Add On Strategies Continue Despite Economic Challenges

By Generational Equity


Over the years we have discussed at length the growing and expanding strategic M&A trend: The Add On Strategy. Over the past decade, the percentage of add ons acquired by private equity firms (PE) has grown substantially, reaching nearly 70% of all transactions last year according to Pitchbook:

Well, I am pleased to assure you that despite the turbulent times we find ourselves in, PE firms are staying the course and continue to make well-planned, strategic add on (aka, bolt on) acquisitions!


Because they have long-term visions for their platform companies, knowing that eventually all this will end and the economy (and the world) will return to some form of normalcy. When it does, they will be ready to grow and expand as never before.

I saw this in action recently when Bow River Capital announced that one of its platform companies, Veregy, had made two related acquisitions, making them the seventh and eighth additions to the platform since inception.

This is how the press release described the investments:

“On April 21, Veregy, a Bow River Capital portfolio company, acquired Texas-based Four Star Fabricators and Service Company, LLC, and Four Star Mechanical, LLC (together, “Four Star”). These transactions mark the seventh and eighth acquisitions under the unified Veregy platform.” 

“The partnership with the owners of Four Star, Chris Slaughter, Candsis Slaughter, and Brian Bowman, allows Veregy to address growing energy efficiency, power generation, and long-term master planning needs with customized, high-value solutions for both current and prospective customers across Texas.”

Now odds are good that the discussions between Veregy/Bow River and Four Star started several months ago, probably well before the pandemic hit. However, as you can see, the long-term vision that they have for this platform superseded any short-term COVID-19 concerns.

In fact, I would be willing to bet that both the PE firm and the owners of the two companies acquired probably did some EBITDAC recasting the last 8 weeks or so before the deal closed. This would allow them to come to an agreement as to the real impact on the business that the shutdown may have had, with a longer-term view of the upside of the investments for both the sellers and Veregy/Bow River.

You can see this vision from the press release:

“Veregy is an award-winning energy services company (“ESCO”) that designs, engineers, and implements eco-friendly building and system optimizations that minimize upfront costs and produce meaningful energy and operational savings. Across the United States, Veregy’s combined offerings provide comprehensive infrastructure upgrades, energy management, and energy efficiency solutions in mechanical, plumbing, lighting, solar, battery storage, geothermal, and customizable building control systems in addition to ongoing facility management and maintenance services.” 

“The collective enterprise has delivered billions in energy performance contracts for academic, municipal, healthcare, commercial, and federal facilities across more than 30 states.”

Certainly as we enter the economic recovery phase of our current situation, nothing will be more important than helping building owners and tenants achieve even greater savings in energy costs over time.  

And when you review the descriptions of the two acquired companies, you can really see the synergies in action that propelled these acquisitions:

“Founded in 1985 by the Slaughter family, Four Star Fabricators and Service Company, LLC (“FSF”) has been providing mechanical contracting services to the North Texas market for more than 35 years. FSFs services include the replacement or upgrade of HVAC systems to more efficient geothermal or variable refrigerant flow systems, which drive tangible energy and operational savings for customers.” 

“Led by Brian Bowman, FSM provides plumbing, piping, and domestic water design and implementation services. Previously Crosstex, Brian, and the team have brought high valued plumbing services to Texas for over 20 years”.

So what does this example mean to you, the owner of a middle market business, today?

Several things I would say. First, as we have said before, deals are still being done today despite the economic situation we are in. That is because professional buyers, again, have a longer-term view than just the last few months. They know that the entrepreneurial spirit that has made this nation so successful will once again drive our economy to recovery, and that they want to financially participate in that recovery.

Secondly, odds are good that pre and post-pandemic there are and will be PE firms like Bow River that are actively looking for acquisitions – you just have no idea that they are because most of these deals do not make it into the business press because of the relatively smaller size of the transactions.  

Your challenge in locating and approaching buyers like this is to determine who is active in your niche and then create documentation that they will want to see that matches their investment criteria. If you have never done this before, you don’t want on-the-job training on how to. It is far better to hire a professional M&A firm to represent you in the market.  

Generational has developed a proven and successful method for not only marketing to firms like Bow River, but to also provide them with key information about each business we represent to project them in the most positive light. Remember the old adage in M&A:

Explain the Past but SELL the Future!

Now more than ever, this is very, very true indeed.  

If you would like to learn more about how professional buyers think, what they are after, and how to approach them, you have several options:

So the key takeaway here is that buyers are still active and the professional buyer that you want to attract is still out there. Be sure to consider that as you look at your exit planning strategies.

And in closing, we wish you, your business, and your loved ones safety and good health during this time. In the midst of challenges there are always blessings and opportunities. This situation is no different. History shows us that this too shall pass, and that when it does, we will emerge stronger than before.

Carl Doerksen is the Director of Corporate Development at Generational Equity.

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