Private Equity Experience

Rollin' Up Value: The Strategy & Risks of Private Equity Rollup Mergers

Emily Sander Season 1 Episode 16

Overview: 

In this episode of The Private Equity Experience, Emily, Rory, and Ed dive into the world of rollup mergers in private equity. Rollup mergers involve acquiring and consolidating multiple smaller companies in the same industry to create a larger, more efficient entity. The hosts discuss the intricacies, challenges, and potential pitfalls of this strategy, providing insights into how private equity firms can navigate these complex transactions successfully.

Key Discussions:
Understanding Rollup Strategies:
A rollup strategy involves acquiring and integrating multiple businesses in the same industry to achieve economies of scale and cost reductions.
Example: Consolidating independent accounting firms into a larger firm to leverage shared resources and economies of scale.

Benefits of Rollup Mergers:
Economies of Scale: Consolidating businesses can lead to significant cost savings
through shared resources, operations, and infrastructure.
Increased Valuation: A larger, integrated entity often commands a higher valuation multiple.
Operational Efficiency: Standardizing processes and leveraging technology can lead to operational improvements and cost synergies.

Challenges & Risks:
Integration Complexity: Merging multiple businesses with different cultures, processes, and systems can be challenging.
Regulatory & Antitrust Concerns: Regulatory scrutiny may increase as the consolidated entity gains market share.
Financial Risks: Leveraging debt to finance multiple acquisitions can increase financial risk, especially if acquisition targets underperform.
Customer Alienation: The loss of personalization and unique value propositions can drive customers away.

Execution Matters:
Hiring Experienced Executives: Bringing in experienced managers who understand the complexities of business integration is crucial.
Transparent Communication: Being transparent about rollup strategy with potential acquisition targets and investors can mitigate future issues.
Risk Management: This strategy requires careful planning and continuous monitoring to mitigate both financial and integration risks.

Listener’s Questions:
Q: Can a founder implement a mini rollup strategy to make their company more attractive to private equity groups? 

A: Yes, positioning your business as a scalable platform with integration capabilities can make it more appealing to investors looking for a rollup target.

Q: Are there private equity firms that specialize in rollups? 

A: While many firms may incorporate rollup strategies as part of their broader investment approach, few specialize exclusively in this area. The successful execution of a rollup often depends more on the depth of operational expertise within the PE firm rather than specialization alone.

#PrivateEquity #RollupMergers #MergersAndAcquisitions #InvestmentStrategy #BusinessIntegration

Who We Are

If we haven’t met before—Hi! We’re a team of professionals who’ve worked together at multiple companies, seen private equity from all sides, and are here to share what we’ve learned to help you succeed. Ed Barton brings decades of tax and financial strategy experience; Rory Liebhart is a finance and M&A pro with a track record of high-growth exits; and Emily Sander is a former Chief of Staff, multi-time author, podcast host, and founder of Next Level Coaching, helping leaders and organizations accelerate their growth.


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emily-sander_1_07-08-2025_160205:

All right. We are on the Private Equity Experience Podcast.

rory-liebhart_1_07-08-2025_160205:

It's good to be back.

emily-sander_1_07-08-2025_160205:

two quick questions to get us warmed up here. So we'll settle this once and for all. Please stack rank the following kinds of rollups fruit, rollups sushi roll, rock and roll payroll Ed. Go.

man-myth-legend_1_07-08-2025_160205:

always is at the top of the list. And then I'll do rock and roll. Then I'll do. Sushi roll. Then I'll do a fruit rollup.'cause fruit rollups are just like leather fruit crap. I mean, that's, it's like,

emily-sander_1_07-08-2025_160205:

They're leather sugar. Yeah, that disolve in your mouth,

rory-liebhart_1_07-08-2025_160205:

Yeah,

emily-sander_1_07-08-2025_160205:

but if running a marathon, you might need that.

rory-liebhart_1_07-08-2025_160205:

Yeah, I was just gonna say, if you're into endurance things and having a fruit roll, uh, at hand is not a bad, a bad way to go, you know, it's pretty dense, but I'm with Ed, you know, payroll tops both as on the receiving end. As a CFO, you always wanna be making payroll. That means you're doing all right. Um, rock and roll. I, I'm into that as well. Um, sushi rolls. Yeah. Uh, I, I love a good tempura roll. So those, those tend to tend to hold weight in my world too. So you. to

emily-sander_1_07-08-2025_160205:

Excellent.

rory-liebhart_1_07-08-2025_160205:

with those. Those are

emily-sander_1_07-08-2025_160205:

Yeah, there we go. Basically, I'm picturing Ed and Rory doing payroll while listening to rock and roll. They're eating sushi rolls and they'll have a fruit roll up for maybe like a dessert once in a while. Um,

rory-liebhart_1_07-08-2025_160205:

exactly.

emily-sander_1_07-08-2025_160205:

second quickfire question. If you had to own 17 of the same kinds of businesses, which ones are you picking and YA coffee shops. B dog groomers. C car washes, D nail salons, E, mini golf courses.

man-myth-legend_1_07-08-2025_160205:

Oh, car washes, that's easy. Those are far more passive than the others. I

emily-sander_1_07-08-2025_160205:

