An add-on acquisition is a smaller company purchased and integrated into a larger existing "platform" business. Add-ons are typically bought at low multiples and merged in, raising the combined company's scale, earnings, and blended valuation.
Worked example
| Business | SDE | Multiple | Price |
|---|---|---|---|
| Platform (existing) | $1,000,000 | 4.0× | $4,000,000 |
| Add-on (acquired) | $250,000 | 2.7× | $675,000 |
| Combined | $1,250,000 | 4.0× | $5,000,000 |
The $250k of add-on earnings, bought at 2.7×, is now valued inside the platform at 4.0×, a swing of roughly $325,000 in value created on paper.
Why it matters when buying a business
Add-ons are the engine of a roll-up. Because bigger companies command higher multiples, buying small and combining creates multiple arbitrage. The catch is integration: the value only shows up if the platform can absorb the add-on's customers and overhead cleanly.
