Acquisition of a company that can be a platform or foundation to “roll up” or “bolt on” complementary acquisitions is a long standing strategy for private equity and other investors. Technology-based tools and metrics programs to support realizing synergies and economies of scale in these situations are more powerful than they have ever been. Our firm has partners who as executives have executed rollup strategies successfully and are ready to advise others in doing so. Such strategies are particularly promising in market spaces where there is excess capacity due to stagnant growth or even market shrinkage. In these markets efficiency and low operating costs--rather than innovation--is the best path to profitability.
There has been a lot of talk that, with deals becoming ever scarcer, private equity firms are drawn to bolt-on strategies. But--what is actually happening in the marketplace? We asked some of our partners to weigh in.
Liz is a highly experienced international executive who has run both large and middle market companies and built world class organizations in the U.S., the Caribbean and South and Central Americas.
“The only evidence I see of a trend toward rollup strategies is that PE firms are willing to look at much smaller deals. I think this supports Newport Board Group’s view that the lower middle market is becoming the focus of investment attention for private equity firms. Incidentally, it seems to me that many of these smaller companies might be hard to “bolt on” because many of them are less mature and therefore haven’t yet fully defined their operating model. So when a PE firm looks at them it may not be clear that they are the “missing pieces” that the platform company needs.”
Helen’s career has focused on developing and executing strategies for business development and growth for leading retail and consumer companies. She has worked with private equity for more than 25 years--as CEO of seven PE-owned consumer and retail companies and as an operating partner to eight PE firms.
“The concept of a platform company onto which others are added has been around a very long time. In the 90's it was called a "roll up" now it’s called a platform with add-ons. Not really a trend as much as a critical business strategy.”
.jpg?width=150&name=Devich__Joe_200x200_(2).jpg "joe devich")
Joe is a Newport partner in Dallas who, among other accomplishments, conceived the idea of a provider of IP network delivered through software-as-a-service, driving market penetration before achieving a successful sale of the company.
“Private equity has no choice as the deals are becoming smaller and smaller.”
Fred has been successful both as an executive and an entrepreneur. Much of his career has been spent in different sectors of the healthcare industry.
“PE firms that are comfortable and staffed to make large ($50 million+) investments are finding fewer targets and are growing existing portfolio through add-ons to create value. Other PE firms have started investing the partners' capital directly to seed deals that are too small to meet fund criteria. They are also discussing creating "seed" funds within, say, a billion dollar fund that is staffed to pursue smaller investments.”
Guy Kennett is Managing Director of Newport Board Group’s practice in South Florida. He has extensive experience developing mobility strategies and mobile apps.
“I believe this is related to the fact that there is a lack of supply for the traditional PE acquisition, yet plenty of money for acquisition. This has indirectly forced PE to look for small companies to bolt on and drive economies of scale, efficiencies and improved business coverage. I see this to continue to become more active.”
Art Medici has a diverse background as an executive leader in e-commerce, high tech, telecom and information companies. His experience spans startups, high growth small/mid cap firms and global leaders like Thomson Reuters.
“I see IT firms in general and cyber security firms specifically trying to pursue bolt-on strategies. Government contractors are especially active here--possibly because selling services to the government in an age of constrained government revenues has gotten harder. So companies must be bigger to market their services and to be able to survive when their business is slow. One reason for bolt-ons among cyber security firms may be that these companies feel that they need to incorporate more specialized expertise. ”
.jpg?width=150&name=otto_billie-46_200x200_(2).jpg "billie otto")
Billie is a Newport partner in the Pacific Northwest who has been Executive VP and CIO of TrueBlue Inc. (NYSE: TBI) the largest industrial staffing firm in the U.S.
“I experienced that as an executive in an acquisitive company. When organic growth can't be achieved at the desired pace, bolt ons make more sense. Companies must have the muscle to address the cultural (people) process and technology implications that come or they will fail to realize the desired value.”
Ted Parrish is a Newport partner in Dallas. His background in advisory services includes solving strategic and operating problems for banks, financial service companies, manufacturers, distributors, retailers and transportation companies.
“PE activity is actually down according to sources that I have read. Bolt ons get a lot of talk as they appear to be the primary opportunity. But successful bolt ons are not easy for many of the same reasons that acquisitions are difficult in general. Synergies between the acquirer’s and acquiree’s products, markets, intellectual property etc. can look good on paper. So can the prospect of reducing costs by increasing economies of scale. But these benefits are hard to realize in reality. For one thing, companies aren’t really bundles of assets and capabilities. They are communities of people. A bolt on won’t work if those who add the most value to the company being acquired feel that the acquisition doesn’t make sense for them personally--or are uncomfortable in their new environment.“
Kevin Poole is a seasoned leader with diverse experience as both a senior advisor to CXOs of middle-market firms, and as an operating executive at a Fortune 500 company.
“I regularly receive emails from PE firms, some of whom are Newport OpenPhone™ clients, specifically soliciting "bolt-on" opportunities for their "platform" portfolio companies. They are trying to "bulk up" quickly before multiples fall so they can achieve the best exit price possible for their portfolio companies.”
Mark is a co-founder of Newport Board Group and its Chief Knowledge Officer.
“There is certainly a lot of interest in bolt-ons out there. But I think that many entrepreneurs prefer to be acquired by a strategic acquirer than a bolt-on acquirer. The former is likelier to appreciate and want to foster what is distinctive and innovative about the company and its products.“
Willard has been a successful executive, advisor and entrepreneur across multiple industries. He specializes in helping companies develop and implement successful strategies, meet operational, financial, and management challenges and achieve growth targets.
“Endeavor Capital Partners in Greenwich has a strategy of seeking add on to banks they have a position in. Harvest Partners in NYC bought Axcelare (specialty pharmacy ) and did three add on acquisitions over the last three years before selling the whole company to United Healthcare.”
Patrick is a Newport partner in West Florida who has top executive team experience ranging from the Coca-Cola Company to a privately-owned, mid-sized wholesale distributor and a start- up advertising enterprise.
“I have heard bolt-on strategies talked about frequently in presentations made by investment bankers and PE groups. I do believe that "bolt ons" have been a significant percentage of PE acquisitions, particularly with the higher market multiples ("sellers' market"). But I think that some PE firms’ desire to pursue bolt-on strategies may be wishful thinking. For one thing, many companies that might be good bolt-on candidates just don’t want to be acquired by private equity. Their founder and investors would rather try to retain control of their company by doing a private placement or securing debt financing.”
"Beat the inevitable transition that causes 9 out of 10 companies to fail."
Download this free resource to discover the 5 steps you'll need to get past No Man's Land and scale.