Oh,

man-myth-legend_1_07-08-2025_160205:

op car washes and kind of go. Fill up the soap and collect my coins,

rory-liebhart_1_07-08-2025_160205:

Yeah.

man-myth-legend_1_07-08-2025_160205:

and that's it, man. The rest of'em, I gotta get people to actually do the work.

rory-liebhart_1_07-08-2025_160205:

I like, I like that. I also, the others, I would probably put dog groomers up there. So it's

emily-sander_1_07-08-2025_160205:

oh.

rory-liebhart_1_07-08-2025_160205:

a, a luxury and a necessity for people. So you could do all sorts of crazy creative things to grow that kind of business. You can offer financing and they're typically probably a good credit risk. People are gonna look to pay their, uh, bills related to their pets before, you know, before other things. And after a mortgage in the car probably. So. that would be a good one. Um, probably hard to build a back office for it, but Could be done. Could be done for sure.

emily-sander_1_07-08-2025_160205:

I like how seriously you're taking that question thought out from a financial perspective. Awesome.

rory-liebhart_1_07-08-2025_160205:

Yeah.

emily-sander_1_07-08-2025_160205:

Rory, take us away. What? What is a private equity roll up strategy?

rory-liebhart_1_07-08-2025_160205:

Well, I like a lot of these things. I would say in the private equity world, the terminology is a lot of times pretty self-explanatory, which I'm, I'm grateful for. But, uh, you know, what it is, is really, it's a strategy to, to investment capital to buy up, you know, kind of, uh, businesses in the same industry, but in a kind of, uh, be like a kind of a fragmented sector perhaps. Put'em together, make them better, eke out costs, take on debt, sell it later at a higher multiple. In a, in a nutshell, that's what it is. There's a lot more to it, of course, but that's what, uh, what it is at the fundamental level

emily-sander_1_07-08-2025_160205:

That's a good, that's a good summary, ed.

rory-liebhart_1_07-08-2025_160205:

Podcast over, no, I'm kidding.

man-myth-legend_1_07-08-2025_160205:

No, and it's far more common than you think. We've talked a fair bit, you know, during the podcast and in the book around the strategic acquisition. So you know, you wanna get acquired by a strategic.

emily-sander_1_07-08-2025_160205:

Mm-hmm.

man-myth-legend_1_07-08-2025_160205:

of times the strategic that's acquiring you is private equity backed, and it's actually part of a rollup strategy. And I can kind of point to a number of the companies I've worked with on a private equity side or own personally, where part of the strategy is to look for a rollup. And I'll give an example in professional services, you know, which is, which is where I sit today. You can look at, uh, let's say an accounting firm. Accounting firms will trade small ones, 2, 3, 4 partners, you know, solo practitioners. They trade at two x to three x ebitda. A well-organized mid-size accounting firm will trade at seven to 10 x ebitda. And so there's a strategy as Rory noted, where you go, okay, I'm gonna find these small firms that. know, they've got a good book of business, they've got an interesting niche, they've got something, but I'm buying it at three x.

rory-liebhart_1_07-08-2025_160205:

Yeah.

man-myth-legend_1_07-08-2025_160205:

it into my ecosystem. I it more efficient. I put new systems in place, I put new processes in place, and now I get an arbitrage, essentially free money of like it doubles in value just by bringing it into that ecosystem. And if I can do that four or five times, I could grow a very large firm and make a ton of money doing it now. The execution is the hard part, but the concept is very straightforward.

rory-liebhart_1_07-08-2025_160205:

Yeah.

emily-sander_1_07-08-2025_160205:

Okay, so I'm hearing like some of the same things though because you go in, you have to make the business more efficient. Maybe the internal processes are not. Set up like they should be, or you need some, some different things here and there. So that part seems similar to what we've talked about in the past, but then you're putting it in this strategy, in this ecosystem where you're, you're leveraging, you're arbitraging. The nature of it almost is that.

rory-liebhart_1_07-08-2025_160205:

Yeah, I mean, there is so much to it and I, it can be a highly effective strategy in, in one that is, uh. pretty much the private equity playbook, but it is also one where it could be a really great spreadsheet exercise, but making it happen and come together, along the lines of how you're trying to go ahead and build value and sell. It's way more easier said than done. Um, think about what we're talking about here, and I'm not saying every single. Rollup instances is, uh, you know, uh, fragmented sort of independent businesses. But most of the time that's where you're gonna get the most value if you can execute it. But think about any independent business you know of likely has its own culture, likely it has its own ERP system, its own way of going to market, you know, yada, yada yada. Has its own independent strategy. And then to try to bring in other businesses sort of in that same, you know, uh. Cohort and then make them all come together, you know, cohesively. That's, that's really difficult to do. And, you know, us being in leadership and it's, it's so much of a people thing. It's so much of a systems thing. making that happen is, is oftentimes the hardest part, right? Um, you know, the, if the market's there and you can get bigger multiples by combining businesses, great. But there's a lot of spade work that has to happen to get yourself to that point where you're ready to sell and realize that value.

emily-sander_1_07-08-2025_160205:

