Insights & Info

Insights > Why Do PE Firms Use Add-On Acquisitions to Grow?

Why Do PE Firms Use Add-On Acquisitions to Grow?

By Generational Equity

Add On Acquisitions Growth

From time to time it's important to highlight the acquisition strategies being used in the M&A market right now in order to educate our readers on how to effectively participate in this current seller’s market.

One such strategy you need to be aware of is the current evolution in the growth of add-on acquisitions by Private Equity Firms (PE) to platform holdings. This tactical growth plan is used by PE firms post acquisition of an initial “platform” company; over the course of several years, smaller, very targeted acquisitions are made that complement the platform, allowing it to expand much faster than it would organically.

This strategy allows the PE firm to gradually build a much larger entity and, using various economies of scale, reach new levels of revenue and profit that would be hard to achieve without the add-on program in place. This is fantastic news for owners of privately held companies that are looking for buyers/investors today.

One example was announced at the end of last year by The Sterling Group, a PE firm based in Houston, Texas, that specializes in “building winning businesses”. The firm invested in Camco Manufacturing's Liquids division (Liquids) via its platform company, Highline Aftermarket.

Highline was actually formed in April 2016 with Sterling's simultaneous combination of family-owned DYK and corporate carve-out AAHC, since renamed Highline, which, according to the Sterling website, “created a strong new automotive aftermarket distribution platform”.

The subsequent acquisitions of Service Champ, Levin's, and South/Win increased channel and geographic penetration and further solidified Highline as a market leader. The addition of the Liquids division fortifies Highline's position as the largest and most efficient nationwide network for producing and distributing selected liquids and chemicals for the automotive, RV, and marine markets.

According to Sterling, “Highline has more than doubled in size during its three-year partnership with Sterling and will continue to pursue both organic and acquisition-related growth strategies”. And as opposed to much of the press relating to PE acquisitions, “longstanding Liquids employees are joining the Highline team to provide continuity for customers and to continue building world-class operations to support Highline's growth.”

In most cases, especially in the middle market, acquisitions like this are often a true win-win situation for all parties, including original owners, employees, the platform company and the customers of the acquired firm, because PE firms like Sterling “partner with management teams to grow and build winning businesses in the industrial sector".

Nearly 80% of Sterling’s past partnerships have been with family businesses and corporate carve-outs. Sterling excels as a partner where it can bring its operational focus and expertise to a situation”.

This latter statement is really key in these relationships. Sterling, because of its experience in acquiring and growing businesses, becomes a vital partner in the growth of the platform and the subsequent add-ons. Not only does it bring significant capital to the investment, it also brings marketing, sales, and financial skills not readily available to most owners of privately held companies. This benefits not only existing management, but it also gives employees a career path that would have been unimaginable under existing management.

Here is what a few of our clients have told us about the benefits of partnering with a strategic PE firm:

These are just a few examples of how our deal teams work really hard to find the ideal buyer for each and every one of our clients. In fact, for many of our clients, the idea of being acquired by a PE firm is not even on their radar screen when they first engage us. Most have two common misconceptions about equity firms as buyers:

  • PE firms only invest in “sexy”, dynamically growing industries
  • My company is far too small to be attractive to a PE firm

The first concept is easily debunked by the deal we are reviewing announced by the Sterling Group. I mean I wouldn’t necessarily call “producing and distributing selected liquids and chemicals” a “sexy” industry. In fact, I would venture to guess that there are PE firms actively investing in companies in your industry niche that you are not even aware of.

As for size, for add-on acquisitions, most middle market PE firms will look at very small companies to add to their platforms. In fact, according to Sterling, “Sterling is focused on making majority investments in manufacturing, distribution and industrial service businesses and is interested in exploring partnerships of all sizes.

The critical issue that you face, and one of the important reasons to hire an experienced M&A advisory firm, is that you need to speak the language of the PE industry in order to get their attention. Keep in mind that these firms will literally look at dozens and dozens of opportunities to narrow the options down to a handful they really pursue.

Generational Equity’s success is largely due to our talented deal teams having the experience and technical know-how in approaching these types of buyers. If you would like to find out how our team could benefit you in your exit journey, please call us at 972-232-1121 or visit our website and provide us with your contact info.

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

© 2020 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, you have been added to our list.

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.
Generational Equity educated and informed us – so that we could be on the upside of a good decision (to sell).
Bil MacLeslie, CEO, ipHouse
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
We thank you Eric and Generational Equity making our dream come true.
Larry Moore, Owner, A Company Portable Restrooms
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
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.
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 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
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
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
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
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.
Generational Equity’s assistance was invaluable in compiling and marketing our business.
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 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
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.
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
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
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