A platform company is the initial acquisition made by a private equity firm in a specific industry or investment type. This acquisition will serve as the foundation for a roll-up of other companies acquired in the same industry. Most private equity firms will find four to six platform companies for each fund, and then grow these platform companies both organically and through acquisition.
A platform company usually has the following characteristics:
- Has a strong, experienced management team with a proven track record of growth;
- Is usually a top player in a well defined growing niche market; and
- Is a larger company with defined systems and standard operating procedures (SOP) that match the investment criteria of the private equity firm.
Platform companies are also referred to as "strategic private equity" because they share the characteristics of both a strategic and financial buyer.
As a company owner, it is good practice to know the ownership structure of other industry players, since they may be platform companies that could be a logical buyer when it’s time to exit. Platform companies may behave more like strategic buyers and pay higher multiples, because they would benefit from potential synergies with the existing businesses that have been rolled up.