Insight into bolt-on M&A process?

Hi all,

Incoming PE associate here in the B2B SaaS space and had a question for folks who have had on-the-job experience at PE firms.

Bolt-on/add-on acquisitions are often referred to as a method of adding value to a portco. I've had a few years of experience in an M&A group so am familiar with your typical M&A process from a public company perspective, but was curious about specifics on what an actual bolt-on M&A process is like (at the associate level), given the difference in scale of the companies one is targeting. The obvious differences are clear (less focus on acc/dil at an EPS level given there are no public shares/FDSO count in a small-scale, private company), but how do firms typically actually think about bolt-on M&A? In the tech space specifically, I would imagine that more weight is placed on how much revenue/EBITDA the bolt-on company can generate for your portco, framed by how much multiple uplift the acquisition can generate.

I'd appreciate any insight from current PE associates who might be able to walk me through how they/their firm think(s) about whether a potential bolt-on target is attractive or not. Further, how involved/intensive are these smaller M&A deals typically? Given that some funds' strategies of adding value can lean toward running serial bolt-on M&A, I'm curious to see how long each process is and how these funds can sustainably run these processes... TIA!

Comments (4)

Most Helpful
Aug 10, 2022 - 5:27pm
arb432, what's your opinion? Comment below:
  • How do you think about whether a bolt-on target is attractive or not?
    • A bolt-on acquisition has to make sense in some combination of the following three dimensions: 1) market, 2) product, 3) financial
    • Market - does this acquisition allow the core business to expand into a market that it doesn't currently serve (or doesn't serve well)?
    • Product - does this acquisition give the core business another product/feature to cross-sell? How much would it cost to build this ourselves?
    • Financial - does this acquisition allow us to buy down our purchase multiple? Can we acquire revenue and consolidate a bunch of redundant functions to drive EBITDA/margin growth?
  • How involved/intensive are these deals?
    • Depends on the size of the deal relative to the platform business. Sometimes it's basically like going to IC for a platform deal, sometimes it's minimal work
    • Also depends on the resources that the portco has internally to do M&A
  • How long is each process?
    • Also depends mostly on size of deal
  • How can these funds sustainably run these processes?
    • At pretty much any fund that's aggressive about buy-and-build, the associates are getting worked. Simple as that.
Aug 10, 2022 - 6:42pm
BooBooHoo, what's your opinion? Comment below:

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