The Definitive Guide to Mastering Roll-Up Acquisitions
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A Step-by-Step Playbook for Driving Market Growth Through a Roll-Up Strategy
Introduction
Why Bigger Isn’t Always Better When It Comes to M&A
While M&A transactions involving billion-dollar big-name companies are the ones that appear in the headlines, these so-called mega deals aren’t the only option for driving long-term growth. According to a McKinsey study into two decades worth of successful M&A transactions, pursuing a series of smaller deals with a total value close to the acquiring company’s market capitalization can generate more value than “big name” transactions.
In other words, pursuing a roll-up strategy rather than megadeals can offer greater bang for your investment buck.
Roll-up acquisitions involve purchasing multiple small firms at once to create a larger entity that is more than the sum of its parts. While roll-ups are particularly popular in highly fragmented industries, their benefits, including economies of scale, access to capital, synergies, etc., apply to a range of investment situations. However, like any M&A strategy, roll-ups come with their own set of risks and pitfalls.
In this guide, you’ll learn the basics of the roll-up strategy and how to determine whether this approach is a good fit for your business. You’ll also find the tools to boost your chances of success should you decide to pursue this acquisition avenue, as well as real-world examples of effective roll-up-based businesses.
Let’s begin with the basics.
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Roll-Ups 101: Laying the Foundation
Roll-ups are a common type of acquisition and offer several benefits to companies. Let’s review the basics of this M&A strategy and share some notable examples.
While they’re less attention-grabbing than the megadeals that make business headlines, roll-ups occur frequently. In fact, many of the M&A transactions completed each year are roll-ups—smaller deals that are just as (if not more) value-generative as major acquisitions.
What makes roll-ups a popular M&A strategy? For private equity investors, these transactions offer:
- Economies of scale: The larger entity created from the roll-up strategy should enjoy greater buying power than any of the smaller companies that comprise it.
- Increased exposure: Essentially, the roll-up combines the marketing footprint of the acquired companies, boosting its potential audience and making it the focus of increased media attention.
- Synergy benefits: A well-thought-out roll-up strategy should produce several synergies that generate value at the margins (shared administration and marketing costs, for example).
- Access to better opportunities: In general, bigger companies tend to enjoy a liquidity premium that lowers their cost of capital and allows them to access opportunities (e.g. more acquisitions) that smaller companies cannot usually afford.
M&A history is full of examples of successful roll-ups in industries ranging from healthcare and beauty to education and hospitality. At DealRoom, we’ve assisted with a number of such transactions. For example, our customer FastLap utilizes our platform to manage roll-ups in the auto retail and service space, while IVC Evidensia used DealRoom to acquire multiple veterinary practices across Europe.
Other notable roll-ups include:
- Waste Management, Inc.: This waste disposal company pursued an aggressive roll-up plan in the 1970s and 80s, buying up hundreds of smaller waste management firms. The strategy paid off, making it the biggest waste disposal company in the United States.
- HCA Healthcare: HCA, one of the leading healthcare providers in the United States, purchased 41 urgent care facilities from FastMed in 2023, expanding its clinic footprint to 268 locations.
- Hilton Hotels & Resorts: In 1999, the well-known hotel chain bought multiple DoubleTree properties through a roll-up strategy and rebranded the combined entity as “DoubleTree by Hilton.”
While these success stories showcase the value-generative potential of roll-up acquisitions, this approach is not without challenges. Managing multiple deals simultaneously can be difficult for even experienced M&A teams, and the additional complexity introduces more potential points of failure.
Plus, M&A practitioners are increasingly moving toward a Buyer-Led M&A approach for all transactions, including roll-ups. Under this paradigm, the buyer (not the banker or seller) drives the entire process from start to finish. While bankers and sellers generally want to close deals ASAP, buyers prioritize long-term value creation.
For corporate development teams, this means setting the deal up to deliver the greatest profit potential for the eventual sale of the consolidated firm. And that starts with selecting the right acquisition targets.
“A buyer-led approach is essential for scaling roll-ups. DealRoom helps keep everything organized and aligned from origination to integration, making it easier to build trust with the seller early and stay efficient as we grow."
Identifying the Right Market and Targets
What should corporate development teams look for when considering potential roll-up acquisition targets, and what are the red flags to avoid?
