Add-on acquisitions: how PE and strategic buyers find targets

Add-on acquisitions: how PE funds and strategic buyers find the right targets

Add-on acquisitions have become a standard strategy in private equity. Funds that build a platform company and scale it through targeted acquisitions generally achieve higher exit multiples than funds that rely on organic growth. Yet the decisive question is the same as ever: how do you find suitable add-on targets before your competitors do?

This article shows how professional buyers set up a systematic search process, which criteria really matter when qualifying targets, and how the most precise origination tool for the German, Austrian and Swiss markets speeds up a process that used to take weeks.

What is an add-on acquisition?

An add-on acquisition is the targeted purchase of a company by an existing platform company, often as part of a private equity strategy. The goal: to strengthen the platform through complementary capabilities, new customer segments, geographic expansion or additional revenue.

Unlike the classic bolt-on strategy, which is often piecemeal and opportunistic, a well-structured add-on strategy can be planned, repeated and scaled.

Typical add-on strategies in private equity:

• Consolidation platform: A fund builds a platform in a fragmented market and makes targeted acquisitions of smaller competitors to gain market share.
• Product or service extension: An existing company acquires businesses with complementary products or services.
• Geographic expansion: The platform grows into new regions or countries through acquisitions, without having to build from scratch.
• Technology acquisition: Technology or digital capabilities that cannot be built in-house are secured through acquisition.

Why target sourcing determines success or failure

The most common mistake in add-on strategies lies not in integration but in target sourcing. If you rely solely on deal intermediaries, M&A advisors and publicly marketed processes, you compete against many bidders at once and pay correspondingly high multiples.

The real competitive advantage comes from proprietary deal flow: access to companies that are not yet on the market, have not mandated an advisor and have not yet launched a formal sale process.

Three factors that make the difference:

1. Early outreach: If you contact a potential seller one to two years before the actual decision to sell, you face hardly any competition and can build a genuine relationship.
2. Systematic search: Instead of waiting for inbound offers, you screen the market proactively and in a structured way.
3. Data depth: The better the underlying data (revenue, ownership structure, age of the managing directors, business model, revenue structure), the more targeted your outreach.

Criteria for target identification: what really matters

Before the actual search process begins, you need to define a clear search profile. The key dimensions:

Financial criteria

• Revenue size: Classic add-on targets among Mittelstand companies (Germany’s mid-sized, typically owner-managed businesses) often have annual revenue of between €5m and €50m.
• EBITDA margin: Indicates profitability and scalability. Ideally stable over several years.
• Growth momentum: Is the company growing organically? Or is it operating in a stagnating sub-market?

Structural criteria

• Ownership structure: Owner-managed companies with a shareholder-managing director aged over 55 are statistically the most likely to sell.
• Number of shareholders: A large number of shareholders significantly increases the complexity of the transaction.
• Debt structure: Existing bank liabilities, shareholder loans and silent partnerships (stille Beteiligungen) must be known.

Market position and competition

• Niche strength: Does the company dominate a clearly defined niche, or is it a me-too player?
• Customer concentration: More than 30% of revenue from a single customer is a warning sign.
• Recurring revenue: Maintenance contracts, subscriptions or service agreements significantly increase the quality of the business model. More on this in the section on business model analysis below.

Digital maturity

• Website quality: Gives an indication of marketing savvy and digital maturity.
• Online presence: Review platforms, LinkedIn activity, social media.
• E-commerce share: Relevant for B2B companies with a product offering.

Geographic criteria

• Federal state, region, postcode radius around the platform
• Proximity to existing sites (for synergies in logistics or sales)
• International presence (e.g. exports, foreign subsidiaries)

The systematic search process: from longlist to first meeting

A professional add-on search process follows a clear structure that has proven itself in practice.

Step 1: sharpen the search profile

The search profile is the foundation for everything. It defines the sector, revenue range, geography, ownership criteria and strategic fit factors. A search profile that is too broad leads to an unmanageable longlist. One that is too narrow artificially restricts the market.

The key is to formulate the search profile in natural language, not in industry codes or classification systems. A search for “industrial maintenance service providers in Bavaria with a share of service contracts” captures the market more precisely than rigid filter logic.

Practical tip: start with a broader profile for the first longlist, then refine it based on your initial review.

Step 2: build a database-driven longlist

Building a qualified add-on longlist used to mean time-consuming research across commercial register (Handelsregister) extracts, Federal Gazette (Bundesanzeiger) entries and manual Google searches. Today, the most precise origination tool for DACH does this work in minutes.

ProxDeal searches more than 7 million company profiles from Germany, Austria and Switzerland using free text. That means no looking up industry codes and no complex filter logic. Describe in natural language what you are looking for, and you immediately receive a qualified list of results, including financial data, ownership structure, business model and a revenue assessment for each company.

Try ProxDeal: Run your own search profiles directly in the platform and build your first longlists in minutes. Get started now.

This way, you can put together a qualified longlist in a few minutes rather than weeks.

Step 3: qualify the longlist

The raw longlist is cleaned up in an initial screening round. Obvious grounds for exclusion: listed companies, group subsidiaries, companies with known financial problems, targets that are too small or too large, and a lack of geographic fit.

The result is a qualified midlist containing the most promising candidates.

Step 4: in-depth research on shortlist candidates

The most attractive companies then undergo a more intensive analysis:

• Annual financial statements for the last three years (Federal Gazette, direct enquiry, commercial register)
• Shareholder structure and ownership interests
• Existing encumbrances
• Customer structure (publicly available references, tender history)
• Management background (LinkedIn, annual reports, press releases)
• Previous transaction history (acquisitions, disposals, investments)

Step 5: initial contact and relationship building

The first contact with a potential seller is the most sensitive step. With owner-managed Mittelstand companies, a personal, tailored approach is advisable.

