Exit appeal for $50m Roll Up (PE or Family Office)
March 28, 2024
by a searcher in Chicago, IL, USA
Hi all, we’re seeking some feedback on a roll up strategy, the we intend to sell to PE or a Family Office (or similar). Our target is $50m gross revenue at 10-15% EBIT, across 5-8 companies over the next 3-5 years, either vertically or horizontally integrated.
We’re gathering feedback on the most appealing structure for the end Buyer. Please reply if you have experience on the buy side at one of these types of institutions.
Question 1 of 2: Which option below is most appealing to a Buyer?
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Option A - we purchase companies outright, place them under the rollup. (Issue here is cash out of pocket, tax implications, possible SEC compliance).
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Option B - set up companies for simultaneous close where they agree to the roll up on contingency of finding a Buyer. (This reduces exposure, but we don’t want the Buyer to ‘pick and choose’).
Question 2 of 2: Can we leave companies running independently (for simplicity) or will buyers demand consolidated cost centers?
The pitch is that the Buyer can consolidate systems/processes across the network, quickly realizing increased profitability.
Feedback is greatly appreciated!
from University of Central Missouri in Baltimore, MD, USA
Q1: Option A > B, as others noted. If you want to get paid for the roll up, you actually need to roll them up and integrate. Option B can be done, but it's difficult. More likely to succeed if you own a base (platform) business, with a backable mgt team, and approach investors for acquisition funding. Even then, the prospect of acquiring and integrating numerous acquisitions simultaneously is difficult to underwrite.
Q2: you'll want to consolidate corporate ops. You don't want 5-8 different businesses doing things their own way. Recipe for disaster. That's often a big selling point for the operators too. The parent co handles the admin stuff so the operators can focus on operating. Acquisitions can operate independently, if there's a reason for them to do so, and typically not in a roll up.
If you are able to merge five $1M businesses into a $5M business and make it look and run like a $5M business (not a bag of cats), you'll make big $. That will require real integration, an institutional caliber mgt team, and a year or two of proven performance.
from The University of Chicago in Chicago, IL, USA
I have been involved with Option B. I was representing company X. We signed LOI with Y who had purchased 3 similar in previous 12 month. The total of the 3 was less than X.
Y got Z, a mega-large PE firm (>$10B fund), to back him if he could roll-up more companies. Y got 10 other LOIs signed. On day of closing Z bought 14 companies for $P. No borrowing. Y continued as CEO. 5 years later, Z sold to another PE firm for 35 times the original purchase price.
Earlier I was representing a buyer who wanted to buy a business that was an Option B roll-up.
So, in my experience both A and B are viable. Option A needs funded capital. Option B can be done w/o Entrepreneur capital.