Private equity firms are increasingly focusing on so-called add-on or bolt-on acquisitions, acquisitions that are added to existing “platform investments”. According to Pitchbook, a service that tracks private equity transactions, in the third quarter of 2014, 61% of all private equity investments were add-on transactions compared to 57% in 2013 and 49% n 2012. Traditionally, private equity firms are thought of as “financial buyers”, but increasingly act more like “strategic buyers” when they focus on add-on acquisitions.
This trend may have several causes. First, the current deal environment is competitive, especially for platform investments. The competition level may be somewhat lower for add-on investments and the returns may be greater, gven for the potential for synergies with existing invesments.
Here’s a link to an article on this topic on PELog.