Due Diligence for Bolt-on Acquisitions

According to KPMG’s PE mid-market report (January 2024), bolt-ons comprised 65% of deals by volume in 2023 

This figure is likely to be even higher in the industrials & built environment sectors considering the number of sub-sectors that are highly fragmented and ripe for consolidation, including TICC, facilities management and fire. Given the increasing importance of technology across numerous sectors (e.g. smart buildings, industrial automation), we are also likely to see bolt-ons to acquire or enhance tech capabilities.

From a CDD perspective, bolt-ons often require a shift in emphasis and prioritisation versus buyside CDD on platform deals. Full CDD may not be required, with areas such as customer referencing taking on greater relative importance versus areas like market sizing. Many bolt-ons are also too small or unsophisticated to track KPIs at a granular level or have a full 3-5 year business plan.

Armstrong’s industrials and built environment team has carried out CDD on 15+ bolt-on acquisitions since 2020. These have ranged from full-scope CDD to focused customer referencing or expansion strategy work.

Based on our experience, key considerations for investors and portfolio company management teams to consider when scoping CDD include:

  • Why are we buying this business? Based on our investment thesis, what are the major gaps in our understanding of the target?
  • How well do we already know the market? How close is the target’s market (sector, geography, products/services) to the ones we already serve?
  • How many customers does the target have, and how comfortable do we need to be on the strength of customer relationships?
  • How professionalised is the target? How well do they track their KPIs, and is detailed data analysis possible?
  • Is the target’s business plan ‘diligence-able’, and if it is, then do we need to diligence it as part of our acquisition thesis?

We believe that any CDD should include a substantial customer referencing component, and that this should be the core module in any bolt-on CDD scope. Beyond this, more flexibility is required to choose the areas that are most suitable and useful for each case.

Speak to a member of the team about how to structure CDD for bolt-on acquisitions, and how we can help.

Matt McNally

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+44 7894 736 523

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Brandon Matthews

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+44 7771 401 723

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