In corporate development, it often makes sense to buy a company or a competitor for strategic reasons. On occasion, it makes sense to roll-up several, dozens, or hundreds of companies in order to consolidate a niche, a market, or even a whole industry.

I’ve always found it interesting that the term “roll-up” waxes and wanes in terms of its political correctness. Why, to some, is there something inherently distasteful about one company gobbling up a bunch of others?  Is it too greedy? Is it unfair? Does it put too many people out of work?

I’m an unapologetic big fan of roll-ups. I like them as a business strategy, I think they create value for shareholders, and I think they’re consistent with the purest definition of capitalism wherein markets are competitive and the strongest survive. Bigger is often simply better.

Furthermore, no matter what you care to call them, there always have been and there always will be roll-ups. They are sometimes called an aggregation, or a consolidation, or a build-up. Virtually any series of strategic acquisitions, bolt-on acquisitions, or vertical acquisitions could really be called a roll-up. As long as it is more advantageous for businesses to combine than remain apart, there will always be roll-ups – no matter what they’re called.

More than any other factor, industry conditions dictate the terms for roll-ups, of course. There are dozens of reasons why an industry or niche may be ready to consolidate. Perhaps the market is just mature; there is too much capacity and industry participants are struggling financially. Or maybe capital investment has given certain participants advantageous access to a new, game-changing technology. Or, as was the case for a roll-up I recently worked for, changes in government regulation have created an opportunity to roll-up a specific niche.  Any number of industry circumstances could compel companies to strategically align via a roll-up.

Some industries are simply (and empirically) ready to consolidate. Another of my former employers was rapidly rolling-up a B2B industry niche. We bought literally hundreds of mom and pop operators. During my nearly four-year tenure with the company, I never made a single out-bound sales solicitation to a target. You heard that right — every company we bought came to us.  And if that isn’t the definition of a roll-up in a market that is ready to consolidate, I don’t know what is.

Next time, more on roll-ups…

Posted by: Mory Watkins