The BSR guide to roll-up business acquisition strategy

A roll-up acquisition strategy, in brief, is when a buyer (often a private equity firm or private equity-backed company) acquires multiple smaller businesses in a specific industry and merges (or rolls) them into one single larger entity.

A roll-up acquisition strategy (sometimes referred to as a consolidation strategy) is an ideal way for a well-financed business or investor to rapidly build market share, scale and expertise in an industry, tapping into the attributes, customer bases, client portfolios and skills of existing businesses without the need for undertaking time-consuming organic growth and development.

When done right, a roll-up approach can provide all these things and there are numerous examples of successful strategies that have enabled buyers to consolidate and grow at scale and quickly establish themselves as a major player in their chosen field.

Roll-ups have played a vital part in the growth of some of the world’s largest companies, including food multinational Mondelez International (formerly Kraft Foods), which was initially set up in the 1920s as a roll-up in the ice cream industry, and Waste Management, Inc, which established itself as one of America’s largest waste management businesses during the 1970s and 80s, completing more than 100 acquisitions.

In more recent years, Bausch Health Companies Inc. (formerly Valeant Pharmaceuticals International) has spent more than $30 billion acquiring over 100 companies. In the UK, meanwhile, notable roll-ups have driven consolidation and established major market players in industries ranging from veterinary and dental care to wealth management.

Over recent years, such large-scale roll-up strategies (particularly in consumer-focused industries such as healthcare) have begun to attract a high-degree of regulatory scrutiny and even led to action being taken against buyers by regulators.

However, for SMEs and smaller investors focused not on establishing a monopoly in their industry, but rather to build market share and unlock exponential growth in value and turnover, roll-up acquisition strategies still offer a virtually unparalleled opportunity.

While there are risks associated with the approach, particularly in terms of integration, managing growth and controlling debt, these can all be navigated by strong management and a well-thought out strategic approach. In such cases, the potential rewards are massive.

Planning and carrying out a roll-up strategy
When pursuing a roll-up acquisition strategy, the most important factors are arguably planning, a clear strategy, decisive execution and confident, capable management. Combined with the right financing and market opportunity, these factors can help drive a successful roll-up and deal with the potential challenges associated with the strategy.

First off, it will be important to define whether there is a market opportunity that is worth taking advantage of. If the buyer’s chosen industry is highly-fragmented and offers a wealth of potential acquisition targets, then there is significant opportunity to build market share and value through a roll-up.

If the sector is already highly-consolidated, however, and dominated by a few major players (who have potentially already undertaken roll-up strategies), then the opportunities for sustainable acquisitive growth will be greatly reduced.

Another fundamental step for the buyer or investor undertaking the roll-up will be to clearly define their objectives. Typically, a roll-up is focused on building market share and, crucially, achieving a major increase in turnover and, subsequently, value. However, alongside these core aims, buyers may also seek to prioritise objectives such as expanding their product offering or growing geographically.

Delineating a clear strategic plan for the roll-up will also be a key early step prior to getting started. Elements such as the timeline for the strategy (e.g. how many acquisitions will be targeted over the next two years, revenue targets to aim for within a specific timeframe etc.) and an integration approach will be crucial.

Perhaps the main part of the plan during the early stages, however, will be defining a clear acquisition criteria. This will include establishing things such as the size of the businesses that will be targeted in terms of personnel, financial metrics such as what range of revenue, profitability or cash flow the businesses will have, as well as defining operational attributes that will help make acquisitions a strong strategic fit.

Of course, securing the financing for a roll-up strategy will be crucial before beginning to target acquisitions in earnest. Many roll-up strategies are backed by private equity firms (if not directly undertaken by them) and if a prospective buyer is able to demonstrate that there is a clear market opportunity for consolidation and strong growth then they may be able to attract PE funding.

Otherwise, common sources of funding for roll-up strategies include debt, equity or a combination of both. Often, debt will be utilised during the early stages of a roll-up, with the buyer later seeking to raise equity once they are more established.

As well as accessing the funding itself, it will also be vital to plan for the financial impact of the strategy. Assessing how the form of financing chosen (such as debt) might create financial issues, as well as evaluating the impact that acquisitions will have on the balance sheet will be critical to preparing for risk and ensuring good financial health is maintained throughout.

An important step will also be to build a strong leadership with a breadth and depth of expertise. This will help the buyer to enact their strategy most successfully, while alleviating the biggest risks. A leadership team will ideally have significant expertise across the board in relation to the sector in question, as well as specific expertise in areas such as mergers and acquisitions, legal, finance, operational management and integration.

Once a team has been assembled, it will be crucial to build structure by clearly assigning and defining the roles and responsibilities of the various leadership figures involved in the process. This will help to ensure that everyone knows precisely what their duties are, enabling the team to function efficiently and cohesively.

