Platform or add-on: how private equity sees your company
Why private equity buyers price a company differently depending on whether it anchors a new platform or joins an existing one.
When a private equity firm looks at your company, the first question is whether it will be a platform, the first company in a new group they'll build on, or an add-on to a group they already own.
Platforms
A platform needs management that can run a larger company, systems that can absorb acquisitions, and enough size to justify the firm's time. Platforms usually command higher multiples. Capstone Partners notes that bolt-on acquisitions "typically trade at lower purchase multiples than platform acquisitions" (via Salt Creek Advisory). Expect more diligence, and often a request that you keep some ownership in the new group.
Add-ons
An add-on fills a gap for an existing group: a new city, a service line, a customer base. The headline multiple is often lower, but add-ons can close faster with less disruption, and a buyer filling a specific gap will sometimes stretch.
Why it matters to you
The same company can be a platform to one buyer and an add-on to another. Knowing which buyers see you which way, and putting both kinds in the same process, is how owners get paid for what their company is worth to the buyer who needs it most.
Rollover equity, in plain English
Many private equity buyers ask sellers to reinvest part of the price, often 10% to 30%, into the new company. Done well, that slice can be worth more at the group's next sale than it was at yours. It also carries risk and has tax consequences, so it belongs in the negotiation from the first offer, not the last week.
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General information, not legal, tax or investment advice.