Add-on acquisition

Once an investor has a platform company in place, growing purely through the platform’s own operations is often slower than buying additional smaller businesses and folding them in. An add-on acquisition is usually smaller than the platform itself, and is priced and negotiated with the platform’s existing infrastructure in mind rather than as a standalone deal.

How an add-on differs from a standalone acquisition

• It is evaluated partly on what it adds to the platform — a new territory, a specialty service, a customer list — not only on its own earnings
• Integration is usually faster, since back-office and management functions already exist at the platform level
• Pricing is often lower per dollar of earnings than the platform itself commanded, since the add-on is smaller and less established on its own

What an owner selling as an add-on should know

An owner selling into an add-on deal is usually selling to the platform company or its financial backer, not to an individual who will run the business day to day. Staff, systems and even the business name may eventually be absorbed into the platform, on a timeline the buyer controls after closing.