Roll-Up Mergers 101

What is a Roll-Up Merger?

A Roll-Up merger, otherwise known as a “Roll-Up”, is a business strategy that involves the purchase of multiple companies with the intention of combining them into a larger company. Oftentimes, Roll-Ups are conducted in high-growth fragmented industries. A “fragmented industry” has many businesses within that industry where no business has a significant market share or strong influence. In some cases, Roll-Ups enable a business to consolidate with other businesses to obtain efficiencies by vertically integrating operational capabilities to provide different services in the same market that it would otherwise not be capable of providing.

The Process

Though there are variations to the Roll-Up strategy, it typically involves the following:

  1. An investor identifies an attractive market for a Roll-Up. The investor funds a holding company to purchase assets of select target companies being combined in the Roll-Up, or it seeks the services of a promoter to raise the necessary capital to accomplish this transaction. The “target companies” are the companies being acquired by the holding company.
  2. Ownership interest in the holding company, cash, or the assumption of debt of the target companies are offered as consideration to the owners of the target companies in exchange for ownership interest of the target companies.
  3. Once the Roll-Up is complete, the investor, promoter (if applicable), and owners of the target companies have an ownership stake in the holding company.

When to Consider a Roll-Up?

As with any growth strategy there are inherent risks, however, a Roll-Up should be considered in the following situations:

  • Increasing Market Presence. A business may start in a geographic market or area and eventually desire to grow its market presence. There may be other businesses in a new desired location or market in which a Roll-Up could eliminate both potential barriers to entry and competition to allow for better market penetration.
  • Developing Products. Oftentimes expansion requires new product development which can be costly. By identifying businesses with a proven track record of success in an industry as potential targets, a Roll-Up can provide the groundwork for cost-effective product development and expansion.
  • Eliminating Competition. When multiple businesses offer similar products within a market, it can be difficult for one business to stand out among its peers. Performing a Roll-Up with businesses whose operations are strategically aligned increases a business’ opportunities to gain market share and eliminate potential competition.
  • Talent Acquisition. Having a team composed of talented and experienced individuals is critical to the success of any business and may prove difficult for certain businesses to recruit such individuals. A Roll-Up allows a business to acquire the desired talent without difficulties of recruiting select individuals and incurring expenses for talent acquisition costs.

Example of a Roll-Up

One of the most well-known examples of a Roll-Up involves Waste Management, Inc. (“WM”), a waste management, comprehensive waste, and environmental services company. In 1968, WM was incorporated as a holding company to combine 133 target companies consisting of local trash haulers. In 1971, WM went public, and shortly thereafter, in 1982, it became the largest waste hauler in the United States.

If you are considering a Roll-Up, our expert attorneys at Waugh PLLC, PLLC can help you decide if it would be beneficial and guide you through the important steps of this merger strategy.