In Private Equity, acquisition strategy is a delicate balance of risk, opportunity, and market conditions. Historically, PE firms have gravitated toward add-on acquisitions, favoring their lower cost and ease of execution. However, shifting economic factors and renewed investor interest are setting the stage for a resurgence in platform deals.

Why Have Add-Ons Dominated?
Over the last several years, Private Equity firms have focused on add-on acquisitions for several key reasons:

• Lower Risk: Add-ons integrate into an existing portfolio, where PE firms already have a deep understanding of the market, competition, and risk factors.

• Streamlined Due Diligence: Investors and lenders are already familiar with the sector, making transactions smoother and reducing deal uncertainty.

• Economic Caution: Elevated interest rates, geopolitical instability, and economic fluctuations encouraged firms to play it safe, avoiding higher-risk new platforms.

However, with increasing demand, valuations for add-ons have risen, making them less attractive as a sole strategy for long-term growth.

The Case for a Platform Deal Comeback
As market conditions evolve, new platform acquisitions are back on the table. Here’s why:

• Lower Capital Costs: Compared to recent years, lenders are more active, making financing larger, asset-heavy acquisitions more viable.

• Expansion of Investment Strategies: Many PE firms are seeking founder-owned businesses that don’t perfectly "tuck in" as add-ons but offer strong potential as standalone platforms.

• The Backlog of Founder/Family-Owned Businesses: With many private companies waiting for the right acquisition opportunity, PE firms are poised to capitalize on new platform investments.

The Verdict: A Balanced Approach
While add-ons remain a cornerstone of Private Equity strategy, the emergence of new platform deals signals a shift in market dynamics.Regardless of acquisition type, thorough due diligence remains non-negotiable. Every deal must be vetted for financial stability, operational fit, and long-term ROI.

At Weis Burney, we help PE firms and investors navigate the complexities of M&A transactions, ensuring they make informed, strategic moves. Need guidance on your next acquisition? Let's talk.

The foregoing is intended to be marketing material. Information is contained in this article is for general education and knowledge. It is not designed to be and should not be substituted for legal advice. This information is not intended to create an attorney-client relationship.