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Add-On Strategies in Action

By Generational Equity

Add On Strategies in Action

I recently received an email that really caught my attention:

Incline Announces Eleven Add-On Acquisitions Since October

I received the email at the end of January so that means that Incline (Incline Equity Partners to be exact) had made eleven acquisitions in about 12 weeks. If you do the math that is about one per week!

Now some of you may be unaware of just how powerful an add-on strategy can be for owners of privately held companies. As we have examined before, private equity firms, just like Incline, are very, very active in adding new additions to their existing portfolios.

Often these deals, because of their size, go unnoticed in the business press and even local news sources can be unaware of these deals closing.

But you should be!

As our buyer research shows, odds are good that you most likely have private equity firms (PE) active in your industry looking for add-ons to their portfolios that are synergistic fits for your company.

So why is this a good strategy for business owners to explore?

First, in many cases, the add-on acquired is done so via what is commonly known as a “partial sale”. This is where the PE firm acquires a portion of the target company, recapitalizes the organization (allowing some owners who want to exit to cash out, while retaining others that want to stay), and then combines the add-on with a larger portfolio company.

This allows the add-on access to capital and other operational resources that they most likely could not have accessed on their own.

In addition, this strategy allows folks who retain partial ownership to have a second “bite of the apple” when the portfolio company is acquired or taken public, usually after several rounds of add-ons.

In fact, this is what Incline did. If you look at the 11 acquisitions they made from October 2020 through January 2021, four of them were for their Continental Batteries platform company.

Then in late January of 2020, Continental Batteries was acquired by a holding of H.I.G Capital, allowing the retained owners of the add-ons to reap the benefit of the “second bite of the apple”. Here is how Incline described the positive impact of their add-on strategy:

“Working closely with the management team to transform the Company (Continental Batteries) from a regional distributor to a national provider has been a rewarding experience,” said John Morley, Partner at Incline.

“In a very short period, we made 21 acquisitions that drove revenue growth of over 200% and expanded locations from 22 in 7 states to 102 in 25 states plus Canada. The acquisitions significantly strengthened Continental’s value to their global manufacturing partners as well as to their customers.”

So if you don’t have PE firms on your list of potential buyers, and if you assume that equity firms only invest in very large companies, in “sexy” industries, you need to reassess your exit plans!

Fortunately, there are growth and exit planning professionals like Generational Equity that are available to guide you on your exit journey. Our success is well-documented and is due to the diligence, dedication, and experience of our deal teams and associates.

We have negotiated deals for dozens and dozens of our clients with PE firms, allowing the legacy of the owner to grow and expand, while at the same time giving financial security to family members.

If you would like to learn more about how PE firms might be in your future, I would invite you to attend a Generational Growth and Exit Strategy Conference. Not only will you learn a great deal about how to construct your own exit plan, but you will also be able to meet with other Managing Directors while there and discuss your situation confidentially. 

Even if your exit is years away, attending our Growth Conference can be very beneficial. You will also learn about how to build a dynamically growing business in order to be prepared to exit at an optimal time for you and your family. 

To learn more about how we can help you, please use the following links:

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

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