And just for folks listening, are we talking about the exact same types of business, like accounting firm, accounting firm, or is this um, I'm trying to think of one off the top of my head Accounting firm and like something adjacent to an accounting firm that they would typically need. I.

man-myth-legend_1_07-08-2025_160205:

A lot of times if you're rolling up, you're rolling up something that's very similar, so you're, you roll, roll up essentially implies that you're taking a bunch of smaller things and you're rolling'em into a bigger thing. The vertical integration, you know, that you're kind of talking about, which is, well, maybe I've got a, and going back to our, our. Prior employer, um, we acquired a smaller web services provider, and then we acquired a different web services provider in a different niche. But it was basically the same business. It just was in a different vertical. That's a classic roll-up strategy. We acquired two different businesses, rolled those up, built some efficiency into it, you, you know, kind of redeployed the best people to, to the right places and executed. Um. at various levels of good. Um, but the, the process is normally not, well, I've got a accounting firm and now I'm gonna go roll up a law firm and then I'm gonna go roll up a HR consulting firm. You can do that, but you really, that takes all the risks that Rory just talked about with people, processes, tools. And technology and, and amplifies those risks because you now have, it's not the same business. The, the key is basically the McDonald's method of, you know, you acquire these businesses and then you, you work to put them into a framework that is proven, that's efficient, that's scalable, to be able to realize the value out of those businesses.

emily-sander_1_07-08-2025_160205:

You put'em into a framework, but it's not a franchise.

rory-liebhart_1_07-08-2025_160205:

Right. Yep.

emily-sander_1_07-08-2025_160205:

Okay.

rory-liebhart_1_07-08-2025_160205:

It's a good, good way to think about that. Exactly. So yeah, it's, um, it, it's one of those areas where if you're gonna have a rollup strategy, I. You really, really need to understand the customer from each of the independent business standpoints. And this could easily turn from a private equity podcast to just a business leadership podcast in so far as you, if you alienate your customer by making, making your sort of roll up, you know, merged business portfolio more generic and you lose some of the nuance with your customers, especially for independent businesses, you could basically be cannibalizing the overall picture for yourself. So, you know, at the very end of the. You, you need to be able to do the things that make these, uh, these strategies create value, which is get cost synergies, get supply chain leverage by being bigger, get access to cheaper debt by being bigger, et cetera, et cetera. But if you, even if you do those things and yet you alienate your market, you're in somehow by making things less, uh, personalized or independent, whatever. I mean, it's a risk that you take to. Destroy the value of your company this, you know, while you're financially engineering your way to more value, if that makes sense. So you can't lose, well just can't lose sight of the fundamental aspect of, know, treating your customers well, understanding your product market fit, you know, delivering basically.

man-myth-legend_1_07-08-2025_160205:

And in some of those, in some of those cases, the risks are, you know, dramatically different. So for example, executed, I executed on a roll up strategy in the glass business, glass contracting business. So glazing contracting, I. Much less risk because folks tend to hire you for a project. You don't have these long-term relationships. Your folks tend to be, you know, you either have a unionized workforce or you have, you know, tech, a technical workforce that is in and out, but they're.

rory-liebhart_1_07-08-2025_160205:

Mm-hmm.

man-myth-legend_1_07-08-2025_160205:

I don't wanna say they're homogenous, but you're able to replace them easier, um, from a skillset perspective. Not necessarily find them easier, especially in the trades, but it, from a skillset perspective, the A glazer as a glazer as a glazer tends to be, I. Um, you go into accounting, for instance, where I sit today and you have long-term relationships. It's a very personal relationship with your CPA. So all of a sudden they decide to leave or you execute the strategy and some of the employees decide, you know,

emily-sander_1_07-08-2025_160205:

Oh yeah.

man-myth-legend_1_07-08-2025_160205:

and they take the clients with them. That becomes a very tough. Strategy to execute. So rollups, that execution piece, like Rory said, the alienation of the customer base, the risk level is dramatically different depending on type of what business you are in and, and what your interactions are with those clients.

rory-liebhart_1_07-08-2025_160205:

Yep. Yeah.

emily-sander_1_07-08-2025_160205:

So if I'm a PE firm, do I decide like we're we're just doing rollups across everything. We're like, like a rollup PE firm, or is it we're gonna deploy this strategy? For some, or in some conditions or for like, how do I decide as a PE firm how to utilize the rollup strategy?

man-myth-legend_1_07-08-2025_160205:

interesting thing from my C is. Every PE backed business that I've worked in has all said we're gonna, we've got capital available and we're gonna go look for, strategic acquisitions

rory-liebhart_1_07-08-2025_160205:

Yeah.

man-myth-legend_1_07-08-2025_160205:

up into this business. In most cases, they've actually done that, and in most cases, that has also been. At least in a couple cases. That's also been when I was brought in because it was not going well.

rory-liebhart_1_07-08-2025_160205:

Yep.

man-myth-legend_1_07-08-2025_160205:

it was, you know, the, the, the roll up strategy is sexy on paper. It's extraordinarily difficult to execute in practice, and you need folks who both get the vision of, okay, here's what we're trying to accomplish. Are willing to, and again, this is my bias, but willing to go, okay, maybe the better mousetrap sits with the acquired company. So, you know, we're, we're gonna, we're gonna kind of take the best of everything and you become a true operator. How do I operate for greatest efficiency? Um, but it is kind of in the playbook of pretty much every private equity backed business I've been in. It's just whether that play is executed well. Or in some cases they're like, yeah, well we said that, but we don't have capital left in the fund, so we're not gonna execute on that anymore.

