Is the spirit of “business transition,” from a generational perspective, best aimed at business owners in their 50s?

That thinking would currently put Generation X entrepreneurs in the sweet spot.

“Baby Boomers are exiting, and retiring,” said Nicolas Biancamano, managing partner of San Diego-based Pacifica Advisors.

“The market hasn’t fully transitioned into the next generation,” he said. “They don’t want to give up everything ꟷ they want to keep working.”

Biancamano said the oft-neglected lower middle-market businesses in particular can pose growth and transition challenges for entrepreneurs. “A lot of business owners try to do this on their own. They have a friend or competitor and can get taken advantage of. They think they can find a better deal [this way].”

This is where bolt-on acquisitions can come into play.

A bolt-on acquisition is when a business is added via private equity to one of the PE firm’s platform businesses. Usually, this means the PE firm will partner with a larger company in a particular market that can “bolt on” an acquisition. This provides complementary advantages that ideally allow for quicker integration into the larger company’s infrastructure, rather than managing a full-scale merger.

“Wealth is not only created at retirement,” said Biancamano. “The more attractive seller is willing to stay with a partner to grow. Bolt-on acquisitions can do this,” he said.

For the larger company, Biancamano asked: “Who better to partner with then the person who has already done this?”

Conversely, the add-on acquisition can give the acquired business “an HR and finance team,  a sales force, key account managers, and KPIs; [plus] the requirement for you to stay is not as important. It’s not necessary,” he said.

Biancamano said a client of his with a water restoration business that was acquired last year was offered a package to stay on; but after six months, he left and went on to buy another business.

“This is not venture capital. You’ll be working for the PE partner, but you’re in charge,” he said.

“There’s a big misconception about PE that you lose control. You don’t lose control if you perform.”

Another client case study Biancamano cited involved a packaging company.

“It was a big investment into the corrugated sector 10 years ago. I sold the company. The owner was 55 when I started the process with him, and throughout  , he was convinced that he could stay and do it for another five years. [In this scenario] you’ll make the same money…twice, [and can] take your leadership to the next level.”

The flip side is a case study with a decidedly different outcome.

Biancamano said he worked with a package carton business owner, who, despite an offer of $14 million, decided to invest $5 million in equipment.

“And then retail went down 10 percent. In 12 months,” he said. [The business owner] went from a $14 million offer to bankruptcy and got five cents on the dollar.”

This is why, for the PE partner, identifying the right targets for bolt-on acquisitions is critical, according to a checklist published by Pacifica Advisors. “It requires a strategic assessment of potential synergies, cultural fit, and alignment with long-term goals. This process involves not just financial due diligence but also a deep understanding of the target’s operational and strategic landscape.”

Pacifica's checklist identifies long-term success of bolt-on acquisitions as being measured through metrics such as ROI, market share growth, and customer base expansion.

However, the formula has the potential to be a win-win, according to Biancamano, due to a fairly straightforward formula.

“Ultimately, the capital risk is on the PE partner, and the labor risk is on you.”