Private equity firms invest in roll-up-based businesses to consolidate markets, create economies of scale, and drive investor value. Although this strategy has been used effectively in just about every vertical, some industries are more conducive to these goals than others.
In general, roll-ups tend to be most successful in industries that have:
- No clear industry leader: There is no major firm that holds a significant share of the market.
- Little industry consolidation: The market is fragmented with many small players.
- Positive growth forecasts: The industry is expected to expand rather than contract.
- Returns to scale: In other words, an increase in inputs leads to a proportional boost in output.
Take the dairy industry, for example. While most areas do have a dominant player, smaller, family-owned farms are often prevalent within the same geography. If a company acquired several of these farms, the consolidated entity could offer a wider product range (cheese, powdered milk, etc.) and enjoy economies of scale (such as bargaining power with supermarkets).
Identifying industries that are “ripe for rollups” is a critical part of this strategy, but it’s only the first step. The next is to determine potential target firms. As the first pillar of the Buyer-Led M&A Framework says, companies should “never M&A on impulse.” In other words, acquiring firms need a detailed plan for what they hope to gain from any transaction.
So, what should corporate development firms be on the lookout for? Some helpful evaluation criteria include:
- Cultural fit: Consider the effort of integrating one firm with another, then multiply that by five- or tenfold. If these firms don’t share similar corporate cultures, this stage becomes all the more difficult. A strong cultural fit, however, goes a long way toward achieving Pillar 5 of the Buyer-Led M&A Framework: Win-Win Approach.
- Strong finances: Firms with significant debt, low profitability, and high fixed costs are likely not the best prospects for a roll-up acquisition.
- Scalability: The point of M&A is to encourage growth, so the ideal target firms should have the assets on hand to handle expanded operations.
On the other hand, certain traits should make investors leery of pursuing a roll-up acquisition. These “red flags” include: For a deep dive into roll-up strategy in the tech industry, listen to our podcast episode featuring Steven Freidkin, CEO and Founder of Ntiva, Inc., and Christopher Vollmond-Carstens, Chief M&A Officer at Ntiva, Inc.
Any organization considering a roll-up acquisition should also follow basic M&A best practices, such as thorough planning and due diligence, building a strong understanding of the industry, and engaging in careful hiring.
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Structuring and Executing the Deal
Learn how to set your roll-ups up for long-term success by maximizing value for both buyers and sellers.
Before structuring a deal, firms must first consider how much financing can be obtained. Typically, teams have a predetermined idea of how much equity they want to invest in a platform within a specific industry, whether through a single deal or a series of acquisitions. Next, they combine this equity with what they can get from a senior lender and then assess the difference (delta) relative to the seller's asking price.
If there's a significant gap, it needs to be bridged with a mix of rollover equity, earnouts, or seller financing. According to Gerry Williams, Partner at DLA Piper US LLP, transactions with an enterprise value of $25 million or less typically include these three tools as a means of distributing risk among the sellers. Seller financing might not always be practical; in such cases, a higher rollover and possibly an earnout might be needed to fill the gap.
In fact, negotiating earnouts is a common challenge during these transactions. Sellers usually believe they have a good chance of meeting the earnout conditions and may feel misled if they don't. They may even suspect the buyer of sabotaging their chances with unclear contract language.
This discrepancy between the buyer's skepticism and the seller's optimism can escalate into disputes. That’s why Gerry Williams recommends approaching earnout negotiations in four different “layers:”
- Performance metrics: What needs to be achieved and over what period? What are the key components of this measurement? If the target isn't fully met, is a pro-rata payout applicable, and if so, the minimum performance threshold for this?
- Earnout components: If an earnout is tied to gross profits, for example, don’t just refer to gross profits in general terms. Break down all elements contributing to gross profit in the business’s current context to ensure clarity in the earnout’s language and definition.
- Expense structure: Knowing how expenses are calculated currently versus post-transaction is critical, as it determines any limitations on altering the business's operational or financial structure post-acquisition.The language in the agreement needs to clarify that the earnout isn't solely based on the performance of the acquired business, but also considers the overall business health in relation to lender covenants.
- Potential scenarios: If the business is performing exceptionally well and attracts a substantial offer, how does this affect the earnout? Does it continue as planned, or is there an acceleration?
Another common issue is buyers being overly optimistic about the financials of the business. For example, they might have a 60 percent confidence level in the financial information provided.