rory-liebhart_1_07-08-2025_160205:

Right. Or in other cases, I've been part of a, a group, I've, I've, I've, uh, been part of a group that was financial services rollup strategy, so maybe not exactly homogenous as saying, you know, like a accounting firm. Accounting firm, but basically complementary. You know, tech enabled services, business, yada, yada, yada. So, so by virtue of the capital markets being robust, the m and a market being robust, one of the strategies that can, that is employed sometimes is go ahead and, and buy up a bunch of companies, start the integration process, but basically hand off the half integrated company to another PE firm. To

emily-sander_1_07-08-2025_160205:

Oh.

rory-liebhart_1_07-08-2025_160205:

of the way. And so a lot of times that's done unintentionally where you know, you, you execute a roll up strategy and you're just like, this is way harder than I expected. But maybe in that time that you held that business, the capital markets improved in your favor and the m and a market got better. So you could actually sell for high on multiple, even though you didn't realize the. The value creation from the actual rolling up itself. So then you, you, you trade it off and you sell that as an excess to your, uh, success to your LPs, and you're off and you're doing it again. But, but that's just to say that some of these things get half baked and, and maybe even sometimes just par baked even, uh, and then, and then traded. And it can lead to be, it could actually turn out to be a successful deal, uh, just by virtue of luck and some timing and, you know, some vision, but maybe not as much execution.

man-myth-legend_1_07-08-2025_160205:

Now.

emily-sander_1_07-08-2025_160205:

without the luck and timing though, can you walk me through the arbitrage piece? Like let's say, I mean like what's an example, like an HVAC company or a landscaping company or a whatever veterinarian company. Pick your, pick your flavor here, but how, how do I get that arbitrage advantage?

man-myth-legend_1_07-08-2025_160205:

you actually hit on one that's, that is in the, the sexy category right now, which is veterinarians, um, on roll-ups, um, veterinarians, dentists, uh, optometrists, a lot of the medical professionals.

rory-liebhart_1_07-08-2025_160205:

exactly.

man-myth-legend_1_07-08-2025_160205:

so. how the, the rollup strategy works. Here's how the arbitrage works. You've got, you know, let's call it a veterinarian. They've got, you know, it's a doctor with a couple vet assistants and, you know, they're serving. And I'll, I'll use, I'll use a, a composite of a few of my clients'cause I've got a few that are in that business.

rory-liebhart_1_07-08-2025_160205:

Yep.

man-myth-legend_1_07-08-2025_160205:

they've got, you know, they're maybe doing a couple million dollars of business and they've, they do farms out in Arlington, uh, Washington VCA, which is Vet Corporation of America. Comes up to'em and goes, and, you know, the dock might be in her, in her late fifties, kind of looking at what the transition looks like, and you've got a couple choices. You could sell the practice or not. Um, or you could close it down or, or try and bring someone in and transition over time. And VCA comes in and goes, look, here's what we can do. give you cash, we're gonna retain you for 10 years. We're gonna give you options, or we're gonna you stock in the business. And what's gonna happen is you're gonna be on the VCA system. So we're gonna do your marketing for you. So now you don't have the marketing cost. We're gonna do your accounting for you, we're gonna do your payroll, we're gonna do your taxes, we're gonna, so now you eliminate a lot of, like Rory led off with the back office piece, the back office. Yeah, all that goes away. So now you save yourself 10, 15 points on your bottom line, just on the back office. And then they go, okay, well this business, if you look at the risk premium, you would pay for a business associated with a sole practitioner. sole practitioner doctor in a small town, that risk premium's gonna be pretty high. So you might only pay three X EBITDA for that business, but now you've all of a sudden got VCA as your owner and they've got 450 vets that, that they've got in their ecosystem, including folks fresh outta college all the way through getting ready to retire. And so. Doc decides that she wants to retire a little bit early. They've got 450 vets that they can go, we're gonna transition you. They're an employee, we're gonna transfer you to Arlington. You're gonna take over this practice. So now that risk premium goes down and you might go from a three X EBITDA to a six X or seven X ebitda. And so you've not only cut cost because you don't have redundant back office and those things. You've also reduced the risk in the business because you've got e in professional services like, like vets or optometrists or what have you, that that risk of it's all revolving around that single doctor or those two doctors now is mitigated by the fact that they've got a pool of professionals that they're gonna be able to, to draw and attract, recruit, um, and so it drives value up. And then when they go to sell that business, they go, now it's not a$2 million practice. It's really. A component of a$250 million medical medical practice that they're selling, you know, for two, two or$3 billion as opposed to, you know, one X revenue or three x ebitda.

rory-liebhart_1_07-08-2025_160205:

Yeah.

emily-sander_1_07-08-2025_160205:

Okay, so there's some different players in there though.

rory-liebhart_1_07-08-2025_160205:

yeah. And you

emily-sander_1_07-08-2025_160205:

