Why Pricing Strategy Must Evolve Alongside Your M&A Strategy

M&A is a central pillar of the private equity playbook, especially in industrial markets where bolt-on acquisitions help platform companies scale faster, expand capabilities, and unlock cost synergies. While these deals can create real strategic and financial upside, one common and often overlooked pitfall can quietly erode value after the transaction closes: sticking with cost-plus pricing.

Cost-plus pricing is simple and familiar, but it ties prices directly to costs and a fixed markup. When acquisitions successfully drive cost reductions, this approach can backfire by automatically lowering prices—regardless of whether market conditions or customer value perceptions have changed. Instead of capturing the benefits of integration, companies may unintentionally give them away.

Consider a real customer example:

Platform Co’s COGS per unit = $5.36
Platform Co’s cost-plus markup = 40%
Platform Co’s price per unit = $7.50

After the add-on acquisition, Platform Co lowered its COGS by 10%. Now pricing looks like this…

Platform Co’s COGS per unit = $4.82
Platform Co’s cost-plus markup = 40%
Platform Co’s price per unit = $6.75

As a result of lower COGS, price per unit decreased $0.75 and profit per unit decreased $0.21. Platform Co unintentionally handed all the cost savings back to the customer.

This is why pricing must evolve alongside an M&A strategy. Market-based pricing focuses on customer value and competitive positioning, not internal cost structures. In many cases, acquisitions actually increase customer value through broader offerings, improved service, or enhanced capabilities—creating room to maintain or even improve pricing while preserving cost synergies.

For private equity-owned industrial companies, pricing is a critical value-creation lever.

Moving from cost-plus to market-based pricing helps ensure that the hard-earned benefits of M&A are captured, not automatically given away.