Add-on acquisitions continue to increase as an overall percentage of M&A buyouts. Strategic buyers remain active and able to pursue add-on acquisitions with roughly 2.5x the cash on their balance sheets, as compared to nearly a decade ago.
Private equity is also making more add-on acquisitions. According to Pitchbook, add-on acquisitions account for over two-thirds of private equity buyouts, the highest percentage to date. In fact, more than 25 percent of add-ons are now acquired by private equity platforms that have already completed at least five total add-ons, showing the increase in multiple add-ons per platform investment. For December, 11 of the 12 Northeast Ohio private equity buyouts were add-on acquisitions.
Add-on acquisitions are an excellent way for companies to grow faster and bring in key resources including people, knowledge, products, vendors, systems and technology. Buy-and-build strategies can also eliminate competitors, increase market share, expand market territories and create synergies to eliminate costs.
The add-on strategy continues to grow as private equity groups compete for fewer quality deals at higher multiples and can still achieve value even while paying a higher price. Add-on strategies also allow buyers to pursue businesses that may lack management, sales, market exposure, distribution channels, technology or product and integrate them into a platform that has the capabilities missing from the target acquisition.
For the month of December, private equity-backed Northeast Ohio companies Alpha Imaging, Oliver Printing and Packaging Co., MobilityWorks, MRI Software and Race Winning Brands all completed add-on acquisitions. Local private equity groups Blue Point Capital Partners, Ninth Street Capital Partners and Riverside Co. also made add-on acquisitions during the month.
Marc Fleagle is a vice president with MelCap Partners LLC. MelCap Partners is a middle-market investment banking advisory firm. For more information on MelCap Partners, please visit www.melcap.com or email [email protected].