Bolt-on acquisition refers to the
acquisition of smaller companies, usually in the same line of business, that presents strategic value. This is in contrast to primary acquisitions of other companies which are generally in different industries, require larger investments, or are of similar size to the acquiring company.
Overview
The trend of making bolt-on acquisitions is particularly prominent in
downmarket
In economics, an inferior good is a good whose demand decreases when consumer income rises (or demand increases when consumer income decreases), unlike normal goods, for which the opposite is observed. Normal goods are those goods for which the d ...
s.
Private equity firms support such smaller and strategic acquisitions in order to increase the value of the acquiring company prior to sale. Also in a downmarket, companies look to grow via smaller, strategic acquisitions rather than building through major business purchases or mergers that represent higher risks or are more difficult to finance. These bolt-on acquisitions allow companies to enhance their product portfolio, technological position, market reach and customer service capabilities with much lower levels of investment.
Another major advantage of bolt-on acquisitions is the enhancement of core businesses and using
mergers and acquisitions
Mergers and acquisitions (M&A) are business transactions in which the ownership of companies, other business organizations, or their operating units are transferred to or consolidated with another company or business organization. As an aspect ...
activity to gain leadership positions in a limited number of areas. Bolt-on acquisition companies look to become more specialized in smaller selected areas rather than following a
diversifying strategy.
Other potential benefits of these acquisitions over bigger acquisitions are:
* Require less work to integrate as companies being acquired are smaller
* Competition between buyers may be less.
* Smaller companies are often more willing to be acquired by large companies.
* Opens up more options for large companies looking for acquisitions as restrictions on size etc. do not apply
* Allows entry into new geographic markets and increased penetration in existing markets without the struggles of setting up new locations, especially for
chain stores
Examples
Chemical companies like
Akzo Nobel and
Dupont
DuPont de Nemours, Inc., commonly shortened to DuPont, is an American multinational chemical company first formed in 1802 by French-American chemist and industrialist Éleuthère Irénée du Pont de Nemours. The company played a major role in ...
have made significant number of bolt-on acquisitions.
According to a recent survey, 97 percent of private equity firms expect at least one in four of the companies in their portfolio to undertake a bolt-on buy prior to exit.
References
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Mergers and acquisitions