That’s why conducting thorough financial diligence is so important. For any company implementing an acquisition roll-up strategy, due diligence effectively becomes a core part of its operations like finance or HR. As due diligence gets bigger, the acquiring company will need to hire more team members to ensure that it’s being conducted with the same rigor for every single transaction.
Get the complete Financial Due Diligence Checklist.
Integrating Acquired Companies
Discover strategies for addressing common challenges that arise during the all-important integration stage.
The integration stage is one of the most common points of failure for all types of M&A transactions. According to research by consulting firm KPMG, 70% of the value erosion for deals that fail occurs at the post-integration phase.
However, this phase is even more challenging for roll-up acquisitions. All things being equal, five smaller integrations usually mean five times the integration challenges. Below, we’ll go through eight of these common issues and share some suggestions for addressing each one.
- Maintaining momentum: By momentum, we mean business growth. If the goal of M&A is to generate value, any integration process that hinders growth is counterproductive. Therefore, integration teams have to fuse the companies with minimal disruption to daily operations, which means building a deep understanding of how each component of each company functions.
- Employee engagement: If employees are not fully engaged, the integration will almost certainly lose momentum and start destroying value. By implementing a change management program, however, integration teams can address this challenge head-on.
- Senior management issues: Inadequate managers are usually easier to identify in the integration process, but if that doesn’t happen quickly, the damage could be lasting. Clearly communicate with the integration team overseeing management that the actions they’re responsible for are monitored throughout the process.
- The culture shift: Culture may not be tangible, but it is real. Just ask any one of the failed megamergers that didn’t address it as part of their post-merger integration plan. Managing this challenge should fall to the change manager, who is usually a hired specialist experienced with the cultural issues that arise during a merger.
- Technology integration: Today’s companies have tech stacks that include dozens of software tools, so it’s not hard to see how technology integration can quickly create headaches. The first step in overcoming this challenge is simple: just write down the technology stack of each company. From there, the respective technology teams, perhaps with the help of an outside specialist, can establish commonalities and areas where systems integrations will be more complex.
- Synergy implementation: Identifying achievable synergies is one thing; extracting them is quite another. The challenge for CEOs is to turn these from a concept to cash flow, which involves a deep understanding of the cost and revenue drivers at each company.
- Customer engagement: The botched communication from Procter & Gamble to its external stakeholders after the acquisition of Gillette is an example of the importance of customer engagement. As with most integration challenges, customer engagement is all about maintaining strong lines of communication—especially with repeat customers.
- Communication: There’s not a transaction on record that failed because of too much communication. The integration team should prioritize informative, honest, transparent, and frequent communication as part of the process. If the deal is worth doing, let everybody know why and how they will benefit!
Creating an integration plan that works for all parties involved in a roll-up means ensuring the various systems, processes, and teams fit together seamlessly while also preserving what’s great about each company’s culture.
Under the Buyer-Led M&A Framework, building this plan falls to the buyer. One of the pillars of this approach is synchronized diligence and integration, aka the early connection between these two stages. Generally, both of these phases are planned, managed, and evaluated separately, creating silos between the two. However, smart buyers can set their firm up for a seamless transition by approaching diligence with an eye toward future integration. By synchronizing these two stages, firms can achieve Day 1 Readiness and immediately start seeing the results of synergy realization.
In any case, however, the resulting integration document must address the following:
- The hiring process
An integration usually forces a company to rethink its hiring needs and balance the short-term—retaining key talent from both companies to ensure continuity—with the long-term—hiring new talent that aligns with the strategic goals of the newly merged company. Benefits and compensation are key considerations when mapping out this part of the plan, as the company is adding employees to an already tumultuous environment.
- Overlap/redundancies
Staff redundancies are often named among a transaction’s inherent synergies, but identifying staff overlaps and firing a loyal employee are two distinct situations. As a result, the plan must be designed to be equitable and compassionate. The valued employees you hope to retain will be taking note.
- Technology
Technology can be divided into the short-term (CRM and ERP systems) and the long-term (core IT infrastructure issues such as cybersecurity). The integration plan, therefore, should not just unravel the maze of different systems in the newly merged entity’s technology stack but create a timeline that enables each system to be integrated with minimum friction.
- Employee performance
Training plans, employment review procedures, and HR systems must shift and adapt to the new company’s culture. There is a large overlap between company culture and employee engagement, so this section of the integration plan should seek to rhyme corporate strategy with culture.
