Hello all,

So our early stage roll-up, focused on a specific industry, has an LOI on a good business. We have sourced some great family office debt for the acquisition. But on the equity side, there's a challenge: I'm confident we can raise the small amount of equity we need (350k) but I'm wondering how we come up with a fair valuation for both us and investors?

Here's why this is a challenge: Our model is to buy majority stakes in smaller businesses -500-1m EBITDA as we have a model to add substantial value to them, can get them at good prices, and we avoid competing with larger acquirers in this space. Our preference is for investors to get equity in the holdco, rather than in individual acquired companies as that's cleaner from an incentive perspective. This first business is on the small side and the seller is rolling over equity and staying on so we are not even buying 100% of it. Most search-style investors will think about valuation just in terms of the first acquired company and the EV of the majority stake we are acquiring is ~1..5m.

Don't think it's a good idea for us to value the holdco at that amount as this is a roll-up and we need to think strategically about how this raise impacts subsequent acquisitions. I think there is already some significant value in the holdco, beyond the first acquisition target: We have a team of people that have built and sold some of the largest businesses in this industry. We have a crystal clear plan for how to improve the first acquisition, and we have a large pipeline of 8 others we are in talks with and are on the cusp of a second LOI.

Are there standard and accepted ways to value those elements of the holdco, even at this early stage? Any suggestions for how to have this conversation with investors? Am curious if anyone has thoughts on this specific question but also how to value early stage roll-ups more generally. Academic articles would be great if you have any.

Appreciate you all.