US PE sees the buy-and-build escalate, innovate, and sophisticate
Faced with rising valuations and increased competition, private equity firms have increasingly turned to add-on acquisitions as an investment strategy over the past 20 years.
It's now reached the point where more than 70% of PE deals in the US come via add-ons. PitchBook's latest analyst note explores this approach, which continues to gain momentum.
Key takeaways include:
- Buy-and-build strategies have grown in popularity because they allow investors to buy companies at lower enterprise-value-to-EBITDA multiples and sell them at higher multiples; this approach can also prove resilient in the face of a recession.
- In the past, PE firms have typically held companies acquired via add-on longer than other portfolio companies. But that's no longer the case.
- Add-ons made up more than 80% of the overall number of deals in the financial services industry in 2020, driven by PE's push into a fragmented insurance market.