There's.

rory-liebhart_1_07-08-2025_160205:

one that enters the fray, you know, as is the case pretty much with, I would almost venture to say almost every private equity deal is, is lenders. So you might ask, you might be asking a question. go roll up a bunch of businesses, that's just gotta be a lot of capital. You gotta put out the door. Uh, yes, to a degree. Uh, a lot of it not your own, uh, if you have a lender that you're working with. And so if you might, you can just think about people. We like to, in our book, we like to analogize real estate. This is, this can also be the same, right? Like you go buy one veterinary practice and that has cash flow to it. you can use the assets and the cash flow of business. To secure more debt financing to go buy another one,

emily-sander_1_07-08-2025_160205:

Ah.

rory-liebhart_1_07-08-2025_160205:

buy that one and it has cashflow characteristics and it's got some assets and it's got some predictability. Banks like that, you can go buy another one and another one. You keep stacking and stacking and stacking until you get to have a big enough portfolio. you can demonstrate that it's working cohesively and you can continue to get better financing and better financing, and then you're increasing your ROI to your original LP investors for that original bit of equity they put in, and you're using debt smartly. Now, that also poses some of the biggest risk in this whole thing. Let's say you have four portfolio rolled up. One of'em goes sideways, but you saddled the whole thing with a bunch of debt. I. Well, that could pose a lot of covenant issue or just general non-performance issues as it relates to, uh, keeping up with the terms of your loan. So you might end up finding yourselves with. Tight to covenants or, you know, low on cash flow. So you end up having to restructure things and it, and in a worst case scenario, by using all that leverage, you could tank the whole deal for your LPs. But, um, you know, that's, that's what these, you know, financial engineers are paid to do. They're very smart. They generally use, use debt wisely, but it, it is a big risk for sure.

man-myth-legend_1_07-08-2025_160205:

The other,

emily-sander_1_07-08-2025_160205:

So

man-myth-legend_1_07-08-2025_160205:

Rory just hit on, on the. On the leverage side is your financial engineers, your private equity folks, most of them do not have on the ground practical experience in actual execution of a rollup. They've done it by spreadsheet. They've done it, you know,

emily-sander_1_07-08-2025_160205:

textbook.

man-myth-legend_1_07-08-2025_160205:

as a, as a portfolio. As a company in a portfolio.

rory-liebhart_1_07-08-2025_160205:

and pitched via PowerPoint.

man-myth-legend_1_07-08-2025_160205:

Yeah. But they, they have not had to be in the trenches. And so in some cases, and I have run into this.

rory-liebhart_1_07-08-2025_160205:

I.

man-myth-legend_1_07-08-2025_160205:

Where, you know, and I, I won't name names, but everybody knows probably who I'm talking about. was a rollup where basically the chief operating officer and I said, do not do this. This makes no sense. There are no, there are no efficiencies. I see vapor in their, in their technology. It doesn't make, well, you know, we're gonna move forward'cause this is, this just makes a world of sense for us. It did not, and it distracted. It was, it was a nightmare for a year and a half until we essentially sold the business again. it, you know, the, the execution part. Is hard. And if you do that with leverage, you've added a significant amount of risk into the deal. And if you don't execute, and a lot of times, as we've talked about on the pod, the, the leverage that's added is coupled with covenants and those covenants and you know, kind of factor in the expected efficiencies associated with

rory-liebhart_1_07-08-2025_160205:

Yep.

man-myth-legend_1_07-08-2025_160205:

acquisition and the cost savings and the increased cash flow and all those things. And if that doesn't get realized, you're gonna blow yourself up real fast.

rory-liebhart_1_07-08-2025_160205:

Mm-hmm.

man-myth-legend_1_07-08-2025_160205:

execution piece, you know, if you're in the. you're on the operator side of a rollup strategy, so you're a, you know, kind of a, an operating management team, if that is a stated strategy of your PE sponsor and they are actively looking for rollup candidates, it is imperative that you be part of that process and that you understand what's being asked of you going into it from a thesis perspective, because it may or may not.

rory-liebhart_1_07-08-2025_160205:

Yeah.

man-myth-legend_1_07-08-2025_160205:

They may take a very good business and blow it up because they've gotten too aggressive on a roll up and don't understand the actual blocking and tackling of that integration and, and efficiency gain.

rory-liebhart_1_07-08-2025_160205:

Yeah. And that, that raises another really important point, and you've, you've actually been in this situation, ed, where you're one of the sort of, call it, uh, you know. Executives parachuted in to try to execute one of these things. You, you did it in the restaurant space specifically, and, and I'm gonna use another kind of, uh, derivative of that is to say you, a lot of times you just need to figure on bringing in executives and professionals. That know what it takes to do an integration, to do a roll up. Not even necessarily an industry pro ed. You, you weren't necessarily a restaurant retail guy, but you're a, you were an executive manager that knew how to put businesses together and get people to walk in the same direction together. So that's what it takes. You have to budget that in and, and these, these folks, uh, they're high value, so they ain't cheap. Like bringing in a team like that is a massive investment in its own right. So it just, just doesn't happen magically. It takes. Real grit in, in the trenches work to bring it all together. Um, and maybe a little luck too, you

man-myth-legend_1_07-08-2025_160205:

