M&A Roll-up valuation

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January 13, 2022

by a searcher in Chicago, IL, USA

There seems to be a lot of reading material, be it books, blogs, dedicated websites, on the strategy behind a roll up but I have failed in my attempts to find any material on a Roll-up valuation.

Does buying 10 x $2M EBITDA companies that are "performing well" automatically drive value via arbitrage? E.G. 4x EBITDA per company is now 8x EBITDA per company because you have acquired 10 of them?

Secondly has anyone found any noteworthy information on the interwebs or other, related to this topic?

Thank you in advance.

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Reply by a searcher
from Southern Methodist University in Dallas, TX, USA
What you are referencing is Multiple Arbitrage. In a nutshell, larger and more institutionalized businesses (>$10MM revenue) demand a premium multiple over smaller companies(<$10MM). If you buy a larger business at a 6-7x multiple, then proceed to purchase a tack-on acquisition at 3-4x, when you roll the tack-on acquisition into the platform that additional cashflow is then valued at the platform multiple of 6-7x. For more info, check out this video... https://www.youtube.com/watch?v=y5MCbx_Eg5Y
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Reply by a searcher
from Hofstra University in New York, NY, USA
Larger PE firms may pay a higher multiple than they would if the companies were separate.

What information are you seeking specifically?
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