How Private Equity Firms Use Add-on Acquisitions To Create Excess Returns

Newsletter Review | October 2024

‍

Add-on acquisitions represent 70% of total Private Equity deal count

The strategy of add-on acquisitions has become increasingly prevalent for driving significant growth in portfolio companies. These acquisitions provide a flexible approach for funds to achieve higher valuations for investors at exit:

‍

‍

Main objectives of add-on acquisitions

Capture synergies

A portfolio company can achieve revenue growth through add-on acquisitions by cross-selling compatible products to customers and expanding into new markets, while also realizing cost reductions through economies of scale, which lower production costs at higher volumes.

‍

Achieve higher valuations

Since add-on acquisitions can significantly enhance a company's future organic growth potential, a well-executed add-on strategy can lead to operational improvements and ultimately to increased EBITDA and a higher valuation for investors at exit.

60% of modern value creation in Private Equity is linked to operational improvements

Research from UBS and EY shows that 60%of modern value creation in Private Markets is linked to operational improvements. Fund managers who actively focus on developing portfolio companies to their fullest potential throughout the investment life cycle create the greatest value.

Want to read our full newsletter?

Dive deeper and subscribe: Sign up to our newsletter