Using a Roll-Up Strategy as a High-Growth Approach to M&A

In 2021, mergers and acquisitions were the highest they’d been since 2015, surpassing even pre-pandemic activity levels. This momentum has continued into 2022, with M&A trends continuing throughout the year. As we continue into Q4, business owners should keep an eye on the possibilities of strategic deals. One of the most practical strategies for small and medium-sized businesses is a roll-up strategy.

What is a roll-up strategy?

A roll-up strategy involves taking two or more small businesses and turning them into a singular, larger company. Combining these smaller entities into a larger company is beneficial to all sides, allowing them to pool resources, reduce operational costs, and improve revenue. In addition, a strong roll-up strategy may offer additional benefits, such as geographical reach, expanded products and services, improved cross-selling options, and more.

The end goal of a roll-up strategy is to merge companies to create a united, singular company of increased value.

What kinds of businesses should explore a roll-up strategy?

There are several kinds of industries that are ripe for a roll-up strategy, including:

Fragmented industries. For companies in sectors that lack a market leader, many options are available. For example, the fire protection industry has many sub-categories that could be a great opportunity to combine and conquer. Several private equity firms have taken note of this and have been pursuing their own roll-up strategies. Stay tuned for a future blog article where we discuss what is going on in the fire protection industry.

Simple industries. Businesses in more straightforward sectors are easier to acquire as they present fewer problems with integration into the larger entity.

Strong regional industries. These businesses often present many target businesses at lower purchasing prices. They will be able to see the benefits of tapping into the buying power and name recognition of a bigger company.

Industries forecasting economic growth. An industry with a promising economic outlook allows investors to realize the perks of size when it comes to M&A.

These kinds of industries typically feature smaller businesses: another reason why roll-up strategies are better suited with a higher value for smaller companies. Businesses in these smaller industries are specifically poised to be able to undertake a roll-up strategy with the greatest chance of success.

What do investors think of roll-up strategies?

Investors love roll-up strategies, as they offer significant value for all involved. Economies of scale are the greatest benefit, creating a combined buying power that extends what each singular business would have been able to achieve on its own. Consolidated synergies are another added value along with the companies’ combined workforces and costs. And another added value is increased exposure since growth in size means a larger audience and increased media attention.

Get started implementing your roll-up strategy

Implementing a roll-up strategy requires several steps to ensure success. If you’re interested in pursuing a roll-up strategy, please contact us for a confidential discussion of your specific situation. We have experience helping business owners across a variety of industries sell their businesses, as well as relationships with buyers who are interested in partnering with owners to pursue roll-up opportunities.

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