Welcome to The Business Buying Academy with Sieva Kozinsky. Here's what we have in store for you today:

1. How to buy companies like the pros
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2. He built a portfolio of 190 apartment buildings

🔑 How to buy companies like a private equity firm

Want to buy businesses like a multi-billion dollar PE firm?

I'm going to break it down for you.

One of the most common private equity strategies is acquiring a platform company, and then acquiring other complementary businesses to grow the group of businesses into a dominant market leader.

You've likely heard the term "platform" thrown around - but today, I'm going to break down what it means and show you how it fits into the strategy of a private equity firm.

PE firms often buy a foundational company (the “platform”) in a fragmented or high-potential industry and uses it as the cornerstone to build a larger, more competitive entity.

A private equity platform is a company that is purchased by a private equity group who intends to grow that company using capital from limited partners (or investors). The private equity group will grow that platform by using it to acquire other companies, or “add-ons,” in a related industry.
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As the platform acquires its add-ons (also referred to as "roll-ups"), its value will increase. After 3-7 years have passed and several acquisitions have been made under the platform, the private equity group will sell the platform at a higher value.
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- Midstreet.com

After you buy the platform company, you acquire complementary businesses, then "integrate operations in order to drive efficiencies", as a PE partner would say in their buzzword-filled pitch to LPs.

The goal of this strategy is to create a dominant player in an industry.

A rollup strategy (which you should learn about from this interview I did with Brian Wolfe) can be similar, but doesn't necessarily involve a traditional platform business. In Brian's case, he ended up buying larger companies later on, meaning he didn't have a true "platform" business that every subsequent acquisition folded into.

Here are the key parts of pulling of a platform creation strategy:

• Identifying a Platform: Selecting a strong initial company with a solid market position, management team, or operational framework.
• Add-On Acquisitions: Acquiring smaller businesses that enhance the platform’s capabilities, geographic reach, or customer base.
• Operational Integration: Streamlining processes, leveraging shared resources, and optimizing costs to boost profitability.
• Value Creation: Driving growth through new products, markets, or digital transformation, positioning the company for a high-value exit.

This strategy thrives in industries with fragmentation, where smaller players lack the scale to compete effectively, or in sectors ripe for innovation.

Platform creation delivers value for investors through several levers:

• Economies of Scale: Combining businesses reduces costs in procurement, operations, and administration.
• Market Dominance: A larger entity can command greater pricing power, customer loyalty, and supplier relationships.
• Synergies: Integrating complementary businesses unlocks revenue opportunities, such as cross-selling or new product offerings.
• Attractive Exits: A scaled, market-leading company is more appealing to strategic buyers or public markets, commanding higher valuations.

Let's look at some examples:

Thoma Bravo’s Creation of ConnectWise in IT Management Software

Thoma Bravo, a leading private equity firm with $180 billion+ under management, has a storied history of platform creation in technology.

In 2019, it acquired ConnectWise, a provider of software for managed service providers (MSPs), as its platform in the IT management space. Thoma Bravo paid about $1.5 billion.

Recognizing the fragmented nature of the MSP software market, Thoma Bravo pursued a series of add-on acquisitions, including:

• Continuum (2019): A remote monitoring and management software provider, enhancing ConnectWise’s automation capabilities.
• ITBoost (2020): A documentation platform, adding value for MSPs managing client data.
• Perch Security (2020): A cybersecurity solution that improved ConnectWise’s security offerings.
• Axcient (2024): Data protection and disaster recovery provider.
• ...and several more.

By integrating these businesses, Thoma Bravo created a comprehensive suite of tools for MSPs, creating cross-selling and operational efficiencies.

KKR and Epicor Software in ERP Solutions

KKR acquired Epicor Software, an enterprise resource planning (ERP) software provider, in 2020 for $4.7 billion, establishing it as a platform in the enterprise software market.

They identified ERP as a fragmented industry with growing demand, especially for cloud-based products. And to build out Epicor, KKR executed add-on acquisitions, including:

• ShopWare (2021): A retail management software provider, expanding Epicor’s reach into the retail sector.
• Grow Inc. (2022): A business intelligence platform, enhancing Epicor’s data analytics capabilities.

KKR also invested in "digital transformation", another buzzword PE loves to throw around, shifting Epicor’s offerings to the cloud and improving customer retention. This platform creation strategy transformed Epicor into a leading ERP provider, positioning it for a potential high-value exit.

Final Word

If you're interested in learning more about how private equity firms picks industries and identify platform companies to acquire, I highly recommend you check out my interview with John Caple. He's raised nearly $2 billion to buy midmarket "boring" businesses, and has successfully acquired and added onto several platform companies. You can watch it here or listen to it here.

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🔑 How do you buy $5 billion worth of real estate?

My friend Jeffrey built a real estate company that owns and manage $5 billion in assets with a portfolio of 190 properties.

The lessons were hard-won over a few decades in the business.

He nearly lost everything a couple of times, but learned to manage risk while pursuing aggressive growth.

He told me how he got started in the business, how he found his initial niche, and tons of secret tips on how to buy, analyze, and manage real estate. Listen to this one if you want to build your own real estate portfolio.

​Watch on YouTube​

​Listen on Spotify​

​Listen on Apple Podcasts​

Have a great day,

Sieva

P.S. - Are you hiring? Get started with top global talent from Somewhere (I'm a customer and investor)

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Disclaimer: nothing here is investment advice. Please do your own research. The information above is just for information and learning.

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