Why You May Want to Reconsider Your Industry Roll-up Strategy

May 09, 2024
by an investor from Harvard University - Harvard Business School in Toronto, ON, Canada
Pursuing a Roll-up strategy can be a wonderful opportunity for personal fulfillment and financial success under the right circumstances. However, the data is overwhelmingly clear: Consolidation strategies are much harder to execute than they are to dream up.
Though I’m not against consolidation theses in and of themselves, I do find myself more skeptical than most when presented with one. In today’s blog post, I attempt to explain why.
You'll see why I encourage all prospective consolidators to be deeply thoughtful about their personal motivations, the stand-alone size and attractiveness of their platform company, their bandwidth constraints, whether their investment thesis features any "single-point-of-failure" risk, how many acquisitions they think they ought to do (and why), their financing structure, the incentives created by that financing structure, and the specific returns to scale in their industry beyond absolute size.
Link to the article is here, please enjoy!: Why You May Want to Reconsider Your Industry Roll-up Strategy
from INSEAD in San Francisco, CA, USA
While I don't necessarily agree with the more experienced / better financed part since many searchers come from an M&A background, the law of averages is compelling.
Regarding the single point of failure risk, I was listening to an acquiring minds podcast the other day that talked through a rollup where each individual company had its own president which took their own personal guarantee which was then under the larger corporate umbrella. Could be an interesting way to spread the risk, but I'm not sure I'd be down be a president and use my company's P&L to offset others losses.
from University of Southern California in Los Angeles, CA, USA