Happy Friday Founders & Friends!
In this week’s newsletter, we wanted to shed some light on how private equity firms go about acquiring businesses and the two distinct types of acquisitions, platform investments and add ons.
In the context of PE, a platform investment refers to the initial acquisition a firm makes in an industry or niche. In most cases, a platform investment is viewed as an “industry leader”. Platforms are generally of sufficient size and have the capability, great teams + business practices, to acquire and support add-ons.
For new platform acquisitions, key questions for a PE firm may include:
How attractive is the industry? business model? SOPs? management team?
What are the growth avenues?
What are the value drivers?
What is the path to generating the targeted return?
The intention is to then “roll-up” other companies in the same industry, which are commonly known as add-on acquisitions. These add-ons enable firms to grow their platform companies beyond just organic expansion. According to Pitchbook add-on acquisitions have grown from less than 40% of all PE deals in the early 2000s to well over 50% as of recent years.
For add-on acquisitions, key questions may include:
How does this acquisition support the platform company?
What are the synergies?
How will this increase the overall return of the platform co?
For add-on acquisitions, PE firms mostly rely on the expertise of their platform company's management to determine the fit, synergies, and strategic benefits of a transaction.
More to come on this topic next week 🚀🚀
Interested in learning more about PE acquisition strategies?? Make sure to check out the following below 👇
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About Bloom Venture Partners
Bloom Venture Partners is a lower mid-market software-focused private equity firm, leveraging deep operational and commercial experience to create enduring market value for the benefit of our investors, founders, and their companies.
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