ROLL UP STRATEGIES
Acquiring multiple businesses within the same industry is a dream for many searchers, but it’s far from reality in actual practice. While the acquisition process is very similar to Entrepreneurship through Acquisition (EtA), the additional skill of successfully integrating multiple businesses makes this strategy very complicated and with risk, as reported by searchers who have traveled this path. The primary basis of value creation is derived from multiple arbitrage as higher revenue businesses command larger valuations than what they were purchased for. However, it excludes small “tuck-in” deals where you may be essentially buying a customer list or a few employees in an “acqui-hiring” situation.
In a survey of 185 EtA businesses purchased by Harvard Business School graduates in the past decade, 14 (or 8%) have implemented a “roll-up” strategy of purchasing multiple businesses in the same industry vertical. These excluded franchises covered in another blog post, Buying a Franchise, and a micro private equity (PE) acquisition strategy in multiple industry segments to be covered in a future blog post. The industry verticals were medical, dental, and veterinarian practices; master insurance agencies and a variety of smaller industry segments that the searchers preferred not to disclose for obvious reasons!
You can read more in my blog post here:
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