In this article we’re going to dive into the little known, but absolutely brilliant, strategy known as the “bolt-on” acquisition. Until recently, the bolt-on (also known as the tuck-in, add-on, or follow-on) acquisition had been a strategy known only by the brightest mergers & acquisitions consultants working for the largest companies in the world. It’s these consultants and those companies that have consistently utilized this strategy to bolt-on new technologies, new markets, new products, new people, and in some cases completely new and transformational ways of doing business with their customers. And while it’s the Fortune 500 companies that have seen the most benefit from this approach, there are countless reasons why small- and mid-market businesses stand to gain handsomely by implementing this strategy, as well.
“IN ESSENCE, A ‘BOLT-ON’ ACQUISITION
OCCURS WHEN A LARGER COMPANY
ACQUIRES A SMALLER COMPANY FOR A
PARTICULAR STRATEGIC PURPOSE. “
So what is a bolt-on, really? In essence, a bolt-on acquisition occurs when a larger company acquires a smaller company for a particular strategic purpose. A bolt-on could be a company that gives them access to a new service offering, or expands their selling markets, or gives them the ability to serve their core customers more efficiently or profitably. At times, the strategic purpose of the bolt-on might not be obvious at first glance. While traditional acquisitions focus on top and bottom line growth, the bolt-on is not likely to dramatically impact either, at least not initially. In time, however, the strategic purpose of the bolt-on comes into focus, usually in some transformative fashion as it is fully leveraged by the acquiring parent.
There have been quite a few memorable bolt-on deals from the last decade, in which the parent was able to transform themselves dramatically through small strategic acquisitions.
In one of the greatest deals that I can remember, Disney® bolted-on Lucasfilm® in 2012 to give them access to the entire Star Wars® universe. At the time, this $4 billion purchase seemed like a fair sum, but when we consider how much Disney® has been able to leverage the Star Wars® universe (into the Mandalorian®, expansions to the Disneyland® theme parks, Andor®, etc.), it actually seems like a genius piece of dealmaking in the rear-view.
Apple® bolted-on Beats® Music & Electronics back in 2014 to bolster their music offerings. At the time, this made Dr. Dre the first hip hop billionaire, but just as importantly, it solidified Apple®’s music hardware and streaming platform with a new core demographic and talent. This was a solid outcome for about $3 billion which was a small fraction of Apple®’s considerable cash hoard at the time.
IN ONE OF THE GREATEST DEALS THAT I
CAN REMEMBER, DISNEY® ‘BOLTED-ON’
LUCASFILM° IN 2012 TO GIVE THEM
ACCESS TO THE ENTIRE STAR WARS
UNIVERSE.”
Lockheed Martin® bolted-on Sikorsky Aircraft® in 2015 to diversify out of fighter jets, and to reduce their reliance on an aging government jet program. They gained the ability to offer helicopters to their existing military customers, and picked up the lucrative Black Hawk® platform in the process with this acquisition.
Microsoft® bolted-on LinkedIn® back in 2016 to boost their cloud offerings (and gain access to 400 million LI members!) . Rather than completely absorb it into the parent company – which has been customary with these types of acquisitions – Microsoft® has largely left this one alone.
Salesforce® bolted-on Slack® in 2021 to add messaging and collaboration to their Customer Relationship Management (CRM) offerings, and they were willing to pay $27 billion for this email-free pleasure. Mark Benioff, CEO of Salesforce®, saw this deal as them being key to companies planning their “digital office space.”
Finally, (and most recently) we’ve seen Adobe® bolting-on Figma® in September of 2022 to boost their cloud collaboration and design platforms. Many analysts had sticker shock on this deal, as they paid nearly the same amount ($22 billion) as Salesforce® paid for Slack® just last year (for about a quarter of the revenue!), which partially explains why Adobe®’s stock has been pretty depressed since the deal was announced.
“WHAT’S THE COMMON DENOMINATOR IN ALL
OF THESE DEALS? THE LARGER COMPANY ‘WON
BY ‘BOLTING-ON’ THE NEW ENTITY WHICH
ALLOWED THEM TO SERVICE THEIR ENTIRE
CUSTOMER BASE IN NEW AND UNIQUE WAYS.”
99
What do we see is the common denominator in all of these deals? The larger company won by bolting-on the new entity which allowed them to service their entire customer base in new and unique ways. With proper execution, this has allowed these larger mature entities to dramatically transform their core businesses much more quickly compared to building these things in-house.
