The Art of The Roll-Up
David Barnitt
Acquisition Financing | Growth Capital | Mezzanine Debt | Leading Global Advisor
The lure of executing a series of acquisitions to gain scale and market strength is a powerful one. The key to a successful roll-up lies in the making disciplined acquisitions. Once you have a compelling business rationale for roll-up, the right acquisitions can transform your business. The transformation is not just in the size of your operation but also in your business model differentiation – more products, more regions, more customers, and more ways to grow. Exercising discipline in the acquisition process requires you to have a deep understanding of your operational strengths and management abilities. Each acquisition under consideration must answer the following questions:
1. How can this acquisition make our current business stronger?
2. What do we need to have in place, before the acquisition, to capture the value the acquisition brings?
If there are not clear answers to both questions, then you are likely better off taking a pass. Most roll ups that fail do so because management has not focused on developing a compelling business rationale. Often, deals get done because a buyer sees an acquisition in solely financial terms, as opposed to operational terms. Buyers often fall in love with an attractive, low multiple acquisition and believe them to have little downside. Roll-ups require careful internal assessment and significant operational planning.
Acquirers need to have their operational integration steps mapped out beforehand and ensure they have people on their team who will lead the required operational change. Successful roll-ups have a platform company, the keystone acquisition, which acts as the operational bridge builder for each company acquired. Within this keystone acquisition, there is an operational assessment team consisting of professionals from each department in the company.
These operational assessment professionals come together to research, analyze and plan each proposed acquisition. This step is critical and ensures discipline in the roll up process.
Comments, questions or ideas? I'd like to hear from you! Please email me at dbarnitt@attractcapital.com. Please be sure to follow us on Facebook for free monthly webinars on how to advance your middle market company at @AttractcapitalLLC!
Your comment: "Roll-ups require careful internal assessment and significant operational planning." is perfect.
CEO & Founder of FedLearn
6yDavid...Thanks for sharing. My experience is that any successful deal requires leaders on both sides of a deal with the right leadership skills at the right levels to make any deal successful. The challenge most firms have is they make assumptions that they can manage the leadership risk associated with a deal. That is really difficult to do when you don't know what current leadership strengths and risk areas reside in a deal at the individual, team, business group and/or corporate function level. Given some really interesting metrics that indicate the following...seems a more structured and detailed focus on leadership would benefit organizations. 1. 20-25% of the decision in market valuation of a firm is based on the perceived effectiveness/ineffectiveness of the leadership team. 2. Target companies with effective senior leaders and middle managers have 6x as many highly engaged employees during a deal transaction. Leadership makes a huge difference.
M&A | Private Equity Investor | Board Member | Wealth Creator | Trusted Advisor to Top Middle Market Decision Makers
6yGood points David
Agree with the approach. We've advised on several rollups, and the key indicator for success (or non-success) with all of them has been the strength of the integration plan and the mutual agreement on how to proceed.