Articles & Alerts

In the dynamic landscape of business acquisitions, private equity (PE) buyers are increasingly turning to innovative strategies to maximize returns. One such strategy that is gaining traction is the roll-up strategy, where a PE group acquires smaller companies in a fragmented industry, consolidating them under one parent company. This strategy aims to streamline operations, reduce costs, and most importantly, rapidly expand market reach. The exit strategy for most of these roll-ups is for the acquirer to bundle and sell them together for a profit, generally in a 3- to 5-year timeframe. As of 2021, with a staggering $4 trillion managed by private equity, the roll-up strategy has become a prominent avenue for deploying the $1.5 trillion in committed cash earmarked for acquiring businesses.

The mechanics of a roll-up strategy involve the acquisition and rebranding of smaller companies, bringing them under the centralized control of a PE platform company. This consolidation aims to achieve synergies which allows for market expansion, cross-selling opportunities, and geographic reach just by merging with or acquiring other companies. These synergies also allow a company to reduce operating expenses in several ways, given that they all operate on the same platform.

However, navigating the path to successful roll-ups is riddled with challenges. Among them are culture clashes and the potential loss of control for the original management team. These are just a couple of the hurdles that roll-ups encounter. Effectively addressing these challenges demands a delicate balance and specialized expertise, emphasizing the pivotal role of experienced mergers and acquisitions (M&A) advisors in steering businesses through the intricacies of these strategies. While the collaboration between smaller companies and private equity buyers holds significant potential, a nuanced understanding of the industry, cultural fit, and strategic alignment is crucial. This is where strategic partners such as accounting and law firms can add tremendous value.

Although the appeal of rapid expansion and heightened profitability through roll-up strategies is clear, businesses need to tread carefully to secure success. As businesses contemplate the prospect of being rolled up, the guidance of a strong Board of Directors as well as external M&A advisors becomes invaluable, serving as a compass to steer through potential pitfalls and maximize the benefits of this transformative strategy.

To learn more about roll-up strategies and whether one could benefit your business, please contact Michele Harlan, Partner and Leader of the Transaction Advisory Services group.