How does an add-on acquisition premium affect the disaggregation?
The add-on premium is the amount a sponsor pays above the market multiple on an add-on acquisition. It reduces the multiple-arbitrage effect — the core argument for Buy-and-Build.
platform multiple 9.0x, add-on market multiple 6.0x. With a strategic premium of 20%, the effective add-on multiple rises to 7.2x. The multiple-arbitrage spread thus falls from +3.0x (without a premium) to +1.8x. At a 50% premium the arbitrage is gone entirely — the add-on then has to be a pure synergy case.
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| Occasion | Premium range |
|---|---|
| Strategic fit (market position) | +10–25% |
| Auction process | +20–40% |
| Family-owned (limited buyer pool) | +5–15% |
| Distressed (sponsor bargain) | −10% to +5% |
| Driver | Effect |
|---|---|
| Add-on EBITDA at the 9x platform multiple | +$45m EV ($5m × 9x) |
| Add-on premium cost (above market) | −$7m EV |
| Net multiple arbitrage | +$38m EV |
| Synergies (cost + revenue, long-term) | +$2–$4m EBITDA p.a. |
- Multiple arbitrage sold as the platform strategy without pricing in the premium cost.
- Synergies modeled as immediately realizable: typically 50–70% over 2–3 years.
Question: "How much premium would you pay?"
Answer: "In an auction process, up to +25%. With a clear strategic fit and synergies above 2x the EBITDA impact, up to +40%. Above 50% the multiple-arbitrage logic disappears — then a pure synergy case has to stand on its own"