Episode 166: What Is A Roll-Up With Corey Kupfer
In this episode, I explain what a roll-up and how it works.
The term roll-up is used to refer to an investor buying companies to consolidate them together. Roll-up is often done in two ways: investors who acquire companies and own them or investors who acquire companies and add build to an exit.
Back in the 80s, this strategy of merging companies was more popular, but it was associated with bad experiences, as many ended up not making enough profit. Today, that theme is back and there's a lot of money involved. Investors decide to buy companies in the industry and merge them further for various reasons, like adding value for their resale or making companies stronger in the market. But many factors interpose with the success of a roll-up.
What Are The Benefits Of A Roll-Up?
When companies are merged and the system is centralized, it is possible to:
- reduce overall cost;
- combine the system of companies for efficient and consistent product production;
- create efficient scales.
All this happens if you have a successful roll-up strategy. It is possible to increase the profit margin of all the companies involved. Other than that, a roll-up could bring more to the table beyond the basics, if it includes investing in bringing professional management, creating systems to improve fragmented companies, and launching more products.
Tips For Buyers
As a buyer, the best way to start is by identifying growth opportunities and your goals. Then create a specific deal model to bring people into a system. After creating the structure, it is easier to close the deal, and it is not necessary to recreate from scratch every time, but only adjust for each particular part. When involved in a roll-up, the CEO's role in the company changes and he becomes a negotiator and recruiter rather than a task manager.
A Tip For Companies
Like any business, there are successful and unsuccessful roll-ups. It is necessary to see what will work for each company, the pros, the cons, and observe the risks in the market. When your company receives a roll-up proposal, a good option is to see if the investor has already made other deals like this before - if you are the first, you have more possibility of renegotiating.
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