Restructuring the Hold

Pragmatic PEGs realize that things get muddy and messy when dealing with the complicated realities of integrating two sets of employees and cultures who've never even met. They realize that successfully executing add‐on acquisitions is hard and complicated work, requiring careful planning, excellent execution, strong will, and a lot of patience. There are no plug‐and‐play solutions to acquiring and integrating add‐ons; portco management and the equity partners will need to be creative and flexible when incorporating a new company into the platform.

Rationale for Add‐Ons

Middle‐market growth‐oriented private equity loves add‐ons. It seems not even a month will go by following the platform acquisition before the investing partner is out scouring the marketplace for companies to bolt‐on. For many reasons it makes sense for the PEG to at least begin looking even if the original honeymoon is far from over and the intimacies of the platform company are not fully understood. The right add‐ons are few and far between, and finding, courting, and consummating the purchase takes time.

The private equity team will expect the management team to participate actively in the search for add‐ons since they know the industry well and have contacts within it. They'll be familiar with the companies out there and those that when integrated would lead to significant gains and synergies moving forward. Starting early and incorporating management's attention in finding the right add‐on acquisitions is one of the best ways to leapfrog value during an investment period. That surge in value typically stems from one or more of the following five sources:

Commercial growth. Additional revenue comes immediately and automatically when one company's revenue is added to the other. In addition, further growth typically comes from leveraging synergies of the sales teams of each company to multiply that growth, and from introducing the market, customers, offerings, and distribution channels of each company to the other.

New capabilities. With new add‐ons comes new capabilities and talent. The combined company now has a variety of new resources – new facilities, equipment, systems, providers, and people – and importantly new leaders and experts from whom to leverage energy and expertise. The add‐on also offers new methodologies, processes, and practices from which to draw to arrive at the best of both.