Why Add-On Deals Are on the Rise

One of the most popular types of acquisition for mid-sized companies is an add-on deal. In 2022, add-ons comprised 77% of US PE deals, an approximate jump of 3 percentage points from 2021, according to PitchBook data. At Symmetrical, we have deep experience helping business owners find the best structure for selling their businesses. Here’s why an add-on deal might be the right option for you.

Versatility of Add-On Structures

Frequently, a buyer will turn to an add-on structure when they want to expand their business into a new territory but wish to acquire a company that already has expertise in this new space.

The add-on deal is a versatile option: The buyer can either fold the new company into its existing operation (a “tuck-in” acquisition) or allow it to operate independently within the larger structure of the company (a “bolt-on” acquisition).

Advantages of an Add-On Deal

For buyers, an add-on deal can be a cost-effective way to strategically diversify a company’s offerings and capture new revenue. This kind of deal has advantages for a seller, too. For a business owner looking to sell and retire, for instance, an add-on offers an opportunity to turn business equity into liquidity, while ensuring the company lives on in a stable corporate structure. An add-on deal can also be appealing to a seller who’s seeking access to more capital and resources for their company.

Finally, for the business owner who may want to retain some involvement in the company, a bolt-on acquisition could be an ideal structure; in this deal, the original business retains some independence but also reaps the benefits (capital, leadership, diversity) of becoming part of a larger business.

Trends in Add-On Deals

While last year saw a decline in the overall number of deals, there were signs of hope in November and December of 2023: Deal flow was up in both months compared to the same period in 2022. In fact, many experts believe add-on deals in the small-to-mid markets will drive deal growth in 2024, especially in the healthcare, technology, and manufacturing sectors. One example is Vision Innovation Partners, an ophthalmology practice with nearly 70 locations, recently acquired Bucks-Mont Eye Associates in Pennsylvania.

Overall, the midmarket is still ripe for deals — especially add-ons. Last year, even in a “slower” deal market, there were still 800 mid-market deals totaling $240 billion.

At Symmetrical Advisors, we work with you to ensure the sale of your business ends up in the structure that suits you best. Contact us today to begin a discussion with our experienced team.

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