Reverse roll up?

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June 21, 2020

by a searcher from Millersville University of Pennsylvania in Lancaster, PA, USA

I recall speaking to an individual with a very unique strategy. He sources a well funded buyer who is willing to pay a premium on a multiple of EBITA for the right deal. He then targets local and regional companies with an EBITA of under $300k and consolidates them to achieve the buyer's target EBITA. All acquisitions are made at a multiple of 2.5-3x EBITA and once consolidated the group is sold at 5-7x EBITA.

The strategy as explained sounded great, maybe even something worth pursuing. Has anyone heard of/executed something similar?

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Reply by a searcher
from Pennsylvania State University in New York, NY, USA
Not instantly familiar with the strategy deployed in that way, but I wrote an article about Blackstone doing something similar in real estate. https://medium.com/investify-media/the-blackstone-blueprint-utilizing-instantaneous-divestiture-to-generate-nearly-risk-free-c6a898c23899
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Reply by a searcher
from Stanford University in San Francisco, CA, USA
A few institutional LPs I spoke with approached me about helping them with this. It's a feasible strategy if your skillset is in M&A (I'm stronger in operations and governance).

If you are to engage in such a strategy, consider whether or not the search strategy is right for you - if following such a unitary directive on behalf of an investor, it's hard to call yourself a fundless sponsor - you might as well just become an employee of the buyer.
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