Your 𝗟𝗲𝘃𝗲𝗿𝗮𝗴𝗲𝗱 𝗕𝘂𝘆-𝗜𝗻 — demystifying Private Equity one term at a time.

Tonight's term:

"𝗽𝗹𝗮𝘁𝗳𝗼𝗿𝗺"

———

When a private equity firm makes an investment,

they generally have a "thesis" in mind.

It could be a certain industry or type of company.

For example, 𝘺𝘰𝘶𝘳 thesis might be "invest in tech stocks."

———

So let's assume the PE firm's thesis is "plastics manufacturing."

The PE firm will make it's 𝘪𝘯𝘪𝘵𝘪𝘢𝘭 investment in an industry-leading company in the "plastics manufacturing" space.

This is called the "𝗽𝗹𝗮𝘁𝗳𝗼𝗿𝗺" investment.

The first one. The anchor. The flagship deal. The 𝗽𝗹𝗮𝘁𝗳𝗼𝗿𝗺.

(btw, it's 𝘶𝘴𝘶𝘢𝘭𝘭𝘺 an industry-leader, but doesn't have to be).

From there, the PE firm will look to acquire "add-ons,"

which are (𝘶𝘴𝘶𝘢𝘭𝘭𝘺) smaller companies 𝘢𝘭𝘴𝘰 in the "plastics manufacturing" space,

and combine these into one company — often called a "roll-up strategy."

(*𝘣𝘵𝘸, 𝘮𝘰𝘳𝘦 𝘰𝘯 "𝘢𝘥𝘥-𝘰𝘯𝘴" 𝘪𝘯 𝘢 𝘥𝘪𝘧𝘧𝘦𝘳𝘦𝘯𝘵 𝘱𝘰𝘴𝘵).

Normally, the management team at the 𝗽𝗹𝗮𝘁𝗳𝗼𝗿𝗺 company will manage the "rolled-up" business as well.

Together, the 𝗽𝗹𝗮𝘁𝗳𝗼𝗿𝗺 company and PE firm will work together to grow the "rolled-up" business and sell it to a new buyer, usually 3-7 years down the road.

But, it all starts with that initial investment — the 𝗽𝗹𝗮𝘁𝗳𝗼𝗿𝗺.

—Chris

If and when the time is right, I offer refreshingly straightforward Financial Modeling Courses for FP&A and Private Equity Professionals that have been recognized all over the world.  Check them out if you're interested (if not, that's cool too 👍).  Just click here.