Hi all, we’re seeking some feedback on a roll up strategy, the we intend to sell to PE or a Family Office (or similar). Our target is $50m gross revenue at 10-15% EBIT, across 5-8 companies over the next 3-5 years, either vertically or horizontally integrated.
We’re gathering feedback on the most appealing structure for the end Buyer. Please reply if you have experience on the buy side at one of these types of institutions.
Question 1 of 2: Which option below is most appealing to a Buyer?
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Option A - we purchase companies outright, place them under the rollup. (Issue here is cash out of pocket, tax implications, possible SEC compliance).
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Option B - set up companies for simultaneous close where they agree to the roll up on contingency of finding a Buyer. (This reduces exposure, but we don’t want the Buyer to ‘pick and choose’).
Question 2 of 2: Can we leave companies running independently (for simplicity) or will buyers demand consolidated cost centers?
The pitch is that the Buyer can consolidate systems/processes across the network, quickly realizing increased profitability.
Feedback is greatly appreciated!
I have been involved with Option B. I was representing company X. We signed LOI with Y who had purchased 3 similar in previous 12 month. The total of the 3 was less than X.
Y got Z, a mega-large PE firm (>$10B fund), to back him if he could roll-up more companies. Y got 10 other LOIs signed. On day of closing Z bought 14 companies for $P. No borrowing. Y continued as CEO. 5 years later, Z sold to another PE firm for 35 times the original purchase price.
Earlier I was representing a buyer who wanted to buy a business that was an Option B roll-up.
So, in my experience both A and B are viable. Option A needs funded capital. Option B can be done w/o Entrepreneur capital.