Roll-Up Pushback: Anyone Else Run Into This?

July 10, 2025

by a searcher from Dartmouth College in Los Angeles, CA, USA

I met with a search fund investor today who was skeptical of roll-up strategies within my focused search. But if I can acquire 3–5 smaller, on-thesis businesses in the $500K–$2.5M range at half the valuation multiple of a $5–$7M single deal—especially when they’re all within 50 miles—is there a strong case not to pursue the roll-up, assuming integration is manageable? I’m weighing whether to secure LOIs for all three simultaneously to effectively mirror a single-location, larger transaction. Anyone else run into resistance on roll-ups—and find a way through it?

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Reply by an investor
from Dartmouth College in 80 S Main St, Hanover, NH 03755, USA

This is a GREAT topic for so many reasons, especially on this board/community. As an investor in Independent Sponsor deals, I (or at least my firm, institutionally) was a "platform"-(or "roll-up" or whatever terminology you want to use)skeptic for over a decade. "Makes sense on paper, harder to pull off"; the model makes the math look good, lots of risk"; "easy to take your eye off the ball"; "tons of complexity in integration"; "tons of complexity in completing multiple deals concurrently" etc. and we hadn't ever done one, these were just general conservative small company investment philosophies###-###-#### until we bit the bullet on our first true consolidation investment in 2018 that ended up clipping an 80% IRR in three years (backing an EXCEPTIONAL "near post-MBA at the time" sponsor). And have subsequently participated in several others with similar outstanding results (and strong exectution). We have also seen at least one go sideways and take a long time to dig out for an acceptable return. To me the learning is not that the initial view was wrong (or right), but that it is indeed hard/risky, but when well executed, the risk can really pay off. Your investors are responding to a POV of that risk. I think that's increasingly true in a small PE world where cost of capital / valuation is increasingly defined by scale, that this strategy can be enticing. Easy to focus on the survivorship bias stories here, these things can blow up (especially with too much leverage early on, poor integration planning and execution, poor/inexperienced leadership - pending what you intend to integrate, lack of employee focus, lack of "synergy" outside scale, overpaying, etc. -- but when they work - the multiple arb can really shine, and the trackrecord of prior industry acquisitions can lead to being a buyer of choice in the sector and scale can offer numerous strategic advantages depending on the sector. So without having answered your question - a long winded empathetic "yes". Advice would be to hone in on the value creation strategy and plan beyond (1+1+1=6), keep talking to investors, and demonstrate how you plan to mitigate the many and compounding inherent risks in the strategy (particularly if one is a relatively inexperienced buyer/operator). now by 2025, many investors in ETA and independent sponsor land have participated in successful and very successful platforms, holdco's, consolidation investments ("Roll-up" always sounded a little crass to me) - if it's not the flavor for the investors your pitching to, find investors who are on board with the strategy... but dial in the strategy, and/or listen to what the specific concerns/risks that are holding your investors back and see if you can address those. buying three companies and selling as one is not likely to on it's own drive the outcome you expect ($5M ebitda buyers aren't looking to pay up heavily for a "bag of companies" either, they are looking to pay up for a well integrated business with some scale, a growth plan, strong leadership, that can continue to do accretive acquisitions plus feature organic growth). Another strategy (depending on your background), would be to start with one, prove you can master it and learn the industry, and then proceed with the consolidation as an expert strategic buyer in the industry -- you will get to the same place with less risk (and maybe will be able to bring your existing skeptical / experienced LP investors on the ride with you) - just make sure you capitalize your deal appropriately for the pace.

Reply by a searcher
in Philadelphia, PA, USA

My business partner, a very wise man, with a lot of gray hair and $14bn in acquisitions under his belt, having led m&a for a fortune 50 company we all know about, once told me: “John, if you have to explain it to them, you’re speaking to the wrong person.” I never forgot. Regarding all 3: You eat an elephant, the same way you eat a steak: one bite at a time. Keep them warm. But buy one, optimize, systematize, buy the other. Integrate. And repeat. Slowly. Banks like to see pragmatism. And investors too.

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