What niche industries have strong rollup potential?

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July 07, 2021

by an investor from Hope College in Holland, MI 49423, USA

What niche industries do you believe have strong roll-up potential?

I've been keen on CPA/Accounting firms, as well as dental providers... any others out there?

I'm an impact investor - but looking for opportunities in niche industries that have rollup potential.

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Reply by a searcher
from Ivey Business School at Western University in Toronto, ON, Canada
I'd disagree with the sentiment that dentistry (at least in North America) has "strong rollup potential" from a searcher's perspective. The space continues to become heavily crowded, with multiples rising rapidly (e.g. ~2x of multiple creep within the last couple of years). This is largely due to aggressive private equity backed players, and many aren't afraid to dive into the sub $1M EBITDA territory. At least from my perspective, a big value proposition of the search model is to acquire at good value (say 5x and below) - such value is certainly not available in dentistry anymore (many years too late). Even in the event that you and your investors gained comfort with paying higher multiples than typically observed in the smaller end of the market, you'd still run into issues of winning deals - the existing and emerging players are very aggressive and offer highly attractive deal packages.

I'd recommend a core consideration to your rollup thesis should be to find industries that are in their consolidation infancy. This would allow you to acquire at good/great value and with higher deal closing probability, of course due to relatively less competition for these assets.
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Reply by a searcher
in Birmingham, UK
A few thoughts. First, the obvious: That would be industries in which you are connected, or have experience operating in. Second, what is your end goal? What do you want? Knowing this would determine what questions you ask, which would in turn determine the (niche) industries you operate in and how. For instance, are you looking to roll up in order to consolidate one specific industry, with all the benefits that it brings if successful? Are you looking to create end-to-end solutions by controlling all related products and services in an industry? Are you looking to become big enough to secure large contracts (government or military, for instance) where size really does matter? Are you looking to attract the 100-pound strategic buyer in that industry? Are you looking to drive up the value and therefore position the resulting business or group for the highest exits and valuation down the road? Are you looking to capitalise on existing trends or trending industries which offer sky-high multiples?
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