Bolt-On Acquisitions: Are We Overlooking the Risks?
Last week, I attended ACG’s webinar “A New Season for M&A: ACG’s 2024 M&A Recap & 2025 Outlook” —an insightful deep dive into deal trends and what’s shaping the market. Huge thanks to Bob Dunn from GF Data and Ramsey Goodrich from Carter Morse & Goodrich for leading a sharp discussion.
A few big takeaways stood out to me:
- Exit multiples (TEV/EBITDA) in 2024 were down from the 2021 highs but rebounded from 2023.
- Exit volumes followed a similar trajectory, with bolt-ons dominating the market.
- Hold periods stretched from 4.5 years to 6.1 years.
- Tech led the pack with the highest multiples (8.1x) compared to manufacturing (6.9x).
But what really caught my attention was this: only 40% of companies acquired in 2024 were considered “above average performers,” compared to 66% in 2022. That’s a significant drop.
One convincing hypothesis to explain this is the increasing proportion of bolt-on acquisitions purchased more for their strategic fit than for their inherent performance. This approach also saves acquirers from paying hefty price premiums. Indeed, over 75% of buyouts in 2024 have been bolt-ons.
Are Bolt-Ons Getting a Free Pass in Due Diligence?
It’s normal for bolt-ons to receive less scrutiny than platform deals—they’re smaller, complementary, and often acquired for strategic reasons. But there’s a fine line between streamlined diligence and missing critical red flags. Based on the data, buyers may be giving these deals more of a free pass than they should.
The Real Risk? Overestimated Go-To-Market Synergies
Too often, bolt-ons are seen as easy add-ons, but when the integration play isn’t tight, any expected value addition disappears fast. Here’s where we see things go wrong:
- Cultural Misalignment – Differences in leadership style or sales approach can create major friction. What works for the platform company might not translate to the bolt-on, leading to inefficiencies and even talent attrition.
- Integration Headaches – Misaligned tech stacks, pricing models, or incongruous sales motions can slow down momentum—and with that, time to value. Without clear integration plans, the add-on can become a drag rather than an accelerator.
- Overestimated Revenue Synergies – Just because two companies serve the same market doesn’t mean customers will automatically buy more. If the go-to-market strategy isn’t well thought out, cross-sell opportunities might not materialize as expected.
Finding the Right Balance in Due Diligence
With lower middle-market bolt-ons, the level of scrutiny should be targeted but rigorous, ensuring the acquisition truly complements the platform company without unnecessary risks. Here are four key diligence areas we recommend:
1. Go-To-Market (GTM) Fit & Revenue Synergies
Key Question: Does the acquired company truly integrate into the platform’s sales motion, or are synergies being overestimated?
What to Look For:
- Customer Overlap – Are customers and GTM motion the same, or does the bolt-on require a different buyer persona and sales cycle?
- Process Alignment – Can the existing sales team sell both products/services, or will integration require significant retraining and retooling?
- Churn & Retention Metrics – Are the bolt-on’s customers sticky, or will integration create retention risks?
Case Study:
A lower middle-market national industrial services company acquired a regional provider, expecting cross-sell opportunities—but failed to account for differing procurement processes, limiting actual revenue synergies.
2. Cultural & Operational Fit
Key Question: Will differences in leadership style, decision-making, and employee expectations create integration friction?
What to Look For:
- Founder & Leadership Dynamics – Does the acquired team’s leadership style align with that of the PE-backed platform?
- Compensation & Incentives – Are there misaligned commission structures or pay gaps that could lead to attrition? Pay close attention to sales commission structures.
- Decision-Making Speed – Does the bolt-on operate at the same pace as the platform company? More importantly, are they willing to change?
Case Study: A PE-backed software firm bought a smaller engineering-driven company, but cultural misalignment led to key talent exits, eroding expected synergies.
3. Financial & Margin Quality
Key Question: Is the bolt-on actually accretive, or does it introduce unexpected margin dilution?
What to Look For:
- Customer Concentration Risk – Are 20%+ of revenues tied to a single client?
- Gross Margin Stability – Are product/service margins consistent, or is there hidden price compression?
- Working Capital Needs – Does the business require more cash than expected to operate smoothly post-close?
Case Study: A niche manufacturing bolt-on looked profitable but had unsustainable margins due to underpriced legacy contracts. Once integrated, profitability declined.
4. Systems & Integration Readiness
Key Question: How much effort will it take to fully integrate this bolt-on into the platform’s tech stack and operational workflow?
What to Look For:
- ERP & CRM Compatibility – Can the acquired business easily integrate into existing financial and sales systems? It is essential to take this cost into account early on.
- Data Quality & Reporting – Are financials and KPIs tracked in a way that aligns with the platform?
- Tech Debt & IT Risks – Are there outdated systems or cybersecurity vulnerabilities that could create integration delays?
Case Study: A healthcare services company acquired a regional player with mismatched IT systems, requiring a costly and prolonged integration effort.
Final Takeaway
Bolt-on acquisitions can be powerful growth accelerators, but only with the right diligence. At Craig Group, we help private-equity-backed portfolio companies take a strategic, data-driven approach to M&A—ensuring that every acquisition aligns with revenue growth objectives and delivers real value. The key isn’t just finding the right fit—it’s knowing how to integrate for lasting success. Want to learn more? Reach out.
Want to hear more from Ajay? Connect with him on LinkedIn.
