M&A – Strategic Growth

By Capital Markets


Unless you are familiar with how private equity firms tend to operate, the idea of creating a platform and growing it from a business development standpoint can be new. As a result, many business owners are unaware of an interesting concept surrounding additive growth via planned, strategic acquisitions.

Older business owners are likely familiar with the Harold Geneen conglomerate roll-up strategy of the 60s and 70s. Geneen, CEO of ITT at the time, acquired hundreds of companies across dozens of industries, creating a vast business comprising many related and unrelated parts. He grew the company from a medium-sized business with $765 million sales in 1961, into a multinational conglomerate with $17 billion sales in just nine years. Under Geneen's management, ITT became an exemplary modern multinational conglomerate, growing through a series of around 350 mergers and acquisitions across 80 countries.

Whilst to some analysts this was seen as highly successful, others disagreed. For a number of reasons, this method of corporate growth fell out of favor and was replaced with a model that focused on strategic expansion via organic growth and well-planned highly targeted acquisitions.

Nowadays, private equity firms tend to focus on these highly targeted acquisitions, honing in on fragmented industries with good prospects for growth and acquiring a ‘platform’ company which is generally large and spending the next 5-7 years acquiring ‘add ons’ via well-planned acquisitions of smaller businesses. Over the years, Generational Capital Markets has helped many private equity groups in their strategic growth initiatives. As the following chart from PitchBook displays, the add-on strategy is becoming increasingly popular with equity firms:

As this chart clearly shows, since 2006, add-ons have become the best way for many equity players to grow. Equity firms are moving downstream into smaller transactions as it is easier to integrate a few smaller firms during a 5-year period and create a larger entity than to participate in a ‘mega’ transaction.

Many of the equity firms that Generational Capital Markets (part of the Generational Group) deal with, which often specialize in transactions valued below $100 million, have well-established methods. They conduct an extensive amount of research and unearth a wealth of integration opportunities, leading them to invest in industries comprised of smaller players who need their professional management to grow and thrive.

If you own a privately held company but lack capital, support and management/sales experiences to reach your goals, then partnering with a private equity firm that is building a platform can be a good option.

If you would like to learn more about the options available to you, get in touch with one of our senior business advisors today.