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14 Feb Bolt-On Acquisitions: Growth From an Established Industry Platform

Various inorganic methods exist for corporate growth. Industry consolidation using a roll-up strategy with add-on/bolt-on/tuck-in acquisitions is at least one method used ad-nauseum by all the most well known private equity groups and strategic buyers. The concept is relatively simple in overall design and description, but difficult in implementation and execution. The premise is simply this:

  1. Find a disparate or fragmented industry.
  2. Source a gem among stones in said industry (a.k.a. platform-co.)
  3. Partner with and/or acquire all or a portion of said platform
  4. Institutionalize systems, processes and personnel within the platform
  5. Use the platform as the basis for adding on other smaller, generally less-sophisticated acquisition targets within the same space
  6. Follow a typical buy-side M&A process
  7. Rinse & repeat


Establishing a Platform

Platforms do not grow up overnight. A true “platform” company is one whose systems, processes and personnel are fully prepared to assimilate additional acquisitions, preferably in a condensed time period. Being a true platform does not necessarily mean the business is a market leader in the true sense of the word, but it does mean the company is likely a head or two above all others in a highly dispersed and fragmented field. Moreover, the platform company has built the right systems to ensure any future organic growth can be seamlessly added without a hiccup to the operations. This means the business structure, the right technology (finance/accounting, ERP, etc.) and the right people under the right management structure. If the right recipe is not in place, a “platform,” in the truest sense, has not yet been established. If this is the case, the industry is likely still experiencing growing pains and more investment is required to establish a platform worthy of inorganic growth.

Typically private equity groups will either make minority/majority investments in platform companies with the intent to use the platform as a source for later bolt-on/tuck-in acquisitions over a set three to five year window, before eventually exiting. The structure of platform deals can be as varied as the imagination is wild. The certainty remains, however: a platform is a prerequisite for performing an industry-consolidating roll-up via bolt-on acquisitions.

Roll-up Acquisitions

We’ve spoken before about industry consolidation and trends in various industry life-cycles. True industry consolidation is more than just making acquisitions for acquisitions’ sake. A true roll-up scenario involves adding incremental value through platform systems and processes than can be translated across smaller, tuck-in acquisitions of companies horizontal or vertical to the platform. Additionally, acquisitions must be assessed from the 1+1=3 perspective. That is, “does this acquisition add more than the incremental value gained from it’s compartmentalized revenues or is there something more?” And we are not just talking about elimination of redundancies across the firm (or, more bluntly put: layoffs). Typical acquisitions involve collating all the bolt-on targets under the single brand of the parent company. Otherwise, the acquisitions may be seen simply as silo purchases within the same industry with no real value creation.

In most instances, such bolt-on or tuck-in acquisitions are smaller and less sophisticated companies. However, sometimes smaller firms may have talent, tools and intellectual property that can be easily ported to the parent, creating a synergistic scenario. In fact, some may significantly add value to the platform in very real ways.

A few questions to ask when pursuing a bolt-on acquisition strategy:

  • How robust are the systems and processes of the parent?
  • Can the systems and processes of the platform be easily and quickly implemented to a target acquisition? Will this add value?
  • Will the tuck-in acquisition’s revenues be protected? Are seller’s notes and earnouts needed to protect them?
  • What is the M&A experience of the integration team? If light, how quickly can they move down the learning curve?


While prognosticators often tout the poster children in these types of scenarios, there are many instances where acquirers have crashed and burned in doing M&A in an effort to consolidate an industry. In other words, this path is often fraught with extreme peril. Those with well-developed mandate, who know what they want and hire the quality advisors to assist capture that value in the process.

  • Kevin Lee

    I’m more a fan of acquisitions being in tangential or complementary to the core platform business rather than competitive (same services offering). The ability to cross-sell into the existing client base of the acquired companies improves the overall revenue from purely additive to incrementally greater to the extent the cross-sell is successful. Yes, there is still a bolt-on element, and the warnings of the pitfalls are still valid.

    • Nate Nead

      What you are referring to is what I would call “acquisitions for acquisition’s sake.”
      The reasons should be compelling and not simply revenue-driven.

      Thanks Kevin.

  • John L. Illes

    A solid platforms is essential for successful bolt-ons. The more solid the platform, the easier it is to acquire less than ideal (lower multiple) bolt-on acquisitions that can benefit from the platform’s strength thereby creating greater overall value.

    • Nate Nead

      Thank you John. True platforms are diamonds in the rough and without them, the likelihood of success in this type of arbitrage game is greatly diminished.

  • James Hill

    1. You must have an integration team to do the addons and we always call them “buy and build” and not roll-ups as that has a negative connotation.

    2. Family offices don’t flip them so fast – usually eight to twelve years and that appeals to the managers and the addon managers.

    3. The key to the addons is convincing the managers that they can grow the business, given lots of resources, and they will integrate into the holding company but run their own business.

    4. Earnouts are to be avoided – lots of litigation and no earnout should take place more than one year as the owners worry about the adding SG and A to their expenses and they want to be segregated for the earnout and that is a big problem. Sometimes people use adjusted gross margin versus the SG and A. But to be avoided more than one year.

    5. And when you talk about addons you let them know they can grow and you discuss acquisitions they would have liked to make but they can’t afford them but they could be complimentary.

    6. People used to play the addon arbitrage game but depending on the size of the ebitda, that can work but addons have become more costly.

    • Nate Nead

      Thanks Jim.

      All fantastic points, most of which I either failed to cover or did not go into enough depth. Add-ons are becoming more difficult. The real risk, as is almost always the case, is the potential for overpaying for a smaller bolt-on deal that provides little strategic value other than a boost in revenue.

      Thank you again Jim. All the points you raised are excellent additions.