Considering a Roll-up Strategy in a Downturn Market

MD Blog: Keith Harradence

By Keith Harradence October 22nd, 2020

As we move through the final months of a turbulent year, many businesses are still assessing the impacts the economic downturn has had on their bottom line. For any businesses that were on the cusp of positioning themselves to strategic buyers in the marketplace, you could be looking for an approach to enhance attractiveness as much as possible. This can be especially true if you’re in a particularly hard-hit sector such as hospitality, travel, and tourism. A strong strategy to consider is a roll-up.

So what exactly is a roll-up strategy?

Simply put, a roll-up strategy is a process of acquiring and merging multiple smaller companies and consolidating them into a large company. The intention behind using this strategy could be to expand sales, technology, and the geographic footprint of a company with the overarching goal to make the balance sheet stronger so that everyone prospers.

In a downturn market, especially with the unprecedented and unpredictable circumstances we find ourselves in, corporations looking to position themselves in the marketspace to viable buyers should look as attractive as possible. Rather than expending capital to hire an entirely new division of people, look instead at dedicating it towards businesses that can bridge gaps within your portfolio, which potential buyers could view as a detractor. Whether it’s building a better customer base, strengthening recurring revenue streams, or enhancing a product or service offering, it could be the perfect answer to be as poised as possible for when approached by a potential strategic buyer.

To get started, there are a few top considerations if a roll-up strategy is appealing. First off is to complete an in-depth analysis of your market and your key competitors. Understanding how you compare, both from a pros and cons perspective, will provide the needed insight to understand where to focus your efforts. Cascading from this understanding, you’ll also want to look for areas where there could be continuity and harmony within the businesses along with a newly created value. Finally, having a robust financial view of not just your balance sheet, but those of the companies you’re looking to absorb is vital. As the saying goes, an ounce of prevention is worth a pound of cure, and indeed, this is no exception.

Not to be overshadowed by proper planning, many sell-side advisors and potential clients overlook the biggest differentiator in the success of a roll-up strategy, and that is having a high-quality outreach team. It’s one of the industry’s artforms that takes an enormous amount of skill and effort to uncover potential strategic buyers or adjacent parties. Generally, there are one or two very well-positioned and motivated buyers for a company who – at first glance – might not be the obvious choice. Should you go to market with a firm that doesn’t have that capacity, ingenuity and imagination for outreach, your endeavor could fall short of expectations.

The bottom line?

Confidence within buyers is rising, and activity is increasing. There is significant opportunity in the mergers and acquisitions market for those with the moxie to forge ahead with a roll-up strategy.

If you are interested in learning more about our unique process, contact us today.

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