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The role-up strategy is a strategy to acquire and integrate small companies in the same industry and grow as one large corporate group.
PE funds, IT, medical care, nursing care, store-type services, etc. may be used in areas where the industry is divided in detail.
What is important for investors is the increase in profit, sales cash flow, and management efficiency after integration. If PMI fails even if sales increase by acquisition alone, corporate value will not increase.
First Con まず
When you look at the role-up strategy, it is important that you do not think of it as a growth company because you are buying a lot.
There are three points to check:
| ation Point | Reasons to See |
|---|---|
| Profit ratio after integration | Is there a merit of the scale? |
| Debt and Funding | Is borrowing too much for acquisition |
| PMI | Is it possible to integrate systems, human resources, brands, and management systems? |
Role-up is more important than the power to acquire.
What is role-up strategy?
The role-up strategy is a growth strategy that integrates the same industry and close industry companies one after another.
For example, the following companies are likely to be eligible:
- Local Small Clinic
- Accounting office and tax accountant
- Small and Medium Enterprise
- Home
- Construction company
- Shop type service
- Company Profile
We aim to increase sales scale, management system, recr ment and brand power byまとめ multiple in small companies.
Why use
The reason why a roll-up strategy is used is because it is inefficient for small businesses.
| Small Business Challenges | Aiming for Integration |
|---|---|
| Management department is weak | Sharing Accounting, Human Resources and Legal |
| System investment | グループ Group Common System |
| Weak | Easy to use by brand and scale |
| Low stocking conditions | Increase negotiating power through joint purchasing |
| Missing Successors | Business succession through group management |
If there are many companies that have similar problems in the same industry, it becomes more efficient byまとめ together.
This is the basis of the roll-up strategy.
Flow of roll-up strategy
The role-up strategy generally proceeds with the following current:
Acquisition of Small Businesses
First, we acquire the same industry and neighboring companies.
It’s important to buy a cheap company.
You need to see whether your existing group and your customers, regions, services, technology and human resources are complemented.
Integrating as a group
After acquisition, PMI is required.
PMI is an abbreviation for Post Merger Integration, which refers to post-acquisition integration.
Specifically, the following initiatives are:
- Unify Accounting System
- 人事 HR System
- Unify your brand
- Common stocking and purchasing
- Unify sales management and KPI
- Looking at unprofitable sites
If this integration does not work, no profit remains even if the number of acquisitions increases.
Profit ratio
As the integration progresses, the merit of the scale becomes easier to work.
For example, if you can share the management department, you can reduce the cost of duplicated for each company.
If you purchase it, the price力 power may increase.
If you are a group of sales and recruitment, you may be able to grow more efficiently than a single company.
Why PE Funds?
Because PE funds are considered a roll-up strategy, it is easy to create differences in corporate value.
Small-scale enterprises may have a low magnification.
However, if multiple companies are integrated and scaled up, the management system is established, and the profitability is increased, it is possible to receive higher evaluation.
| State | Reasons not to be evaluated |
|---|---|
| Small Business Unit | Issues in successors, human resources, management and liquidity |
| Corporate group after integration | Evaluate scale, management system, and growth potential |
In other words, for PE funds, it is a strategy where there is a “cheap, buy largely, sell high”.
However, this is a story when the integration is successful.
Merit 1 Economics of scale work
The big advantage of roll-up is the scale economy.
The following effects can be expected when the company scale increases.
| 領域 | 効果 |
|---|---|
| 仕入れ | Increase negotiating power by consolidating purchase |
| 広告 | Unify brand and increase advertising efficiency |
| Recruit | It becomes easy to adopt by recognition and treatment improvement |
| System | Lower administrative costs with common systems |
| Management Department | Sharing Accounting, Human Resources and Legal |
This effect makes it easier to improve profit rate as well as sales.
Benefit 2 Increase market share
Rollup leads to market share expansion.
In the industry where small companies are dispersed by each region, multiple companies can be integrated to enhance their presence.
When market share rises, negotiating with business partners, customer recognition, and recr ing capabilities may increase.
In addition, the sale of IPO and large companies can be現実 by becoming a certain scale.
Risk 1 PMI fails
The biggest risk of roll-up is PMI failure.
After the acquisition, you may find culture, systems, evaluation systems, and sales methods for each company.
| PMI failure example | Problems |
|---|---|
| No company style | Key Person Reするed |
| System integration delay | Less management costs |
| Unified Brand | Getting away from customers |
| On-site rebellion | No improvement measures |
| Different accounting standards | Compare numbers becomes difficult |
In roll-up, the site operation after the acquisition is a win.
I can't say it's still a success only by the announcement of the acquisition.
Risk2 More debt
In rollup, funds are required to repeat the acquisition.
For this reason, we may use borrowings, corporate bonds, and capital increase.
Acquisitions using borrowings will increase shareholder returns if necessary.
However, if only the borrower increases without the integrated effect, the financial risk will increase when the economy worsens.
Investors should check the number of acquisitions as well as the following numbers:
| 数字 | Reasons to See |
|---|---|
| Interest-bearing debt | See debt dependency |
| Cash Flow | See the original debt repayment |
| EBITDA | View profitability after acquisition |
| Home | See the risk of high-value acquisitions |
Risk3 Becoming a Purchase Request
Do you want to pay attention to a roll-up company only depends on the acquisition of sales growth?
You can increase sales by purchasing.
However, if the existing business is not growing, growth becomes dull when the acquisition is stopped.
| Types of growth | See Meaning |
|---|---|
| Organic growth | your existing business is growing by your own |
| M&A Growth | How to acquire |
| Integration effect | Improve profit and CF |
A truly strong roll-up company improves the profit of existing stores and existing businesses after acquisition.
Please note that if you do not increase profit or sales CF only by increasing sales.
Points to be considered to investors
The investor should be confirmed after integration rather than before acquisition.
| ation | Reason |
|---|---|
| Operating income | Is it possible to integrate more efficiently? |
| Cash Flow | Is the profit being cashed? |
| Inc ing debt | Is it too much to rely on the acquisition funds? |
| Home | Is there a high-value acquisition? |
| Human Resources Outflow | Is there a site collapse by integration? |
| Existing business growth rate | Is it growing without acquisition? |
When you see M&A news, follow the numbers after the acquisition, not the number of acquisitions.
Common misunderstandings
A common misconception is a way of thinking that companies with M&A are strong.
In fact, it is not a strong company because there are many acquisitions.
Dangerous things are:
- Only sales are sold by acquisition
- Income rate not improved More borrowings
- Noren is piled up Not to disclose KPI after integration
The essence of the role-up strategy is not to buy a company.
It is to summarize, streamline and increase profits of the company you bought.
Role-up strategy is a strategy that acquires and integrates small-scale companies in the same business, and grows by improving the benefits and management efficiency of the scale.
PE funds and industry restructuring companies may be an effective way to increase value.
On the other hand, there is also a risk of PMI failure, increased debt, and acquisition dependency growth.
Investors should check the profit ratio, operating cash flow, abilities, and existing business growth over the number of acquisitions.
企業 strong companies have succeeded in improving their efficiency.
出典
- Investor.gov "Private Equity Funds": https://www.investor.gov/index.php/introduction-investing/investing-basics/investment-products/private-investment-funds/private-equity
- SEC "Private Funds": https://www.sec.gov/resources-small-businesses/capital-raising-building-blocks/private-funds
- Investor.gov "Research Before You Invest": https://www.investor.gov/research-you-invest