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Increasing Prominence of Private Equity-Backed Add-On and Merger Transactions – August 2014

by Catriona McCarron

  • 27 Aug 2014
  • PE

Preqin’s Buyout Deals Analyst shows that the annual aggregate value of private equity-backed add-on and merger acquisitions by private equity-backed portfolio companies has been on the rise since 2008. 2014 YTD follows the trend of an increasing aggregate deal size for add-on or bolt-on investments, with $51bn invested through this strategy so far this year – $18bn higher than the first three quarters of 2013. The trend suggests that private equity firms are increasingly focused on developing and consolidating their current portfolio companies and adding value to existing investments.

With the aggregate value of add-on investments rising year on year, the proportion of such investments to all buyout deals is also growing. In 2014 YTD, the aggregate value of add-on transactions has accounted for 23% of all buyout investments, eight percentage points higher than in 2013. Similarly, the proportion of the number of add-on deals is rising, with 694 deals so far this year accounting for 35% of the total number of investments in 2014 YTD – this is the largest annual proportion witnessed since 2006.

In terms of the quarterly aggregate deal value of add-on transactions since Q1 2006, Q1 2014 has seen the highest, with $24bn invested through bolt-on acquisitions. Contributing towards this figure is the $9.4bn strategic acquisition of Safeway, Inc. by Cerberus Capital Management through their portfolio company Albertsons LLC, which is to merge with Safeway, Inc. following the acquisition. However, the largest private equity-backed acquisition in 2014 YTD has just been announced in this final week of August 2014. Burger King, a portfolio company of 3G Capital, agreed to acquire Tim Hortons Inc., the Canadian coffee and doughnut chain, for C$12.64bn.

Preqin’s data demonstrates that over a quarter (26%) of all private equity-backed add-ons and mergers since 2006 were witnessed in the industrial sector, with this industry accounting for 17% of all such transactions in terms of aggregate value. Business services follow, accounting for 16% of the number and 10% of the value of private equity-backed add-ons, and consumer and retail is the third most prominent industry, representing 13% of the number and 17% of the total value of such investments.

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