Once these preliminaries are out of the way, the next step will of course be to begin identifying, evaluating and moving for targets. Having established a well-defined acquisition criteria, the buyer will be able to begin targeting suitable businesses within their chosen sector and location(s).

The acquisition criteria will enable them to screen potential targets and shortlist the ones that represent the best strategic fit for the business. Having brought M&A experts into the leadership team will then help to provide insight into the crucial points to be examined during the due diligence phase for each acquisition, enabling the buyer to gain a deeper understanding of financial health, operational efficiency, overall value and whether the business will be a good strategic and cultural fit.

A good dealmaking team will also make the business more adept at executing its acquisition strategy at scale, offering expertise in negotiating the terms of deals (such as price and structure) and any potential contingencies, legal obligations and regulatory requirements that need to be met. As the business grows in experience and efficiency, and potentially begins to develop a reputation within their industry, it may become easier to scale up the acquisition strategy and complete deals at a greater pace.

While acquisitions are the crux of a roll-up strategy, the true success of the venture will rely heavily on how well businesses are integrated into the broader group post-takeover. Integration and cultural alignment issues are one of the main things that can lead to a roll-up strategy proving unsuccessful.

Buyers should develop a detailed integration plan that outlines and provides solutions for potential difficulties and addresses the operational, financial, technological and cultural aspects that will require integration. This plan should be clearly communicated to all stakeholders, including employees, customers and suppliers.

Monitoring and measuring the performance of acquired businesses during the post-deal period will provide a valuable overview of the success of integration efforts and the wider roll-up strategy itself. It will be vital to assess whether the anticipated synergies are being realised and whether the aims of the roll-up, whatever they may be, are being met.

As well as providing an overview of how the roll-up is proceeding, this monitoring will also identify areas where adjustments in integration, target selection or financing may be needed and enable the buyer to react and make continuous improvements and alterations to the strategy.

The basic pros of a roll-up strategy
Fundamentally, acquiring businesses at the kind of scale targeted in a roll-up strategy can enable a buyer to rapidly and steeply increase their turnover, by gaining market share, a bigger customer base, greater geographic coverage, an improved service or product offering and the cost efficiencies that can come from a larger operation.

In turn, this can help to drive a major increase in profits and, perhaps more importantly, the value of the business. Recent research has revealed that UK buyers are paying, on average, multiples of 11.6x EBITDA to acquire businesses, while the median multiple was 17.3x EBITDA.

This will likely sound promising to owners at businesses of all sizes, but the key takeaway from the figures was that the average deal size that these figures were based on was a fee of £825 million.

What this means was that a business sold for around £825 million at a multiple of 17.3x was generating EBITDA of approximately £48 million. Such figures simply don’t apply to SMEs and micro-businesses generating significantly lower earnings, with businesses with EBITDA of under £1 million, for example, generating average multiples of well under 4x.

The clear takeaway here is that bigger businesses, with higher earnings attract far greater valuations on average than smaller firms. A well-executed roll-up strategy can enable a buyer to rapidly and effectively build a business that generates exponentially higher earnings and, subsequently, attract a significantly greater valuation if and when it is sold.

Another primary aim of a roll-up is to achieve the economies of scale – building a large business with consolidated operations in order to maximise output while minimising costs. Greater scale also means increased purchasing power, providing the business with leverage over suppliers and other cost synergies, such as cheaper insurance and merchant fees, as well as the ability to spread fixed costs over a larger revenue base.

Fundamentally, of course, a roll-up can enable a business to rapidly increase its market presence, customer base, geographic footprint and, ultimately, its position within the industry. Combining the sales of acquired companies can instantly (and sharply) increase revenue, while the economies of scale and efficiencies that come from a consolidated operation mean that this profitability can then be enhanced further.

This increased scale and the expanded market share that comes from acquiring large numbers of businesses in one sector also provides, not just greater revenue, but more revenue synergies, ranging from more opportunities for cross-selling products and services to introducing existing products into new geographic territories.

A properly strategised roll-up plan can also enable the buyer to build a well-integrated business that effectively taps into the strengths, best practices, management expertise, processes, technologies and systems of the business it acquires. This can increase efficiency and drive innovation across the entire consolidated entity and be vital in developing organic growth channels alongside the acquisitive expansion strategy.

Buyers operating roll-up strategies can also unlock brand efficiencies. Depending on the market they are operating in, they may choose to either merge their acquisitions under one unified brand, in order to present a strong market presence, or they may seek to maintain the identities of the individual brands they acquire if these brand names already have strong market value.

Building scale can also help to simplify future growth, with the business able to leverage its combined balance sheet and gain greater access to cheaper capital, debt financing and further investment to help fund further acquisitions.

Beyond the individual buyer involved, roll-ups can also prove beneficial to broader markets, despite the fact that they are often characterised as a strategy that forces out smaller businesses and reduces choice for consumers.

