The anniversary rule, the pro forma alternative, and the half-year comparison that turns an acquisition into organic growth.
Organic growth compares like with like: revenue from businesses the group owned in both periods, month for month, with each acquisition excluded until its first anniversary of ownership. On an illustrative buy-and-build whose reported revenue rose from 112.0 to 141.8 million, 26.6 per cent, organic growth is 4.1 per cent. The other 22.5 points were bought, and the most common error in the calculation would report 15.4 per cent.
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In a buy-and-build the reported growth rate is mostly a measure of how much the platform spent. Lenders, boards and the eventual buyer all want the number underneath it: how fast the businesses grow once they are owned. That number is simple in principle and easy to get wrong in practice, because acquisitions land part-way through a year and a half-year of revenue compared with a full year looks like growth.
| Business | Owned from | Full-year 2025 | Full-year 2026 |
|---|---|---|---|
| Platform | before 2025 | 100.0 | 104.0 |
| Add-on A | 1 July 2025 | 24.0 | 25.2 |
| Add-on B | 1 April 2026 | 16.0 | 16.8 |
Each business grows on its own: the platform 4.0 per cent, both add-ons 5.0 per cent. Nothing in the case is hidden; the question is only how the consolidated accounts present it.
The group consolidates each add-on from the day it is bought. In 2025 that is the platform plus six months of A: 100.0 + 12.0 = 112.0. In 2026 it is the platform, a full year of A and nine months of B: 104.0 + 25.2 + 12.6 = 141.8. Reported growth is 141.8 ÷ 112.0 − 1 = 26.6 per cent, an increase of 29.8 million.
Organic growth = revenue this period from months also owned in the prior period ÷ revenue in the prior period − 1
Base 2025: platform 100.0 + A July to December 12.0 = 112.0
Current 2026: platform 104.0 + A July to December 12.6 = 116.6
Organic growth = 116.6 ÷ 112.0 − 1 = 4.1 per cent
In Excel, with monthly revenue by business in rows and an ownership flag per month, =SUMPRODUCT(Rev_2026,Owned_2025,Owned_2026)/SUMPRODUCT(Rev_2025,Owned_2025,Owned_2026)-1, where each flag is 1 if that month was owned in that year.
A's revenue for January to June 2026, 12.6, is excluded: the group did not own those months in 2025, so there is nothing to compare them with. B is excluded entirely, because it has not reached its first anniversary. From July 2026 A joins the comparable base, and from April 2027 so does B.
| Component | Amount | Growth points |
|---|---|---|
| Organic (comparable months) | 4.6 | 4.1% |
| Acquired: A, January to June 2026 | 12.6 | |
| Acquired: B, April to December 2026 | 12.6 | |
| Acquired, total | 25.2 | 22.5% |
| Reported | 29.8 | 26.6% |
Pro forma growth restates both years as if every business had been owned for the whole of both: 100.0 + 24.0 + 16.0 = 140.0 in 2025 and 104.0 + 25.2 + 16.8 = 146.0 in 2026, growth of 4.3 per cent. It answers a slightly different question, how fast the current portfolio of businesses is growing, and it uses revenue from before the group owned the add-ons, which comes from the seller's accounts rather than the group's. Lenders often prefer it for covenant definitions; boards and buyers usually ask for the anniversary version, because it measures only what happened under the current owner. Either is defensible if it is labelled. A number between them that is labelled neither is not.
The test of a correct organic calculation is that the timing of a deal cannot move it. Moving B's completion date through 2026:
| B acquired | B revenue consolidated | Reported revenue | Reported growth | Organic growth |
|---|---|---|---|---|
| 1 January | 16.8 | 146.0 | 30.4% | 4.1% |
| 1 April | 12.6 | 141.8 | 26.6% | 4.1% |
| 1 July | 8.4 | 137.6 | 22.9% | 4.1% |
| 1 October | 4.2 | 133.4 | 19.1% | 4.1% |
Reported growth swings by more than eleven points on a date chosen by lawyers. Organic growth does not move. And if A's revenue fell 10 per cent in 2026, to 21.6, reported growth would still be 23.4 per cent while organic growth would drop to 2.5 per cent: the anniversary method picks up a struggling add-on in its second half, which the reported figure buries.
Treating an add-on as organic because it was in the group on 1 January. A was owned at the start of 2026, so it is tempting to include all of its 2026 revenue in the comparable base: (104.0 + 25.2) ÷ 112.0 − 1 = 15.4 per cent. That compares twelve months of A with six. Of the 17.2 million apparent increase, 12.6 is A's January to June revenue, months the group did not own a year earlier and is consolidating for the first time.
Two other errors are common. The first is reporting only the platform's growth, 4.0 per cent here, which ignores how the add-ons perform once owned; in a mature buy-and-build the add-ons can be half the group. The second is using the add-ons' budgeted revenue at signing as the prior-year base, which credits management with whatever the seller's projection missed. The same like-for-like logic applies to property portfolios, as in same-store NOI growth.
Organic growth is revenue from months owned in both periods, divided by the same months a year earlier. On this platform it is 4.1 per cent, against 26.6 reported, and the date of the next acquisition cannot change it. What the 22.5 bought points were worth is a separate calculation: the add-on EBITDA, the price paid and the integration cost, set out in how to calculate multiple arbitrage in a buy-and-build. The Private Equity Operating Partner places that question inside the value creation bridge, and the free workbook for this case shows how a value creation deck overstates the acquisitions bucket when the price of the add-ons is left out.
Organic growth, on the anniversary rule, compares only revenue from businesses owned in both periods, month for month. Pro forma growth restates both years as if every business had been owned throughout. In the illustrative case the first gives 4.1 per cent and the second 4.3 per cent, from 140.0 to 146.0. Both strip out acquisitions; pro forma also captures the acquired companies' growth before ownership, which the group did not earn.
It should not, and that is the test of a correct calculation. Moving the second add-on from 1 January to 1 October changes reported growth from 30.4 to 19.1 per cent, because the group consolidates between 16.8 and 4.2 million of its revenue, but organic growth stays at 4.1 per cent in every case.
Because a buyer pays a multiple for growth it can expect to continue, and only organic growth continues without more acquisitions and more capital. A platform reporting 26.6 per cent but growing 4.1 per cent organically will be valued as a 4 per cent grower with an acquisition engine attached, and the buyer will want to see the cost of each acquisition before crediting it.
This article is one calculation from The Private Equity Operating Partner. The book takes the same case from first principles to the decision, chapter by chapter, and every figure it prints is a live formula in the free companion workbooks.
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