# Bolt-ons *Price for the deal you'll actually run* --- You run a £150m specialist distributor. A small competitor in an adjacent vertical has come up. The founder mentioned it to your sales director eight months ago, and you and your CFO have been quietly working it ever since. Owner-operated, £18m revenue, EBITDA around £3m, no debt, no banker yet. The asking price is £25m. You do not have £25m sitting in cash. Your CFO has sketched a structure: £15m drawn from the acquisition facility, £5m of vendor rollover into a small ongoing stake, £5m deferred over three years against earn-out conditions. The bank has indicated the facility is there. The vendor has indicated he is willing to stay involved. The chair has asked for a recommendation by Thursday. The senior team is split. Your CFO is sceptical of the price. Your sales director thinks the cross-sell into the new vertical pays for itself inside two years. Your operations director is worried about the integration on top of everything else his team is carrying. You are leaning yes. --- Before you commit, ask what is missing from the case. The £25m is what the seller is asking. It is not what the deal will cost you. What is missing: twelve to eighteen months of senior management time on integration, in a business that already absorbs most of your [[Execution trap|senior management time]]. Whatever happens to the top five customers when ownership changes hands. Whatever happens to the operations director when the founder retires and the team starts wondering who they now report to. And the quality of the earnings. A business that has been prepared for sale has often had its costs trimmed, its working capital pulled in, and its capex deferred in ways that are perfectly legal and routine. The £3m of EBITDA, when the founder has been paying themselves below market for two years to dress the business, can quietly turn into £2.5m once you put it all back. The model in the board pack typically applies a five per cent risk haircut and calls it integration risk. The real number is closer to ten or fifteen per cent of the headline price. A £25m bolt-on that goes wrong is real damage. Capital lost, management bandwidth drained for a year, often staff and customers gone during the handover, sometimes a write-down the chair has to explain to the bank and the people who backed the deal. The business survives it, which is what doing deals at this scale gives you over a transformative one. Surviving is not the same as painless. --- What the deal will cost depends on which kind of deal it is. A leave-alone deal is roughly what the case says it is. You inherit the customers, the operations, the team and the working pattern, you collect the cash flow, and the integration work is paperwork: bank accounts, group reporting, audit harmonisation, twelve weeks of finance time and you are done. The upside is bounded by what the business already does. The risk is bounded too. A change-the-business deal is different, and is often where the strategic logic actually lives at mid-market scale. The reason the bolt-on in an adjacent vertical is interesting is rarely the cash flow at the asking price. It is that you can put your sales team into a market they could not reach on their own, or run the acquired customers through your operating processes, or take a product line you already understand and pour your channel behind it. The upside is real, and bigger than the leave-alone case. So is the work. Both modes can work. Being honest about which one this deal is matters because the price you can sensibly pay, and the terms you should structure, are very different. --- For a leave-alone deal, the asking price is roughly right and the work is mostly diligence: earnings quality, working capital, customer concentration, founder dependence, the usual list. A change-the-business deal asks for more. The price has to carry a margin of safety against the bandwidth cost, the integration risk, and the chance that the value you mean to create takes longer than your model assumes. If the leave-alone version is worth £25m, the change version is rarely worth more, given how much management you are committing to make it work. The terms have to align the seller to the version of the business you intend to own, not the version they have spent two years preparing to sell. Deferred consideration, earn-outs tied to retained customers and key staff, vendor rollover, retention for the operations team you actually need to keep. The plan has to discount the core. Senior management spent on integration is senior management not spent on the £150m core. If the model assumes the core grows at trend through the transition, the model is wrong. Build the version where the core flatlines for eighteen months and see whether the deal still clears. And the post-close plan has to exist before close, with named owners, sequenced moves and a budget for the bandwidth. *We will integrate sales by Q3, harmonise the operating processes by Q4, hold pricing through the transition* is a plan. *We will explore opportunities to leverage the platform* is not. --- [[Halma]] shows the leave-alone discipline at scale. Seventy per cent of their deals are bolt-ons in markets they already operate in, businesses they can read at sight, where they are not buying anything they will have to learn. The selection bar is high, return on capital has to clear forty per cent, and they turn down deals that look cheap on a multiple but would force a new operating model on them. They built a model in which the change-the-business deal never has to scale. [[Bergman & Beving]] ties the same logic to one ratio: EBITA over working capital, target forty-five per cent. A business that already clears it can be left alone, because the operating system is already running inside it. The filter at the front is what keeps every deal a leave-alone deal, and keeping them all leave-alone is what lets these decentralised acquirers run at the volume [[The thin centre]] describes. The mid-market operator buying an adjacent vertical to put a sales team behind it is running the other model, and what makes it work is different. --- Thursday still happens. The recommendation still has to be made. The question to answer before you commit is which deal this is, and whether the price and terms match it. Leave-alone: can you state what you will not change, and does the diligence support it. Change-the-business: where is the margin of safety in the price, what protections are in the terms, what does the core look like with management spread thin for eighteen months, and is the post-close plan written down with names against it. Both deals can work. The ones that go wrong are priced for one mode and run as the other. ---