Private equity firms continue to leverage add-on acquisitions as a strategic tool to accelerate growth, achieve synergies, and expand market reach for their portfolio companies. By targeting niche players within key industries, PE-backed platforms are reshaping competitive landscapes and driving significant value creation.
Our M&A Research Database tracks private equity firms, key executives, portfolio companies, and their add-on investments. We also capture the portfolio companies' stated interests in potential acquisitions. Below, we examine five key industries where demand for add-on activity is robust, based on the specific acquisition criteria from the portfolio companies themselves. Because of this, these industries are of keen interest for acquisitions, even for smaller companies.
1. Construction Services
Construction services remain a critical area of interest, particularly in restoration, remediation, and recurring inspection services. The focus on emergency restoration and residential re-roofing highlights the demand for recession-resilient and insurance-driven revenue streams. Firms are targeting companies with scalable service models and a strong track record of recurring revenues.
Key Drivers:
- Increased demand for disaster recovery and restoration services due to climate-related events.
- Rising homeowner investments in property improvement and maintenance.
2. Manufacturing
Manufacturing businesses, especially those providing operational supplies to hospitals and other essential sectors, are highly sought after. These businesses align with PE’s preference for stable end-markets and predictable cash flows. Custom machining and specialty composites for aerospace and defense applications are also gaining traction, reflecting an appetite for advanced manufacturing capabilities.
Key Drivers:
- Strong demand for critical infrastructure components and highly technical manufacturing.
- Opportunities for automation and modernization.
3. Healthcare and Related Services
Healthcare continues to be a magnet for add-on acquisitions, with particular focus on specialized outpatient services, compounding pharmacies, and healthcare IT solutions. The ongoing push for personalized and outpatient care is spurring acquisitions that enhance service delivery and improve patient outcomes.
Key Drivers:
- Demographic shifts, including an aging population.
- Regulatory incentives favoring value-based care and cost efficiency.
4. Technology and Software
Technology-driven add-ons, including SaaS platforms and IT service providers, are a growing area of interest. Advertising and analytics solutions tailored for SMEs are also highly prized, reflecting the need for digital transformation.
Key Drivers:
- Growing reliance on technology across all sectors.
- Demand for scalable and subscription-based revenue models.
5. Professional Services
Within professional services, consulting, legal, and staffing firms are popular targets. Specialized providers with strong client relationships and domain expertise are especially attractive. These acquisitions enable PE firms to consolidate fragmented markets and build end-to-end service platforms.
Key Drivers:
- Opportunities for consolidation in fragmented industries.
- Increasing need for specialized, high-margin services.
Insights for M&A Practitioners
The ongoing focus on add-on acquisitions highlights the importance of precision targeting and sector expertise. M&A professionals can add value by identifying niche leaders with defensible market positions and scalable business models.
For investment bankers, focusing on potential clients in these high-growth sectors such as construction services, manufacturing, healthcare, technology, and professional services provides a higher probability of closing transactions at the higher end of valuation because these specific sectors have numerous strategic buyers with private equity backing.