Get our in-depth guide to Post-Merger Integration Planning.
Why You Need DealRoom for Your Roll-Up Strategy
Without the right tools, a roll-up strategy can quickly fall apart. Here’s how DealRoom streamlines every stage of the process.
Managing multiple acquisitions at once is no small task. While the growth potential is huge, so is the complexity of managing deals at different stages. With each acquisition comes a mountain of documents, endless spreadsheets, and a barrage of emails. As a result, M&A teams often find themselves constantly toggling between Excel trackers, shared drives full of sensitive information, and never-ending email and chat chains.
Without a centralized process, vital information slips through the cracks, stakeholders become misaligned, decisions get delayed, and risk is introduced into the process. Before you know it, a promising opportunity becomes a chaotic nightmare.
“Buyer-Led M&A is critical, especially when managing concurrent transactions. Achieving better outcomes relies on a unified, consistent process. This framework becomes even more essential at scale, where the complexities of multiple deals amplify the need for structure and efficiency. A Buyer-Led approach ensures teams stay aligned and successful, no matter how many transactions are in play.”
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From deal sourcing and due diligence to integration and reporting, DealRoom offers key features that simplify and accelerate each stage of your strategy, helping you avoid the pitfalls that come with managing simultaneous deals. As discussed above, the Buyer-Led M&A™ approach is increasingly being adopted by M&A teams as they pursue a roll-up strategy. By following this framework, buyers can lead with intention and a value-driven mindset, unlock synergyies, reduce risks, and achieve sustainable growth.
DealRoom is the only M&A platform purpose-built to for Buyer-Led M&A. In DealRoom, M&A teams can:
DealRoom’s dashboard lets you see all of your active deals laid out neatly in one location. Filter by deal stage, priority, transaction value, and date, and even save custom views that fit your needs and preferences. No more tab-hopping to find which deal is where—everything is clearly organized.
DealRoom acts like a digital command center, storing every piece of information related to a deal. This includes everything from seller data and deal size to spreadsheets and charts. Securely store and retrieve crucial documentation, record deal notes, and upload all deal-specific emails into the platform with just one click. Eliminate the frustration of managing scattered information across Excel trackers, VDRs, CRMs, and endless email threads.
One of the most important M&A stages is due diligence. With DealRoom Diligence and its built-in Virtual Data Room (VDR), teams can conduct due diligence and manage post-deal integration all in one place. This means the integration team can start planning before the deal even closes, reducing the time (and stress) between diligence and integration. In addition, the platform's AI features can speed up document reviews by up to 80%, ensuring your team stays ahead of deadlines.
With DealRoom, you don’t have to start new email threads every time a new task comes up. Instead, the right people receive notifications automatically, keeping the process moving smoothly. The platform’s comprehensive BI reports also save you 10+ hours per week with automated report delivery. AI-powered contract analysis extracts key deal terms and risks in minutes, reducing manual review time and ensuring nothing is missed.
Store, retrieve, and manage all deal documents with controlled access, ensuring only relevant groups have viewing privileges. Rest assured that all your confidential documents are safe inside DealRoom’s secure virtual data room. Granular permissions ensure only the right people are able to access the right information at each stage of the deal process.
Stop sending emails back and forth about Excel line items or diligence to-dos; instead, have real-time conversations directly within the platform. Tag stakeholders in specific diligence requests, discuss risks, and resolve them without ever leaving DealRoom. It’s like having a virtual meeting room that’s always open, saving time and preventing miscommunication. DealRoom’s excellent support and intuitive interface also make it easy for all stakeholders to dive into the platform.
Discover how real-world customers rely on the DealRoom M&A Platform to manage their roll-up acquisitions. At DealRoom, we’ve helped dozens of leading roll-up companies efficiently manage multiple transactions and accelerate deal closures. Below, we’ll share two specific examples of effective roll-ups and how these teams leveraged DealRoom to set their acquisitions up for success.
With DealRoom, they streamlined their roll-up strategy by bringing all their M&A activities into one secure platform. The tool’s communication features helped team members and stakeholders stay aligned and on track, leading to massive time savings: 40+ hours, to be more precise. In addition, they found that adoption was quite easy and everyone using the platform became very comfortable, very quickly.
