What Does Bolt-on Acquisition Mean?
A bolt-on acquisition refers to a company that is added by a private equity (PE) firm to one of its platform companies. Typically, a PE firm will partner with a larger company that has a position in a particular market. This larger company becomes a platform to expand into the market because it has the management capabilities, infrastructure and systems that allows for organic or acquisition growth.
The platform company will look for bolt-on acquisitions that provide complementary services, technology or geographic footprint diversification and can be quickly integrated into the existing management infrastructure.
Divestopedia Explains Bolt-on Acquisition
Bolt-on acquisitions are usually smaller companies with very little financial and administrative infrastructure. They are typically operated by the company owner and have hit a tipping point where they can't grow anymore due to lack of capital, scale or management expertise. They may have unsophisticated financial systems, IT and internal controls, but are usually excellent operating companies with good customer relationships.
The owners of bolt-on acquisitions are usually looking to move the administration and corporate management so they can focus on operations and customers. This is why private equity-backed platform companies or corporate buyers with the infrastructure in place can be a perfect fit. Given the lack of infrastructure at these companies, buyers will usually pay a lower valuation multiple for a bolt-on acquisition than they would for a platform company.