If you are a wealthy and well-established organisation that is ready to embark on an acquisition strategy designed to fuel long-term growth, you may be wondering what kind of strategy to employ.
Should you opt to invest in one monumental ‘megadeal’, involving millions or possibly even billions of pounds? Or should you, instead, resort to a more convoluted but potentially more rewarding option – that of the roll-up strategy?
Our goal today is to try and help you resolve that common M&A quandary by explaining in detail what a roll-up strategy is, as well as exploring its pros and cons. Having a nuanced understanding of how a roll-up strategy could benefit you in the long run can help you make the savviest decision for your company.
What is a roll-up strategy?
Also known as programmatic M&A, or as ‘bolt-on acquisitions’, the roll-up approach is characterised by the purchase of a series of smaller businesses rather than making one or two big acquisitions.
The goal of this string of purchases is to generate considerable value and fuel long-term growth.
Unsurprisingly, there are both significant upsides and downsides to this kind of strategy, and it may not necessarily be right for your industry or your business. Let’s look at some of those pros and cons to help you make an informed decision.
The benefits of taking the roll-up route
There are a few substantial advantages to pursuing programmatic M&A. These include:
- Access to value-boosting synergies
By purchasing a carefully selected series of bolt-on businesses, your organisation stands to gain from a range of value-enhancing synergies. These can help you to cut unnecessary costs as well as explore new revenue streams and gain access to fresh talent.
- Increased market exposure
Another obvious benefit of acquiring several new businesses is the increased exposure you’ll gain as a result – not only to new suppliers and customers, but also, most likely, to the media. As a result, you will hopefully find your company scaling up more rapidly – and more effectively – than if you hadn’t made the acquisitions.
- More robust finances
If all goes according to plan with your roll-up strategy then your organisation should stand to gain from a healthy financial boost, enjoying higher profits and an overall increase in value.
And the downsides…
While the benefits of bolt-on businesses are clear, it’s also important to understand the potential obstacles that can afflict a roll-up strategy. These can include:
- Problems with integration
Integrating a new team into an existing organisation is a significant challenge in any merger or acquisition, so imagine having to do it several times over! Successfully blending different teams, corporate cultures and leadership styles is a daunting undertaking, no doubt about it, although it is achievable with patience, empathy, and adaptability.
- Financial issues
While finances can improve following the acquisition of bolt-on businesses, there is also the capacity for some difficulties to crop up. This can occur when the acquirer fails to capitalise on their new additions and can result in a lower credit rating, a drop in value and diminished profits.
- Misalignment
If an acquirer doesn’t conduct their due diligence properly or over-emphasises the potential synergies of the deals they embark on, the roll-up strategy can fail of its promise. In other words, it’s vital that you do your homework regarding the authenticity of the synergies that you can unlock when you purchase certain targets. Neglecting to do so can end up in your organisation buying businesses that aren’t as closely aligned with your company as you may have thought and this can lead to various problems, including operational inefficiencies.
How to get your roll-up strategy right
If you have weighed up the pros and cons of buying bolt-on businesses and decided to proceed with this programmatic approach to M&A over the course of the next few years, then it’s time to think about what you can do to get this strategy right.
Fortunately, there are several steps you can take to master the roll-up way of acquiring and make the most of your acquisitions once the contracts have been signed. Here are some top tips.
1. Invest in rigorous planning
For a roll-up strategy to be effective, it needs to be carefully thought-out. This will be a lengthy process, but in the long run you should see ample benefits of your hard work and painstaking preparations.
As you embark on your planning process, some of the critical factors you should be considering are the most appealing EBITDAs for your targets to have, how much equity you are willing to impart to their owners, what products or service lines you most want to add, and the locations of the targets.
As we have already mentioned above, you should also carefully evaluate the synergies that each deal will unlock, and how easily each target should be able to integrate with your organisation.
2. Excel at due diligence
Once you have found some attractive targets and negotiated tentative terms for a deal, you should ensure that your due diligence is rigorous for each acquisition. Rushing at this stage of the M&A process or failing to adequately scrutinise every aspect of a target’s finances and operations, can cause serious problems down the line. You need to be sure that the target will become a genuine asset and has no hidden pitfalls.
3. Create a strong and cohesive team
You know that rather twee phrase, ‘teamwork makes the dream work’? Well, when it comes to M&A, that saying does ring true!
When you are embarking on the rather Herculean task of combining several companies under your organisation’s umbrella, it’s important to have a strong leadership team in place to make sure things go as smoothly as possible.
This may mean making some strategic hires or using the strengths of the existing management – both existing and new – to bring people together and keep them productive and engaged during the sale and afterward. After all, the people involved in your roll-up strategy can make or break it, so you need to prioritise their well-being and efficiency at every stage of the acquisition journey.
How a business broker can help you
Whether you have previously been involved in a merger or acquisition or not, you may find the prospect of several M&A transactions a little daunting. If that’s the case, then why not hire an expert to help you out and remove the stress and confusion from the process?
An experienced and trustworthy business broker can smooth the way for you and assist you with making your roll-up strategy a success. In fact, they can oversee the entire acquisition journey on your behalf, from identifying the most suitable targets to crafting NDAs, assisting with negotiations and due diligence, and offering insider tips on mastering integration.
In short, a reliable and experienced broker can help you achieve your M&A goals, removing the hassle from the transactions and enhancing the value of your deal.
Final thoughts
If your organisation is ready to embark on a roll-out strategy – or if you would just like to get one acquisition under your belt in the near future – why not give us a call? Our friendly and highly experienced team would be happy to oversee the M&A process on your behalf, ensuring all legal and financial boxes are ticked and the deal proceeds as smoothly as possible from start to finish.
While you’re at it, you can take advantage of our exclusive Acquisition Finder pilot, which includes a 30-day money-back guarantee for your peace of mind.
If you’d like to start making your acquisition dreams a reality, give us a call on 01926 757100 or send an email to Hello@harrisacquire.com and find out how we can be of assistance!
