The Strategic Role of Add-On Acquisitions in Private Equity

  • Private equity
  • 1/21/2025
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Private equity firms leverage add-on acquisitions to accelerate growth, achieve synergies, and expand market reach.

Private equity (PE) firms continue to leverage add-on acquisitions as a strategic tool to accelerate growth, achieve synergies, and expand market reach for their portfolio companies. By targeting niche players within key industries, PE-backed platforms are reshaping competitive landscapes and driving significant value creation.

Our CLA professionals network with many private equity firms, key executives, portfolio companies, and their add-on investments. We also capture the portfolio companies' stated interests in potential acquisitions.

Based on this data, we dive into five key industries where demand for add-on activity is robust, based on the specific acquisition criteria we’ve heard from the market. Because of this, these industries are of keen interest for acquisitions, even for smaller companies.

Construction services

Construction services remain a critical area of interest, particularly in restoration, remediation, and recurring inspection services. The focus on emergency restoration and residential re-roofing highlights the demand for recession-resilient and insurance-driven revenue streams. Firms are targeting companies with scalable service models and a strong track record of recurring revenues.

Key drivers:

  • Increased demand for disaster recovery and restoration services due to climate-related events
  • Rising homeowner investments in property improvement and maintenance

Manufacturing

Manufacturing businesses, especially those providing operational supplies to hospitals and other essential sectors, are highly sought after. These businesses align with PE’s preference for stable end-markets and predictable cash flows. Custom machining and specialty composites for aerospace and defense applications are also gaining traction, reflecting an appetite for advanced manufacturing capabilities.

Key drivers:

  • Strong demand for critical infrastructure components and highly technical manufacturing
  • Opportunities for automation and modernization

Health care and related services

Health care continues to be a magnet for add-on acquisitions, with particular focus on specialized outpatient services, compounding pharmacies, and health care IT solutions. The ongoing push for personalized and outpatient care is spurring acquisitions enhancing service delivery and improving patient outcomes.

Key drivers:

  • Demographic shifts, including an aging population
  • Regulatory incentives favoring value-based care and cost efficiency

Technology and software

Technology-driven add-ons, including SaaS platforms and IT service providers, are a growing area of interest. Advertising and analytics solutions tailored for small and medium-sized enterprises are also highly prized, reflecting the need for digital transformation.

Key drivers:

  • Growing reliance on technology across all sectors
  • Demand for scalable and subscription-based revenue models

Professional services

Within professional services, consulting, legal, and staffing firms are popular targets. Specialized providers with strong client relationships and domain experience are especially attractive. These acquisitions enable PE firms to consolidate fragmented markets and build end-to-end service platforms.

Key drivers:

  • Opportunities for consolidation in fragmented industries
  • Increasing need for specialized, high-margin services

How CLA can help with add-on acquisitions in private equity

The ongoing focus on add-on acquisitions highlights the importance of precision targeting and industry specialization. At CLA, our industry focus allows us to work with potential sellers in these high-growth sectors such as construction services, manufacturing, health care, technology, and professional services to help improve probability of closing transactions and the best deal terms for them. Additionally, we have significant experience with helping private equity and portfolio companies create value post close.

This blog contains general information and does not constitute the rendering of legal, accounting, investment, tax, or other professional services. Consult with your advisors regarding the applicability of this content to your specific circumstances.

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