What Does Add-On Acquisition Mean?
An add-on acquisition refers to a company that is added by a private equity firm to one of its platform companies, or by a strategic buyer pursuing a consolidation investment strategy. Typically, the acquirer will already have the management capabilities, infrastructure and systems that allow for organic or acquisitions growth. The add-on acquisition can provide complimentary services, technology or expansion into the existing geographic footprint which can be quickly integrated into the existing infrastructure. A larger add-on target might also bring some diversification of products, geographies and customers which would further extend the reach of the buyer.
Divestopedia Explains Add-On Acquisition
Similar to a bolt-on or tuck-in, an add-on acquisition can refer to acquisitions of smaller companies with very little financial and administrative infrastructure. Given the lack of infrastructure, acquirers will usually pay lower-end valuation multiples for add-on acquisitions.
Unlike a bolt-on or a tuck-in, an add-on acquisition can also refer to the acquisition of a larger company that provides diversification to an existing business. The add-on business could have strong infrastructure and management teams, and in some instances might be seen as a synergistic purchase by an acquirer. In this case, an add-on acquisition could fetch a premium valuation in the marketplace.