Bolt-On and Tuck-In Acquisitions
What is a Bolt-On Acquisition?
A bolt-on acquisition refers to when a private equity firm attaches a smaller company to a larger “platform” company. This platform company will have a strong presence in the market with an intact and maneuverable management structure, economies of scale, infrastructure and all of the things that are necessary for organic and acquisition growth. The bolt-on company will have features that will be appealing to the platform company, such as complimentary services, technology, or strategic relationships with customers or geographies that are of use to the platform.
Typically, the bolt-on will have very little financial or administrative power, and will excel more in operations or in customer relationships, and the platform can use its existing power and infrastructure to fill in the gaps that the bolt-on lacks. The owners of these bolt-ons are usually willing to pass the admin and management reins over to the platform in exchange for flexing its own muscles in its core competencies.
What is Tuck-In Acquisition?
A tuck-in acquisition is very similar to a bolt-on acquisition, as the platform company completely absorbs the smaller company, integrating all of its systems, management, infrastructure, inventory and distribution, technology and all other operational aspects of the business. In a tuck-in acquisition, as opposed to a bolt-on acquisition, the smaller company does not retain any of its own management and is merely assimilated by the platform company. This is usually done by the platform company to grow the company’s market share or customer base. The ideal tuck-in acquisition is one in which the smaller company has a valuable asset, such as a technology or customer base, but does not have the growth prospects to exploit it to their advantage.
What is the Difference Between a Bolt-On Acquisition vs a Tuck-In Acquisition?
The main difference is the extent to which the smaller company is absorbed into the larger. In a tuck-in, the company is almost entirely absorbed into the larger, turning over all its operational aspects, including distribution, inventory and technology. The acquired company doesn’t maintain an individual structure.
A bolt-on may retain some aspects of its structure, such as its brand name, its customer relationships, its technological infrastructure, and its distribution channels. Quite often, the bolt-on company has reached the maximum potential it can on its own, and can only grow further by being acquired by a larger platform company.
Both types of acquisitions are beneficial to the platform company, and both can be beneficial to the bolt-on or tuck-in as well, as those smaller companies may be at the limits of what they can achieve on their own. As with an acquisition, both of these do have risks associated with them.
How Data Rooms Can be Beneficial to Mergers and Acquisitions
A data room is a physical or virtual space that consolidates all of the data used in a specific transaction or series of actions. Online data rooms are often used in connection with mergers and acquisitions. The online data room is populated with the selling company’s important documents: contracts, intellectual property, employee information, financial information and more. This online, virtual data room allows the selling company to share all of this information with the platform company and any interested private equity firms in a controlled manner that preserves confidentiality. The online data room keeps track of all transactions and actions taking place in the data room, making audit logs of all access points, allowing the seller to monitor when the online data room is being accessed, in a secure way.