Pricing Follow-On Equity for Tuck-Ins

March 10, 2025
by a searcher in New York, NY, USA
I’m working on a roll-up model and am trying to think through how to price follow-on equity and account for dilution.
Example: let's say we acquire a business with $1 million EBITDA, then acquire individual tuck-ins of $1 million for 5x EBITDA each. Then the consolidated platform exits for 10x.
This requires some equity financing in addition to debt financing with each acquisition.
• At what valuation would follow-on equity investors come in? Do you apply a multiple to the pro forma business, and I assume this would be a markup to the tuck-in multiple?
• How should I think about dilution for this follow-on equity?
• What return profile would investors be targeting?
• If we were to raise an SPV after doing our first deal, is it common to work out what the pro forma entry multiple would be ahead of time for dilution purposes for capital commitments?
Any practical frameworks or examples would be greatly appreciated!
from University of Pennsylvania in New York, NY, USA
from University at Albany, State University of New York in Delray Beach, FL, USA