Mm-hmm.

emily-sander_1_07-08-2025_160205:

And you said if the PE sponsor has a stated strategy of, of a rollup, but do they always announce. Said, is that transparent? Are they flying by the seat of their pants and figuring out as they go, or is that always Nope, we're doing a rollup strategy. Everyone knows about that.

rory-liebhart_1_07-08-2025_160205:

not flying by the seat of your pants. I would say that I think there's some, some decision making that can be flip at times, but I'd say on something like this, you're generally not flying by the seat of your pants, but, but sometimes it is a matter of an evolving understanding of the business. So like a, maybe a PE. Gets into a business and realizes that the industry is way more

emily-sander_1_07-08-2025_160205:

Mm. Yeah.

rory-liebhart_1_07-08-2025_160205:

than they originally anticipated. And some of that comes from, you know, they buy a company and the founder, they get to know the founder more, that they learn the business that much more, figure out the trials and tribulations of being in that space. And they're like, well, screw it. I got a ton of capital to deploy. Let's go roll this whole thing up. You know, if, if your business has this much to unlock and it's been run inefficiently until we just bought it. Imagine these other businesses are in the same boat, we can extract more value that way, so let's just go big. That happens for

man-myth-legend_1_07-08-2025_160205:

Mm-hmm.

emily-sander_1_07-08-2025_160205:

But with each one of those like turns, which each one of those additions. It looks like a straight line on a spreadsheet, but then you have the market conditions and the industry and the leadership teams and the synergies and the niches that you might blow up by getting too big. So all of these, it's each level.

rory-liebhart_1_07-08-2025_160205:

you know,

emily-sander_1_07-08-2025_160205:

Oh man.

rory-liebhart_1_07-08-2025_160205:

things. If you start to roll up too much, perhaps you, you bring an antitrust type of, uh, perspectives, things like that. I don't, we, you don't often think about that, you know,'cause you only think about that with like, you know, the largest companies in the world. But you know, it, it is a consideration. Regulatory factors that may not be apparent out the gate, but as you get into it could, could emerge for sure.

man-myth-legend_1_07-08-2025_160205:

Yeah, what I would,

emily-sander_1_07-08-2025_160205:

Okay.

man-myth-legend_1_07-08-2025_160205:

say em is with one ex, maybe one exception, every private equity backed business that I've been associated with has been acquired by another business executing a rollup strategy. So

emily-sander_1_07-08-2025_160205:

Okay.

man-myth-legend_1_07-08-2025_160205:

they've, they've been acquired by, ultimately acquired by a strategic buyer, oftentimes backed by private equity. Although the, the one Rory, Rory wrote all the way through was a public company, but it was basically a rollup strategy. The rollup strategy is, is kind of the

rory-liebhart_1_07-08-2025_160205:

at that at the end of the day, honestly. Yeah.

man-myth-legend_1_07-08-2025_160205:

Yeah, it was, it was, the roll up strategy is the. That is the cat's meow. From the standpoint of, you know, we've talked about get a strategic buyer. Get a strategic buyer, that's likely where you're gonna be able to get the highest value. It's because of all the things we just talked about, the elimination of redundancies, the ability to get efficiencies, and that's roll up strategy. It's gonna get executed on you as opposed to executed by you.

rory-liebhart_1_07-08-2025_160205:

a good one that actually made me think about it just from a slightly different perspective, which is really kind of how it can go is if you are part of a business is, uh, being looked at by a private equity group that is looking to execute a roll up strategy, you may have some leverage there, you know, to extract a higher price for your company if you are. If you, if you, if you know that their intention is to roll it up and then, you know, gain, gain more through size and scale, then you can use that to your own negotiating advantage and say, look, you know, this is a critical piece to your strategy. You know, this is why company is worth X amount more now than what you're offering me. So it can work both ways. You can, you, you, you know, if you're a buyer, you need it to work by paying the right price, as always very obvious. As a seller, you know, that is a moving target. The right price is the highest price you can get for your business. And if you have a very motivated buyer that has a grander strategy and maybe another party that just wants the, buy your business for cash flow and BA basically, you know, do a DCF analysis, discounted cash flow analysis on your business to get to a purchase price, maybe you want to go with the, the group that's looking at a big multiple on selling a rolled up, merged entity someday. I don't know. That's just a perspective you can think about.

emily-sander_1_07-08-2025_160205:

You just said something. If you are a founder, can you start a mini rollup strategy yourself to become more attractive to PE groups?

rory-liebhart_1_07-08-2025_160205:

Totally. Absolutely. Yeah.

emily-sander_1_07-08-2025_160205:

Oh, you can roll yourself up.

man-myth-legend_1_07-08-2025_160205:

you, if you can demonstrate and it, the,

rory-liebhart_1_07-08-2025_160205:

Yeah.

man-myth-legend_1_07-08-2025_160205:

the concept and we've heard it, is this is the platform company. essentially go, we've got this.

rory-liebhart_1_07-08-2025_160205:

a key buzzword. Yes.

man-myth-legend_1_07-08-2025_160205:

