What Is A Roll-Up?

Back in the 80s, this company merger strategy was more popular, but it was associated with bad experiences, as many ended up not making any significant profit. That theme is making a comeback and roll ups should be approached with caution. They won’t work for everyone, each situation needs to be analyzed in particular. If roll ups are the right choice for your company, they can be very profitable.

Why People Do Roll-Ups

Now, let’s move on to why roll-up might benefit you.

What Would Be The Benefits Of A Roll-Up?

One of the important components to ensure a good roll-up is the value creation proposal. If the roll-up does not improve the company, there may be no multiple arbitrages in value creation. Besides maximizing value, the company must also pay attention to whether the roll-up will increase EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization).

These are the things a company can achieve by developing and executing a successful roll-up strategy. It is possible to increase the profit margin of all the companies involved. A roll-up could also bring more to the table beyond the basics if it is invested in bringing professional management, creating systems to improve fragmented companies, and launching more product sales.

Aggregation In Roll-Ups

This scenario is more likely because that’s what you know; you’ve seen the opportunities there and you know the players. I’m not saying you can’t identify opportunities in an industry that you don’t have experience in. Of course, you can! After all, you’re a brilliant entrepreneur! I’m just saying I’ve seen roll-ups work more when it’s private equity money coming in — identifying the space and hiring the right people.

Aggregation has proven to be more successful in industries that are less efficient. This includes industries where an innovative solution could be applied to make operations more efficient or where there’s a gap between the best and the rest. If you’re jumping on this roll-up opportunity, your target should be companies from industries where there’s a dearth of professional management. You will thrive by recognizing chaos and potential for improvement.

At the time of negotiation, be aware that the company in the roll-up must pay a lower multiple than the projected IPO valuation multiple and also less than the average trading multiple.

  • Model — you need to know what the model is. Do you think you would be happy with this model going forward?
  • Management style — can they pull off the roll-up?
  • Risk management — you need to look at the market and assess your chances of success.
  • Potential for improvement — as an example, the multiples.
  • Past roll-up — check the history and success rate. If you’re among their earliest businesses, you have more leverage to negotiate a better deal.

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Corey Kupfer is an expert strategist, negotiator and dealmaker with 30+ years of experience. He is also the creator and host of the DealQuest Podcast.

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Corey Kupfer

Corey Kupfer

Corey Kupfer is an expert strategist, negotiator and dealmaker with 30+ years of experience. He is also the creator and host of the DealQuest Podcast.

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