Benchmark International

Throughout 2013 thus far we have witness a surge of private equity activity within the middle market with firms seeking to expand their portfolio of companies with synergistic add-on acquisitions. According to leading private equity focused research firm Pitchbook, in excess of 50% of PE acquisitions were add-ons in Q1 2013.

This is something we have experienced first hand here at Benchmark International as PE interest in our clients companies has soared. Backed with mountains of unspent cash due to years of low levels of activity. Pressure to invest has mounted and a trend is forming with PE firms seeking add-ons acquisitions for their platform companies. Reasoning behind PE preference for add-on acquisitions is due the firms seeking to expand their holdings in order to generate long term ROI for their backers.

So what is an add-on acquisition and how exactly do they work? Also, what does this kind of acquisition mean for company owners? Well, generally add-on acquisitions by PE firms suit company owners seeking a complete break from their company, as the transactions tend to be outright sales with the platform company utilizing their own management structure.

Add-on acquisitions can also include partial sales where the company owner continues with the company in order to help growth with additional funds. With set targets generally set by the acquiring party, company owners can often find this a pleasurable as experience as they gain the opportunity to develop their company with enhanced financial backing that may not have been available previously.

Which ever manner the company owner prefers to exit their company, the growing interest in mid-market companies from the PE industry represents a hugely positive development. With demand soaring deal values are increasingly exceeding owner expectations as competitive tension fuels the bidding process.