Platform company so that we've got scalable systems, we're designed to be able to integrate new businesses. We've got folks on the management team that have done this before. We can be a good platform company for a rollup strategy in. And the one that was classic when I was younger was the funeral home industry all rolled up.'cause those all used to be little individual ones. And you had a couple platform companies that were like, look, we know how to do this and. They partner with private equity and then they go out and make offers on all these other companies. That is a, that is a way for you as even as a relatively small business. If as a founder, if you can position yourself as an ideal platform company, you're gonna get a much higher valuation out the gate than you would if the PE guys have to figure out how to use you as a platform company and kind of make that transition. First, it's gonna speed, have a faster, faster execution.

rory-liebhart_1_07-08-2025_160205:

Exactly right.

emily-sander_1_07-08-2025_160205:

So the characteristics of an ideal platform company is it kind of like the hub of a, of a wheel and you can, you can glob on, you can integrate other, other companies. It's like we know how to do that very well.

man-myth-legend_1_07-08-2025_160205:

Yeah.

emily-sander_1_07-08-2025_160205:

how to do integration. Ah,

man-myth-legend_1_07-08-2025_160205:

excellence play. We know how to, to sell well. We know how to report well. We know how to do finance well. We know how to do, we do all those things well, and our systems are set up in such a way that if you doubled us in size.

emily-sander_1_07-08-2025_160205:

scale.

man-myth-legend_1_07-08-2025_160205:

We, we can scale that quickly and without, without linear cost.

rory-liebhart_1_07-08-2025_160205:

Yeah. You know what? Don't make good rollup companies, banks, you know? Yeah. So much of, there's been so many bank acquisitions, obviously, and you, you don't necessarily think about it as rollup, but it really is there So many community banks have rolled up, but so many of these systems are so unique to these entities that integrating them. And the in the architecture behind it is it's, it's a massive CapEx uh, spend. So you see a lot of times, you know, they'll roll up and they'll be. In the same company, but they're still not integrated. Like one that comes to mind, you know, just more recently is like, uh, with the SVB and, uh, first Republic and those guys blowing up kind of I guess it was two years ago now, you know, first Republic got absorbed into Chase. I have both of these banks is like business banks for my entities that I, I work with and. Still, they're basically treated as largely separate from a systematic standpoint. So it just is what it is. But you know, the, the biggest value you can get is through cutting costs and getting better deals for yourself from, you know, your vendor suppliers by virtue of your scale and, you know, kinda getting leverage from people and all of that stuff. And then on icing on the cakes, the capital markets advantage and, you know, sounds easy, but you know, there's so much to it.

emily-sander_1_07-08-2025_160205:

And just to pinpoint this for people, we've talked about a lot of things that are really close to roll up strategy, but not quite like I. Vertical integration like franchises. And I imagine, I was thinking through, well, I've been at companies where they wanna acquire their competition so they glob up market share, right? And that's the strategy, but that's not quite being a platform company. So this is a very kind of specific thing we're talking about. Not to be confused with other adjacent strategies.

man-myth-legend_1_07-08-2025_160205:

kind of qualify as roll up. It's just kind of.

rory-liebhart_1_07-08-2025_160205:

the rationale is still synergy and efficiency on all those things.

man-myth-legend_1_07-08-2025_160205:

Yeah,

emily-sander_1_07-08-2025_160205:

So different flavors of roll up.

man-myth-legend_1_07-08-2025_160205:

role, one's a, but they're all roles, you know, and it's, and it's, but it's the same. It's the same theory. They just taste a little bit different.

rory-liebhart_1_07-08-2025_160205:

Yeah.

emily-sander_1_07-08-2025_160205:

Okay. Okay.

rory-liebhart_1_07-08-2025_160205:

yeah. And I mean, other things to consider too. I mean, you might have, uh, companies in the same industry, very similar, but what if you have some in the, you know, in Europe and some here? I mean, those are two totally different animals in a lot of ways, so it doesn't, it doesn't, yeah, I'd say like. Almost as seamlessly, it's like to be in the same market, in the same geography, the same laws, and the same, uh, standards and things like that, you know, uh, to make it more effective. But that doesn't mean that it can't be also effective to acquire competition globally and then, you know, gain synergies from that. We're just saying like, you know, you know, a very vanilla rollup strategy involves pretty much like type things in the same place that just could benefit from some scale.

emily-sander_1_07-08-2025_160205:

Hmm. Are there PE companies who specialize in this where they know all the. All the creepy crawly things that can crawl out of a rock if you turn it over. Or they know, like it's not as easy as a spreadsheet guys, it's it like, it sounds sexy, it sounds nice, but it's a lot of work. We're good at that work. We specialize in that. Or the PE firms just go like, yeah, it's part of our strategy. It sounds great and we're great at that.

rory-liebhart_1_07-08-2025_160205:

that's a good question. I, my, my sense, and, you know, keep me honest here, is there's, it's easier to say that there's companies that just don't do those things. And what I mean by that is PE groups and funds that basically just, just buy assets rather than as much as operating companies and things like that. So you exclude that group. I think you'd be hard pressed to find a. A PE group that says, yeah, we're not very good at integrations and, and sort of leading through value creation. Like I don't think that that's really a thing, but I think there are certainly some that maybe are, are better than others by

man-myth-legend_1_07-08-2025_160205:

