Financing Industry Roll-Ups
Industry Roll-Ups are where an industry’s many players are consolidated into smaller groups for economic benefits. Recessions, new government regulations, or other aspects of the industry that may be stifling profits end up providing incentives to consolidate.
A principal reason for an industry roll-up is to achieve economies of scale in purchasing, marketing, information systems, logistics, distribution, and top management. Consolidated businesses also have less risk from the impact of an unsatisfied customer and have the reward of being able to recruit or keep key employees.
The roll-up may be initiated by investors who are seeking investment opportunities, or by a larger company in the industry. Companies that are acquired in a roll-up are usually small, independently-owned businesses whose owners believe in the economic benefits of combining forces with a larger organization. Owners of the acquired companies also have the opportunity to walk away from the day to day headaches with large sums of money in their pocket, employment contracts, and may be rewarded with nice pension/benefit plans.
An example of this is the pharmacy industry. It is a well established industry and is still experiencing sales growth. However, even as sales increase, pharmacies have seen a steady decline in both their profit margins and business values due mainly to government regulations. There has also been a shortage of pharmacists - a required key employee.
To counter this, the pharmacies with better financial wherewithal are acquiring their local competition. This results in more customer traffic through a single location instead of multiple locations. This can dramatically drive up total sales while driving down the administrative and overhead costs per customer.
To help fund the pharmacy acquisition roll-up, www.PharmacyValuations.com has developed a program backed by major financial institutions that provides funding up to $100 million per transaction. This allows an individual business, or an investment group, the capital to acquire and combine pharmacies in geographic areas.
Funders are willing to provide the capital because they recognize that combining the individual businesses provides a greater total business value than if each individual business value were added together. This synergistic value reduces the risk of funding the individual acquisition.
Many businesses are unsuccessfully looking for funding to keep their business a float. It may be to their benefit to change strategies and look at funding an industry roll-up instead.
Wall Street and large companies have participated in industry roll-ups for many years. During these economic times it could be financially rewarding for a Consultant, or an established company in a fragmented industry, to research the possibilities of a roll-up.
To consider an industry roll-up:
1. An industry that has many fragmented players and would
benefit by consolidating.
2. Develop an investment group or have a dominant player in the industry lead the roll-up.
3. Obtaining the capital backing required for the acquisitions that are required in this process.
4. Target suitable acquisitions, fund the first deal, and complete a win/win transaction.
5. Repeat step 4 until the parameters of the roll-up are accomplished.
6. Once this new larger company has been streamlined and has a track record of performance, it can now go public with an IPO, or sell to a larger company. Both should reap large rewards for the investment group who invested time and money in performing the roll-up.
Some industries that have experienced
recent industry roll-ups:
Computer services Roofing
Internet Services Temporary Staffing
Pharmacies Waste Management
1. It doesn’t take Wall Street to start an industry roll-up.
2. Companies needing financing may greatly benefit their customers, employees, and their bottom line by getting involved in an industry roll-up.
3. Even companies in bankruptcy can benefit by being acquired.
4. Investment Groups acquiring companies in bankruptcy may find benefits in debtor-in-possession, and post petition financing.
For assistance regarding any business funding project,
please Contact Us.