Add-Ons: A Key Strategy for Middle-Market PEGS
Posted by Carl Doerksen on Mon, Mar 01, 2010 @ 08:04 AM
Last week it was announced that FleetPride had acquired Mandal Truck and Trailer. This acquisition represents its fourteenth add-on acquisition in the past two years. Mandal Truck, like FleetPride is a distributor of aftermarket heavy-duty truck and trailer parts. The deal brings FleetPrides total locations in California to 20 and strengthens its presence in the agriculture rich San Joaquin valley. FleePride is owned by Investcorp and Banc of America Capital Investors.
The March Group is quite familiar with FleetPride and its acquisition plans. E. H. Burrell is one of the fourteen companies that FleetPride has acquired in the past two years. The March Group represented E. H. Burrell in the transaction which closed in November of 2008. E.H. Burrell is a wholesale distributor of parts and accessories for commercial trucks and heavy equipment. You can see more details on the transaction on our website at:
http://www.marchgroup.com/news/news.php?pageID=32&PressID=32
Growing and developing portfolio companies through add-on acquisitions is a core strategy for many private equity investors. According to PitchBook News, since the beginning of 2009 252 private equity investors have completed an add-on acquisition. The three most active are The Carlyle Group with twelve, and The Riverside Company and Parthenon Capital Partners with ten apiece.
Two items caught our attention in this news: First, despite all you heard last year about deal making being dead, 252 equity groups completed add-on acquisitions! This is significant. Why didn't you hear about these? Simply because most add-on acquisitions are smaller and therefore do not receive the press that larger, mega-deals do. Secondly, middle-market equity groups buy platforms with the expressed interest in adding well run add-on companies to their platform companies (just like FleetPride did in 2008 with E. H. Burrell). So although your company may not be large enough to be acquired by an equity group as a platform, chances are very good that your company may be large enough to be acquired as an add-on.
The great news for most middle-market business owners is that in many cases, the equity group takes majority ownership but current ownership remains with the company as a minority owner. Then the minority owner has the opportunity to participate in a secondary liquidity event later when the much larger platform company (plus add-ons) is either sold or taken public. So you can often recapitalize your company, taking part of your company in cash now while retaining a minority interest. This can be quite lucrative in many cases as the larger entity five years down the road usually has a much bigger valuation and hence, a greater return for you.
However, the only way you can know if your company would be a good target for an equity group (or any other buyer for that matter) is to use the services of an experienced M&A advisory firm. The March Group has been helping to unite middle-market businesses with premium buyers for over 24 years. We have the experience in negotiating deal structures that will not only give you the greatest valuation now but also potentially enable you to earn significantly more in a secondary liquidity event.
Again, the only way you can know if this would be possible for your company is to contact us so that we explain the entire process to you. We hold free informational workshops around the country that are designed to educate you, in a few short hours, on the various methods we use to optimize your value in the market. Please contact us so we can reserve a place for you in our next workshop in your area. If 252 add-ons were closed in 2009 during a recession imagine how many add-ons will be acquired in 2010 and 2011 as the economy starts to boom? Your company could be one of them!
PS - and if you are the owner of an after market commercial truck parts distributorship, you really need to call us! FleetPride is very active in this niche as we learned when we sold E. H. Burrell to them in 2008.