Yeah.

rory-liebhart_1_07-08-2025_160205:

like just basically getting with the right management team. And it's one thing that we, we actually spend time too much talking about in our book a little bit we did, we haven't really on our podcast, but PE groups and PE funds. So much of their success comes from who they have in their corner as operating partners, which is a little bit different, so different than a limited partner. But what, what you see is a lot of, you know, call it semi-retired, very, very successful people that have done a lot of, uh, exits and stuff being part of PE funds as a second career. You know, maybe they've sent their first, you know, part of their career as CEOs, cos chief of staff, really successful people in their own right as operators. But then you take that operating knowledge. And experience to a

emily-sander_1_07-08-2025_160205:

Hmm.

rory-liebhart_1_07-08-2025_160205:

That's an investment strategy. That's a powerful combination. So I'd say the, the, the PE funds that have the best operating partners to, to sort of compliment their investment prowess are gonna be more successful than others that are just like, Hey, we're just really smart investors. You know?'cause it takes people being in their sleeves, rolled up to make stuff happen.

emily-sander_1_07-08-2025_160205:

That might be a future pod for us too.

rory-liebhart_1_07-08-2025_160205:

Yeah. That kicked

emily-sander_1_07-08-2025_160205:

Yeah.

man-myth-legend_1_07-08-2025_160205:

I mean, we, we live that. We live that with Lone Star funds. They have an entire advisory that has. You know what I always called was like the shadow cabinet, which you had. You had CFOs, CIOs, COOs, CTOs, all those kind of sitting up at the fund level. At In Hudson.

rory-liebhart_1_07-08-2025_160205:

that guy for a

man-myth-legend_1_07-08-2025_160205:

Yeah. Yeah. Hudson advisors and

rory-liebhart_1_07-08-2025_160205:

in and

man-myth-legend_1_07-08-2025_160205:

yeah, multiple portfolio companies.

rory-liebhart_1_07-08-2025_160205:

company PE go. Yeah. Yeah,

man-myth-legend_1_07-08-2025_160205:

And I, and it was exactly for the, for that reason is they wanted to have an operate, they wanted to have a, a team that had been there, done that to help folks there, do that, or to be there and do that for them if they couldn't. And, you know, bigger firms, bigger, bigger PE firms. I think that's a, I think that's table stakes for them. But, you know, we saw even, um, with the last PE firm we were with Emily, that they were moving that direction.

emily-sander_1_07-08-2025_160205:

Yeah.

man-myth-legend_1_07-08-2025_160205:

and you know, I think that that's, that's gonna be more, that is more and more common and they recog and I think folks are recognizing what Rory just said, which is there's a lot of value to be unlocked with just a few key operating partners that can help the help bridge the difference between the spreadsheet and the execution.

emily-sander_1_07-08-2025_160205:

I've seen that more and more with chiefs of staff too, so yeah. That's a cool, that's a cool topic.

rory-liebhart_1_07-08-2025_160205:

absolutely.

emily-sander_1_07-08-2025_160205:

Um, as we wrap up the roll up strategy. Anything else to add or just what would you leave people with? As a recap, I'm kind of picking up, you can take small companies and make them into large empires if you want, but it's not an ATM machine. It's not free money. There's lots of risk.

man-myth-legend_1_07-08-2025_160205:

I think the biggest, the, the two things to take away are. It's far more difficult to execute in practice than it is to model. And then the second piece is, I believe kind of, and Rory kind of alluded to this, I. Every private equity firm that has operating companies has this tool in their toolbox and are prepared to deploy it if they have capital to deploy.

rory-liebhart_1_07-08-2025_160205:

Yeah.

emily-sander_1_07-08-2025_160205:

Hmm.

man-myth-legend_1_07-08-2025_160205:

a question of how well they deploy it and whether that's a core competency or not of that PE firm. But it's, if you're a in a private equity backed environment, that tool, and you're an operator, that tool is likely in your PE. financial sponsors tool toolbox, and they're likely to at least talk about it and explore it. If not, if not, use it.

rory-liebhart_1_07-08-2025_160205:

Yep. Yeah, I, I'd be hard pressed to elaborate anymore on that. It's, there's always gonna be an age old. Discussion on whether value creation comes best from organic growth or inorganic growth through m and a and so forth. And the the, I mean, the cliche answer that you might expect is probably somewhere in between, right? Like you need to, you need to be very fundamentally sound in managing a business regardless of the circumstances. But if you are. Then, you know, applying that playbook to other similar like type businesses can accelerate the timeframe to realizing value. And if you're very savvy and you understand the capital markets really well and you are, as we keep saying a, a little bit of luck involved, that can, it can take a or three x multiple two or, you know, six, seven plus multiple if you do it right. So it's tantalizing for sure.

emily-sander_1_07-08-2025_160205:

There we go. We'll call it a wrap there. Thanks Rory. Thanks, ed.

rory-liebhart_1_07-08-2025_160205:

Thank you.

man-myth-legend_1_07-08-2025_160205:

Thanks.

rory-liebhart_1_07-08-2025_160205:

soon.