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Tuck-in vs. Bolt-on Acquisitions

    
acquisitions

Tuck-in and bolt-on acquisitions typically occur when a larger, private-equity backed entity absorbs a smaller one during M&A activity, often in an attempt to gain specific skills or product capabilities or an expanded market. While the two acquisition types are similar on the surface -- and many people use the terms interchangeably -- slight differences in intent and the way the acquired assets are treated can be seen between tuck-in and bolt-on transactions.

What Is a Tuck-in Acquisition?

A tuck-in acquisition typically occurs when a large entity absorbs a smaller one. The two entities are typically within the same or related niches, though the smaller company may bring something new to the table such as a unique product or process.

In a tuck-in acquisition, the acquiring company already has all the operational aspects needed for a successful business, including distribution systems, inventory and a technology structure. It absorbs the smaller company into that platform, and the acquired company doesn't retain its individual structure.

Reasons for a tuck-in acquisition include adding resources to the existing company or growing market share. Examples of the types of resources smaller companies might bring to the table include knowledge, proprietary software, people, patents or a strong customer list. Some large companies engage in numerous tuck-in acquisitions for fast resource growth that doesn't rely on years of R&D. For example, Apple has added to its internal resources over the years through many small tuck-in acquisitions. This is actually very common in the technology sector, with corporate entities absorbing start-ups on a regular basis.

What Is a Bolt-on Acquisition?

A bolt-on acquisition often occurs for similar reasons as tuck-in acquisitions do, but the acquired company may remain intact to some degree because it's not being fully absorbed. Whether the brand continues to function under its own name depends on the specifics of the acquisition -- in cases where a smaller company has developed large goodwill for its name, it might be advantageous to keep it. In bolt-on cases, the acquired entity may continue to operate as an individual department or division under the umbrella of the larger company.

Usually, a bolt-on acquisition is good for both companies. The larger entity gains by expanding its market, product line or capability; the smaller organization gains by leveraging the economies of scale and new resources available under the larger platform. Often, companies that are acquired in a bolt-on merger have reached the highest point in the market they can on their own.

One example of a company having great success with bolt-on acquisitions is Coca-Cola. In 2007, its Mexican bottling division acquired Jugos del Valle, which is a dairy and juice beverage business. That led to opportunities for Coca-Cola to develop a presence in product categories adjacent to its existing business lines, expanding into juice and other niches in Latin America.

Benefits of Both Acquisition Types

Bolt-on and tuck-in acquisitions both provide the acquiring company with substantial resources and growth opportunities at a lower cost than from-scratch implementation would create. When successful, they can also increase revenues, expand market share and help position the acquiring organization for additional success in the future.

While any merger comes with risks, these types of acquisitions have less risk than others. This is especially true when the acquiring company or PE firm conducts the right level of research and has a plan for integrating the new assets appropriately.

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