Outreach is successful when it:

• clearly communicates who is reaching out and with what background
• acknowledges the company and its achievements in concrete terms (showing genuine research, not mass outreach)
• does not presuppose an immediate willingness to sell, but opens a dialogue
• spells out what the business owner stands to gain from a conversation

Step 6: qualification and prioritisation

After the initial conversations, candidates are prioritised by interest, timeframe and strategic fit. A typical categorisation:

• Hot: Willing to sell within the next 12 months, good strategic fit
• Warm: Interested, but no concrete time horizon
• Cold: Not interested, but kept in the CRM for later follow-up

Common mistakes in add-on target sourcing

Approaching the market too late: If you only start searching once the platform investment has closed and the pressure to deploy capital is mounting, you have little time and end up overpaying.

Dependence on marketplaces: Intermediaries bring structured processes with many bidders. If you rely on proprietary deal flow, you have to do the searching yourself.

No systematic CRM: Target information kept in Excel lists or email folders gets lost. A structured CRM or a dedicated deal flow tool is not a luxury but a necessity.

An overly broad search profile without prioritisation: If you have 300 targets on your list but no capacity for outreach, you squander the advantage of early identification.

Insufficient data depth: Target identification without an assessment of the business model, revenue structure and ownership structure leads to inefficient outreach and high drop-out rates. If you don’t know whether a target works on a project basis or with recurring contracts, you cannot conduct a well-informed first conversation.

Add-on vs. bolt-on: what is the difference?

The terms are often used interchangeably, but they carry different connotations:

In German-speaking M&A practice, “add-on” is generally used for any acquisition made as part of a platform strategy, regardless of size.

How ProxDeal supports the add-on search process in practice

ProxDeal is the most precise origination tool for the DACH region. With more than 7 million company profiles from Germany, Austria and Switzerland, the platform enables a depth of analysis that traditional company databases cannot match – without industry codes or complex filter screens, simply via free text.

Free-text search instead of filter logic: Instead of industry codes or rigid filter combinations, you describe in natural language what you are looking for. “B2B service providers for building services engineering in southern Germany with an identifiable share of maintenance contracts” immediately returns relevant hits from the DACH universe. ProxDeal has developed the most precise company search for the DACH region.

Financial data and annual financial statements: For GmbHs (limited liability companies) subject to disclosure requirements, revenue, headcount and balance sheet data are available without laborious manual research in the commercial register.

Shareholder structure: The number of shareholders (where available) and ownership interests can be viewed and filtered directly.

Export and API: Longlists can be exported to Excel or transferred directly via API into existing CRM and deal flow systems.

Digital signals: Website data, social media presence and other digital indicators allow an initial assessment of digital maturity.

Business model analysis: what ProxDeal provides for every target

A key difference from traditional company databases is the depth of business model information that ProxDeal delivers at the level of the individual company. For pre-qualifying add-on targets, the following data points are particularly relevant:

Type of business model: ProxDeal automatically analyses whether a company operates in B2B or B2C, and whether it is a platform, a service provider, a product manufacturer or a trading business. For PE investors, this distinction is central: a B2B service company with recurring contracts has a fundamentally different risk profile from a B2C retailer with transaction-based revenue.

Revenue structure: The platform shows which types of revenue can be identified for a target. It distinguishes between project business, maintenance and service contracts, licence and SaaS models, subscription structures and purely transactional revenue. Recurring revenue is one of the most important quality indicators for a target because it directly affects the predictability of cash flow and therefore the financeability of a transaction.

USP and market positioning: ProxDeal extracts what a company bases its market position on: technological uniqueness, certifications, patents, a geographic niche, privileged access to customers or long-standing supplier relationships. In initial qualification, this data point answers the decisive question: does this target have a defensible competitive advantage?

Products and services in detail: Instead of a generic industry classification, ProxDeal outputs specific product and service categories. What does the company actually sell? Which services does it offer? This information comes from an AI-assisted analysis of publicly available sources and is presented in a structured format.

Customer segments: ProxDeal identifies whether a target primarily serves large corporates, SMEs or public-sector clients, and whether its business is regional, national or international in focus. Customer segment overlaps with the platform can signal integration difficulties. Complementary customer segments mean cross-selling potential.

Practical example: A PE fund is looking for add-on targets for its platform in industrial maintenance services. The fund enters what it is looking for into ProxDeal as free text: B2B service companies, maintenance of technical installations, focus on Bavaria and Baden-Württemberg, an identifiable base of service contracts. The result is a pre-qualified longlist in which it is already clear at database level which targets have recurring revenue, which work purely on a project basis and which candidates hold a clearly identifiable niche position. Manual in-depth research then focuses solely on the truly relevant candidates.

As a result, longlist screening that used to take two to three weeks can be completed in a few hours.

The article Corporate development with DACH company data describes how corporate development teams use ProxDeal for strategic market analysis and competitor monitoring.

FAQ: Target sourcing for add-on acquisitions

Conclusion: systematic add-on sourcing as a competitive advantage

Add-on acquisitions don’t happen by chance. If you find the right targets before they enter a structured sale process, you pay less, have the stronger negotiating position and ultimately achieve higher returns.

The key lies in three elements: a clear search profile in natural language, data-driven longlist building that includes business model and revenue analysis, and consistently building relationships with potential sellers long before a specific sale process begins.

ProxDeal is the most precise origination tool for the DACH region and puts proprietary deal flow within reach even for teams without large research resources. Free text instead of filter logic, business model analysis instead of industry codes, 7 million profiles from Germany, Austria and Switzerland.

Find add-on targets now: Try ProxDeal free of charge and build your first longlists in minutes. No WZ codes, no hassle – simply describe what you are looking for. Get started at proxdeal.com