Perhaps you have been wondering what the term add on acquisition actually means. An add on acquisition takes place when there is the adding of a business to another one of the companies that is owned by a private equity agency. Or this also may relate to when a buyer that is strategic adds a company as a result of seeking to apply the strategy of consolidation investment.
Add-On investment private equity can mitigate the impact of frothy valuations.This is excellent strategy in business. Smart companies borrow new debt to fund buying small companies (Add-On acquisition deals), so they do not have to put money in new equity.
Generally, the one who is acquiring the new business usually already possesses the necessary systems, infrastructure and management skills that will propel the growth of the acquisition. As a result, the acquisition that has been added on is able to engage in the provision of services that coincide well with the services that the other company offers. Or the acquisition may provide more technological resources or it may be able to gain traction by expanding within the context of the geographical footprint that already exists and can readily undergo integration into the current infrastructure in a quick and efficient manner.An add-on that is larger in size may further provide some broader diversification pertaining to products, location and consumers. This then can result in extending the impact of the buyer of the acquisition in a positive and more profitable manner.
Being similar to the concept of the tuck in or bolt on, the acquisition that is an add on can make reference to the fact of a larger sized company engaging in the acquisition of a business that will grant a broader scale of diversification to a business that is already in operation. The business that is added on to the other business may possess management teams that are highly adept and an infrastructure that is impressively strong. In such cases, the purchase of the new add on acquisition may be perceived by the purchaser as being a purchase that is synergistic in essence. When this is the case, the acquisition that is classified as an add-on to an existing business may be able to gain a high ranking in the marketplace with a premium valuation.
There seems to be a popular misrepresentation concerning private equity firms. Numerous business owners in the lower middle market range tend to think that most private equity firms only desire to engage in the formation of acquisitions that are large. But the reality is that this is not entirely true.
Yes, the truth is that equity agencies do generate funds which possess particular objectives in regard to the kinds of businesses that undergo the process of acquisition as well as the range of their size. In such cases that there is an investment made to acquire a business that is a key industry leader, the investment will be relatively large and such an acquisition is frequently referred to as the platform acquisition. On the other hand, restrictions in size hold little relevance in most cases. And the concentration is, therefore, placed on investments that will produce synergistic results for companies that are smaller, which provide notable resources to benefit the other company that is already operational.