One plus one equals three. No, it’s not new wave ‘common core’ math. It’s actually an old school M&A strategy that’s found new favor in the private equity environment, particularly as company valuations reach all-time highs and organic growth has been stifled by a low-growth economic environment.

Private equity firms are spending increasing percentages of their $842 billion in dry powder on add-on acquisitions, hoping that the sum of the existing portfolio company plus its complementary investment will be greater than its individual parts. Of course that’s the hope - that buying companies in like industries will lead to synergies that lower costs, increase returns and create more profitable businesses with better dividend recap opportunities and exit options.

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