In private equity, we make primary investments and bolt-on investments. A primary investment is a direct investment of cash into a new business (often in a new industry). A bolt-on investment is an investment via an existing portfolio company into a business that presents strategic value (usually in the same industry).
Primary investments get most of the press. But, many private equity funds spend just as much cash on bolt-on investments. And, bolt-ons have the potential to create much more value (I’ll explain why later). So, it pays for a private equiteer to give up some of the glitz and glamour of primary investments to become a quiet achiever through bolt-ons. Here are a few of my thoughts:
With that said, there are countless studies lamenting the destruction of value that occurs daily via mergers and acquisitions. So, it’s imperative to maintain focus on likely integration issues and ensure there’s a cultural fit. See my post in which I describe most bolt-ons as clip-ons (citing their failure to integrate and lack of strategic fit.)