In the past we have highlighted a private equity (PE) growth strategy that is gaining in popularity as it allows firms to build their platforms in a planned, strategic fashion. This growth option is called “add-on” or “bolt-on” and as the names imply, these acquisitions are made in order to be integrated into a current portfolio company owned by the PE firm.
Soundcore Capital Partners is an excellent example of a private equity group (PEG) specializing in the lower middle-market that is expanding its investments via add-ons. Here is one example from their website:
Alloy Wheel Repair Specialists, LLC (Alloy) – Acquired November 16, 2015
Add-On Acquisitions Completed:
Alloy is the world’s “largest full-service alloy wheel repair and replacement company”; it was founded in 2001, and provides on-site repair of cosmetic damage to alloy wheel cores, off-site remanufacturing of structurally damaged wheels, and OEM replacement parts. In the nine months since the initial investment in Alloy, Soundcore has funded eight add-on acquisitions all strategically made to add to the Alloy brand.
As you can tell by the list above, these appear to be tremendous fits with the Alloy model, allowing the Soundcore team to take the initial investment and grow it into a much larger entity. And along the way, while making these strategic additions, Soundcore focuses on the following:
Our strategy is to partner with exceptional management teams and create long-term value for our investors through a combination of operational improvements, internal growth initiatives, and strategic acquisitions.
And here’s some of their philosophy:
What really attracts our clients to PE investors like Soundcore is the access provided to not only capital for growth but also sales, marketing, and accounting expertise. In many cases, entrepreneurs have lots of great ideas on how to grow their enterprises, but they simply lack the funding and/or the expertise to take a $10 million entity to revenue of $50 million and beyond. PE firms like Soundcore provide both in many cases.
Here is what a few of our clients say about the advantages of working with a PE firm post acquisition:
Soundcore is but one example that recently came to my attention of an active PE investor adding on to its existing portfolio. There are lots and lots of others. In fact, according to PitchBook’s 2nd Quarter M&A Report, the dollar value of add-ons reached an all-time high during the April to June period this year. This fact is not surprising given how many PE firms we are talking to right now on behalf of our clients. Many, like Soundcore, have a stated focus of $1 million to $10 million in EBITDA (earnings before interest, taxes, depreciation and amortization) for platform acquisitions but will look at much, much smaller companies for add-ons.
We are one of the leading lower middle-market M&A consulting firms. No one has closed more transactions than us over the past 10 years according to Thomson Reuters. A good portion of the 34,000 registered buyers we have in our database are equity firms and they love to look at our opportunities because they know we have highly motivated, very sale-able clients.
If you would like to learn more about how private equity firms operate and find out if perhaps your company might be attractive to one, please set aside a day and attend one of our exit planning seminars. Business owners find these to be highly educational and attendance is purely complimentary. To learn more, call us at 877-213-1792.
By Carl Doerksen, Director of Corporate Development at Generational Equity.
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