Just one or two companies operating roll-up strategies in an overly crowded industry can help to drive rationalisation and help acquired businesses to succeed where they might previously have failed, while the greater efficiency of a scaled-up operation can improve service offerings to customers and build resilience within supply chains.

In fragmented industries with, for example, a high proportion of owners approaching retirement age at smaller and medium-sized firms, the presence of consolidators operating roll-up acquisition strategies can also offer a vital (and potentially very profitable) succession option.

Roll-up strategies can also be valuable in helping to drive maturity in newer markets, as well as in helping to kickstart growth within their industry in the recovery period following an economic downturn.

The major challenges of a roll-up strategy
Of course, for all the potential upsides, operating such a scaled-up acquisition strategy and having a growth plan that is so reliant on making regular acquisitions comes with serious challenges. There are a wide range of operational and regulatory difficulties that can arise when pursuing a roll-up strategy that buyers will need to plan for and be able to surmount.

In the current environment, regulators in both the UK and the US have begun targeting roll-ups as a core area of focus. While this scrutiny mainly impacts roll-ups undertaken by major buyers (such as private equity firms) in consumer-focused industries such as healthcare, buyers will still need to be wary.

Scrutiny can perhaps best be avoided by a proactive engagement with regulation such as antitrust legislation, avoiding large single acquisitions that instantly give the buyer a dominant position in a sensitive market, thorough due diligence and actively notifying authorities in the event of any acquisitions that may feasibly face scrutiny.

On an operational level, there is the fundamental fact that a successful roll-up strategy requires a huge degree of planning and offers little room for error. Even if a meticulous plan is drawn up, successfully executing it can prove challenging for several reasons and the costs of failure can be high.

One early mistake that can prove seriously damaging to the success of the venture is miscalculating or over-estimating the potential synergies between the businesses being targeted. This can result in the buyer failing to achieve the anticipated cost savings and profit growth, even if they successfully complete the acquisitions they are targeting.

Perhaps the main operational challenge associated with a roll-up acquisition strategy is ensuring successful integration. Even when targeting companies of similar size in the same industry, with similar products, customer-bases and business models, there can be significant differences that make uniting these businesses problematic.

If acquired companies have different systems and processes, then it can be difficult, time-consuming and potentially extremely costly to merge these and ensure consistency, repeatability and documentable processes across the entire organisation.

Furthermore, while these companies may appear similar on the surface, they may have significantly different working cultures. Attempting to achieve cultural alignment across the whole business in such a scenario could have a significant impact on productivity for a time and potentially have a negative effect on staff morale if employees are forced to adjust to a new working culture. This could result in retention issues and lead to a high staff turnover, which could be especially damaging if a major goal of the roll-up strategy is to acquire talent and expertise from the target businesses.

Another issue related to personnel that can arise in a roll-up strategy is challenges with management. While the leadership of the company undertaking the strategy may have been experienced and successful managing their own business, this may not necessarily translate into successfully managing a far larger, more complex business – particularly if their roles are combined with the burden of leading an acquisitive growth plan.

During the early stages of a roll-out, while the culture of the combined business is still being codified, the costs incurred by such integration issues can have a major impact on cashflow and mean that the business struggles to attain the expected cost savings during its early days.

Further financial challenges can arise from the methods through which the buyer funds its acquisitions. Many roll-ups utilise debt to finance their deals (especially early on, maybe prior to them raising equity). Should the anticipated cost savings, cash flow and profits fail to materialise, then the venture can quickly find itself carrying an unwieldy, potentially unmanageable, level of debt.

A particularly sensitive challenge during a roll-up acquisition strategy is how the market reacts. Particularly when small and medium-sized businesses are acquired by far larger operations, there is often a perception among consumers that the business loses some of its uniqueness and ethos and that quality may be sacrificed in the pursuit of greater profits.

Changes in branding, pricing and product offering could be particularly negatively received, especially if the buyer is acquiring a successful, long-standing company with a well-established customer base. Even more damaging would be if there was a drop in quality (a real risk if the company undergoes significant changes during a post-acquisition integration phase), which could lead to a strong backlash from customers and create a negative perception around the buyer.

There is also the risk, which could result from a successful roll-up strategy, that other businesses within the same industry could look to adopt a similar approach, potentially increasing competition for acquisitions, market share and profit growth.


While the potential challenges of a roll-up strategy are certainly numerous, they are certainly not insurmountable. Rather than serving as warnings not to engage in this kind of acquisitive growth plan, they rather highlight the importance of meticulous planning, thorough due diligence and strong, capable management throughout the process.

Providing a buyer has these things in place and continues to improve and develop their acquisition strategy in response to any difficulties as they proceed, then there is no reason why operational challenges should prevent the roll-up from being successful.

If a buyer is able to execute a successful roll-up, the potential rewards - in terms of increased market share, higher turnover, profits and an exponentially greater valuation – can be astronomical.

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