are just as fragmented, most likely yours is too, allowing for equity firms to gain substantial market share over time.

To learn more about how add-on strategies might make sense for your firm, you should arrange to attend a Generational Equity exit planning conference. Even if your eventual partial or full exit is years away, it is far better to start planning early than delay. To learn more about how you can participate in an add-on strategy, please use the following links:

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

© 2019 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.

Your wisdom and experience were invaluable to me during this once-in-a-lifetime transaction.
Ralph Noblin, President of Noblin & Associates
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
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
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
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
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
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.
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 would like to thank you and your firm, Generational Equity, for being our valued advisors in our journey.
Bil MacLeslie, CEO, ipHouse
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
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 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
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
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 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.
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.
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
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
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