Add-ons as a percentage of M&A deals have increased over time; the prevalence and importance of add-ons is a trend that we don’t see slowing.

In our private equity practice at Strategex, we have noticed increased caution around platform investments. This has really highlighted the importance of having a strong add-on strategy.

The most successful add-on deals we see start with an assessment of the platform company and whether it has earned the right to grow.

The fundamental question is “Has the platform company earned the right to grow?” When we see this question being missed, it’s usually an indicator of future failure. Platform companies should not prioritize inorganic growth when they have not secured their core business.

Beyond financial evaluation, validate three core principles to determine if a company has earned the right to grow.

  1. You must have a secure and loyal customer base. We like to see a best-in-class net promoter score with the majority of key accounts stating an intent to continue working with the platform over the next few years. In our analyses, we find that the top of the customer base generates 90% or more of a company’s revenue. If one of these key accounts is at risk, all focus needs to be on retention because we can't afford to lose one.
  2. Ensure there are no systemic issues with the customer experience. For example, if there are major issues with the product or the service model then invest in the core—and correct those issues. Add-ons just add complexity, and often exacerbate underlying issues.
  3. Make sure to have the majority of wallet share with top accounts. If we’re not winning their spend for our core products and services, then a much easier and faster way to create value is to just win more of their business. Only after we have maximized the value of the core should we start thinking about investments into adjacent spaces.


Hunting for an add-on, especially in today’s environment, is not just about finding a good asset at a good price. It’s about making sure we’re taking a customer-centric approach to 1) ensure we have a strong foundation for expansion, and then 2) identify add-on targets that fit with our current customer base and service offering.

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