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The Increase in Prominence of Venture Capital-Backed Add-ons – March 2015

by Philipp Kuny

  • 02 Mar 2015
  • PE
  • VC

Preqin’s Venture Deals Analyst online service shows that the number of add-on deals as a proportion of total venture capital activity has seen a significant increase in recent years. There are multiple reasons behind the growth in number of bolt-on acquisitions, including an increased focus on external rather than organic growth, the purchase of competitors to increase market share, as well as the high levels of dry powder available to venture capital fund managers. Preqin data shows that as of February 2015, the venture capital industry has in excess of $134bn in uncalled capital, the highest level on record.

As shown in the chart above, the number of venture capital-backed add-ons as a proportion of all venture capital deals more than doubled since 2007. From 2008 through to 2011, add-ons remained at a relatively steady level, accounting for 3-4% of the total number of deals completed globally. This figure increased to 6% in 2014, and currently stands at almost 7% in 2015 YTD. 

In terms of aggregate deal value, add-ons accounted for 1-3% during the period 2007 to 2010, and increased significantly after 2012; add-on deals accounted for 13% of the aggregate deal value in 2012 and peaked in 2014, representing 31% of the total value. It has to be noted that the high proportion in 2014 is largely due to the venture capital-backed acquisition of Whatsapp by Facebook for $19.6bn. This transaction alone accounted for 75% of the aggregate value of all venture capital-backed add-ons in 2014. 

Internet, software & related and telecoms have been the most prominent industries for add-on deals since 2007, representing 28%, 24% and 16% of all add-on deals respectively. 

The expansion of add-on acquisitions is best displayed by taking a closer look at internet giants, such as Facebook and Alibaba. Last year, Alibaba indicated its appetite for external growth by quadrupling the value of its add-on investments from $1.1bn in 2013 to $4.4bn in 2014. Facebook has acquired 36 companies since 2010, for an aggregate value of $23bn.

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