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Breaking Down an Add-On Strategy in Action

By Generational Equity

Add On Strategy

Several times over the past few years we have examined the strategy of add-on acquisitions by private equity firms. As you’ll recall, this is where a PE firm makes an initial, fairly large, acquisition in an industry and then, over the ensuing years, makes a number of “add-on” acquisitions to the platform, growing their investment into a much larger entity via acquisitions.

Recently, I came across an equity firm that is using this strategy on steroids! First Atlantic Capital has made 15 add-on acquisitions to its platform company, Resource Label, over the past few years, and here’s what the company’s growth looks like:

Resource Label was acquired by First Atlantic in April 2011:

  • Mid South RFID, Franklin, TN (Acquired September 2007)
  • Pamco Label, Chicago, IL (July 2011) 
  • Fox Tag and Label, Providence, RI (July 2011) 
  • Oxford Graphics, Boston, MA (March 2014) 
  • The Label Company, Los Angeles, CA (October 2014) 
  • A1 Label, Toronto, ON (December 2014) 
  • Taylor Made Labels, Portland, OR (October 2015) 
  • LithoFlexo Grafics, Salt Lake City, UT (February 2016)
  • Advanced Labels NW, Seattle, WA (November 2016) 
  • RayPress Corporation, Birmingham, AL (December 2016) 
  • Cellotape/Landmark Label, Newark, CA (March 2017)  
  • Gentler International, Buffalo, NY and Liberty Hill, TX (March 2017)
  • Ingenious Packaging, Toronto, ON (July 2018)
  • Paragon Label, Petaluma, CA (August 2018)
  • Spectrum Label, Hayward, CA (October 2018)

As you may have surmised, Resource Label Group (RLG) is a manufacturer of pressure sensitive labels, shrink sleeves, radio-frequency identification (RFID) and near field communication (NFC) products. The company’s labeling products are used by more than 6,000 customers in the food, beverage, chemical, household products, personal care, nutraceutical, pharmaceutical, medical device, and technology industries.

The Potential of Add-On Strategies

What do all these acquisitions have in common?

They all operate in some niche within the labeling industry.

A couple of things stand out in this list above. First, Resource Label was acquiring companies before First Atlantic made its initial investment in them in 2011. They had a plan in place and most likely needed funding to carry it out. This is a key feature of equity firms that operate in the middle market: They invest in companies to help them grow, in this case pretty dramatically.

Secondly, they have been making around three add-on acquisitions annually since 2011, indicating that they are actively expanding the platform with a goal of consolidating a very fragmented industry.   

Keep in mind that before making an acquisition, most PE firms will look at several dozen companies before narrowing down to one. This means that a PE firm is quite possibly reviewing 36 or more companies to buy just three.

In some cases, PE operations will look at thousands of businesses annually to acquire a handful as part of their add-on strategy. This is why documentation presented to them has to be accurate, well laid out, and in a format that the PE industry likes to see. They simply don’t waste time on companies that don’t match what they are looking for.

Finally, look at the geographic diversity within the portfolio of companies. They literally invested in labeling businesses in every region of the U.S. and even in Canada. They now have a nationwide footprint in an industry that historically has been very geographically focused.

Could an Add-On Strategy Influence Your Exit Plans? 

One final thought: Given the dramatic growth in the use of add-ons by equity firms, odds are pretty good that there is at least one PE funded platform actively making acquisitions in your industry. We often meet with business owners at our exit planning conferences who are surprised to learn that one (or more) of their competitors are actually owned by a PE firm!

Would you like to learn more about PE buyers? Would you like to have a confidential conversation about your exit plans? If so, you should call us at 972-232-1121 and speak with one of our exit planning advisors. Or, visit our website, provide us with your contact information and we will be in touch. 

By Carl Doerksen, Director of Corporate Development at Generational Equity.

© 2018 Generational Equity, LLC. All Rights Reserved.

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