Private equity add-on acquisitions – the deals where a PE firm has already purchased a portfolio company in an industry or market segment and uses that investment as a platform to acquire other companies – have increased every year since 2013 and in 2018 accounted for two-thirds of all private equity deals and more than $300 billion of deal value. These deals introduce unique issues for buyers, sellers and their advisors. Three key issues are:
- Where is the money coming from? There are more potential funding sources for add-ons than for platform deals. The parties need to appreciate the choices and how they impact deal dynamics.
- Is the seller rolling over equity? In addition to the many issues parties typically face with equity rollovers, there is one factor that is critically important and particular to add-ons.
- Who is negotiating on each side? People issues are always essential. Add-ons introduce special considerations due to the often differing experience levels and vantage points of buyers and sellers in these deals.