Discover how real-world customers rely on the DealRoom M&A Platform to manage their roll-up acquisitions. At DealRoom, we’ve helped dozens of leading roll-up companies efficiently manage multiple transactions and accelerate deal closures. Below, we’ll share two specific examples of effective roll-ups and how these teams leveraged DealRoom to set their acquisitions up for success.
What the Liberty team needed was a single source of truth for all of their deal data, which they found in DealRoom. Having a central hub for all stakeholders made collaboration and decision-making much easier, and the platform’s Intuitive UI meant the solution was easy to adopt both internally and for sellers. In the end, making the switch to DealRoom saved them an impressive $200,000 just in the first year.
Discover how real-world customers rely on the DealRoom M&A Platform to manage their roll-up acquisitions. At DealRoom, we’ve helped dozens of leading roll-up companies efficiently manage multiple transactions and accelerate deal closures. Below, we’ll share two specific examples of effective roll-ups and how these teams leveraged DealRoom to set their acquisitions up for success.
With DealRoom, they streamlined their roll-up strategy by bringing all their M&A activities into one secure platform. The tool’s communication features helped team members and stakeholders stay aligned and on track, leading to massive time savings: 40+ hours, to be more precise. In addition, they found that adoption was quite easy and everyone using the platform became very comfortable, very quickly.
Discover how real-world customers rely on the DealRoom M&A Platform to manage their roll-up acquisitions. At DealRoom, we’ve helped dozens of leading roll-up companies efficiently manage multiple transactions and accelerate deal closures. Below, we’ll share two specific examples of effective roll-ups and how these teams leveraged DealRoom to set their acquisitions up for success.
What the Liberty team needed was a single source of truth for all of their deal data, which they found in DealRoom. Having a central hub for all stakeholders made collaboration and decision-making much easier, and the platform’s Intuitive UI meant the solution was easy to adopt both internally and for sellers. In the end, making the switch to DealRoom saved them an impressive $200,000 just in the first year.
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Sustaining Growth and Planning for Exit
Closing the deal is just the start. Keeping the momentum going is where the real work begins.
In our final chapter, we’ll talk about sustaining growth over the long term and describe how to set yourself up for a lucrative exit. Once the integration stage is complete and the newly-formed combined entity is operational, the name of the game is growth. That means maximizing synergies, achieving early wins, tracking key performance metrics, and demonstrating strong collaboration skills.
Let’s go through four ways these companies can impress their PE sponsors and showcase why they pursued the roll-up deal in the first place.
Now is the time to focus on what really moves the needle. Whether through additional M&A or organic growth, the goal is to allocate resources where they will make the biggest difference. We recommend leveraging data to determine what these high-impact strategies are, using insights from past performance to prioritize your efforts and identify areas with the highest potential ROI.
No group involved in a major acquisition wants to be left in the dark about how the deal is going. They expect regular updates, but not just any data: they want the metrics that matter. These are the numbers that show tangible progress: time-to-close, deal progress, and synergy realization. Make sure all of this data is readily available within DealRoom and quickly communicate any significant changes to key metrics.
Maintaining an open line of communication ensures you’re aligned with your PE firm’s expectations. Frequent updates and regular feedback help course correct when needed, allowing teams to adjust strategy on the fly without risking the relationship.
Many companies chase growth too aggressively, only to overstretch their resources. In doing so, they lose sight of the operational efficiency needed to scale sustainably. Instead, try to balance growth targets with operational realities. DealRoom’s automation features allow you to eliminate manual, time-consuming tasks, helping your teams spend less time on admin and more time executing strategic initiatives. With DealRoom’s BI reporting tools, you can also track performance, spot opportunities, and prepare for a high-value exit when the time is right. By staying the course and realizing hoped-for synergies, the results should offer major rewards for everyone involved.
Conclusion
Streamline Simultaneous Transactions to Drive Long-Term Value
Managing a single M&A transaction is already a big job. When pursuing a roll-up acquisition strategy, the difficulty level increases dramatically. However, the potential synergies and financial gains make this type of transaction appealing to investors, especially those that focus on fragmented, high-growth industries.
To realize these hoped-for gains, private equity firms need to thoroughly research potential markets and targets, create a detailed integration plan, and combine the purchased entities into an entirely new firm. To do that, they need the right tool. With DealRoom, M&A teams can manage multiple acquisitions simultaneously using a purpose-built platform—and set their roll-up strategy up for long-term success.
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