Clients will often hear me talk about the “build” versus “buy” conundrum. My experience has shown me that buying companies that have the particular skillset / product / people / tools that you would like to have, generally is cheaper and more likely to be successful than building that same capability in-house. It’s a similar principal that explains why 90% of startups fail, and why 90% of businesses that have been in business for 5 years will continue to be in business a year later. Which side of the math would you rather be on?
“IT’S A SIMILAR PRINCIPAL THAT EXPLAINS WHY 90%
OF STARTUPS FAIL, AND WHY 90% OF BUSINESSES
THAT HAVE BEEN IN BUSINESS FOR 5 YEARS WILL
CONTINUE TO BE IN BUSINESS A YEAR LATER. WHICH
SIDE OF THE MATH WOULD YOU RATHER BE ON?”
These are all huge companies, with massive cash war-chests and fleets of attorneys and M&A professionals. Does that mean that only the big guys can take advantage of this strategy? Are smaller and middle market companies unable to harness the growth power of this approach? Absolutely not! We’re going to show you how this approach has been brought downmarket to small and midsize companies with just as much effectiveness, if not more.
In my early corporate career, I was part of a team that employed this strategy effectively. A small family-owned regional packaging player utilized several smart bolt-on acquisitions to diversify their service offering, as well as expand their service footprint. When they decided to expand the company geographically into a new region, it made sense to acquire a small regional distributor with an existing salesforce, warehouse, and customer base. Although the deal only added around $2 million in revenue, it got them into an important growth market which they were able to expand quickly, as well as served as the springboard for an eventual expansion into Mexico.
“ALTHOUGH THE DEAL ONLY ADDED AROUND $2
MILLION IN REVENUE, IT GOT THEM INTO AN
IMPORTANT GROWTH MARKET AND… SERVED AS
THE SPRINGBOARD FOR AN EVENTUAL EXPANSION
INTO MEXICO.”
Based on the success of that deal, they acquired another larger distributor doing around $16 million in sales. The result was significant, instant growth in another new regional market. This set the stage for them to acquire two tiny marketing agencies (each doing less than $1 million in revenue) for very little cash out of pocket. As manager of that division I was able to increase annual sales to a profitable $3.5 million within 12 months. For a 40 year-old traditional family business used to slow and steady growth, these strategic bolt-ons clearly & dramatically transformed the business faster than their prior pace of innovation.
Post-corporate, I’ve been fortunate to have acquired 7 companies in the last 13 years, and after the first acquisition, several of these deals were strategic bolt-ons.
Having started the company by acquiring a dormant fashion jewelry brand selling wholesale to boutiques and department stores, I expanded into eCommerce by acquiring an online ring business in Atlanta. Annually, our wholesale fashion jewelry business was doing around $2.5 million, and the tiny ring business was doing around $300,000, making this acquisition truly bolt-on in size. The impact was significant, however, as the once ‘tiny’ ring business was generating $2.5 million in revenue a few years later, matching that of the parent company!
Next up, I acquired a small portfolio of disjointed Amazon® products (chalk markers, paintbrush sets, compression socks) for the tidy sum of $15,000. I then leveraged that Amazon knowledge to propel my next brands product (a money clip wallet) to the #15 ranking spot within a few months of launch. These bolt-on acquisitions allowed us to not only transform the way we approached our customers for all of our brands, but also drove significant growth in revenue.
THIS IDEA HONORS THE SIMPLE RULE THAT
IF YOU’RE NOT GROWING REVENUE OR
PROFITS), YOUR COMPANY IS LIKELY LOSING
VALUE EACH AND EVERY YEAR.”
Traditional acquisitions often involve a distinct company operating in a given vertical industry acquiring another company within that same boring vertical, to lower costs across the newly combined enterprise. Bolt-on acquisitions, however, give the buyer the opportunity to leverage a completely new service line, a completely new geographic area, or a new technology on which to better serve all of their customers. For anyone that owns a mature company that’s had difficulty growing in the post-Pandemic economy, a bolt-on acquisition is worth considering to jumpstart the company and get growing again. This idea honors the simple rule that if you’re not growing (revenue or profits), your company is likely losing value each and every year.
Brian Malloy
x10 Ventures, LLC