Private equity firms are likely to employ an add-on acquisition strategy to compliment a platform acquisition's organic growth efforts.
Under stable economic conditions, when credit is abundant, interest rates are low, and companies are growing predictably, the median time to first add-on acquisition falls consistently within 12-18 months of a platform acquisition, according to data from Private Equity Info's M&A Research Database. This window has emerged as a sweet spot, where firms strike a balance between acting quickly and integrating carefully.
The timing interval has considerable implications for private equity firms, investment banks and service providers to the M&A market that are tailoring strategies to align with the market.
But with the uncertainty of the last 5 years created by a global pandemic, and economic uncertainty still likely ahead, what does the data say about where things are today? We took a closer look at the private equity firms driving growth through add-ons to determine how add-on acquisition strategies have been impacted, and how they have changed over time.
During periods of economic uncertainty, the interval increases from the optimal 12-18 month interval. In 2009 and 2010, following the last global recession, the period increased to 19 months. Just last year, it grew to 23 months, its longest interval in two decades.
The deliberate slowing of acquisitions in 2024 (both add-ons and platform investments) has been felt throughout the M&A community, as we've reported previously.
During boom periods, like the one we saw in 2007 and 2011, the median time to first add-on interval declined to just 9 months. In looking at the entire set of add-on timing data, 4,296 first add-ons took place within 12 months of the platform acquisition. When conditions are right, private equity can move quickly.
This ebb and flow mirrors broader market sentiment, with the median serving as a key benchmark for deal momentum.