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Industry Consolidations and Roll-Ups

A roll-up is the consolidation of several smaller businesses into one larger operation. Generally these businesses operate in a fragmented industry and lack strong management and capital. Combining forces can create efficiencies, marketing depth, buying power and access to less expensive expansion capital.

Any industry, particularly those having comfortable profit margins and a commonality of services, products and operations needs can be a roll-up candidate. It’s easy to see how major benefits can be reaped from volume purchasing, new technology, and perhaps most important, professional management.

A good example of a type of industry that easily fits the roll-up profile is the printing business. Other industries that make effective roll-up are hospitals, computer technology, staffing, and trade magazines. There is no end to the types of companies that lend themselves to a roll-up as long as the industry is fragmented and has the following characteristics:

  1. Industry size – The industry should be large enough to prevent a single sizable roll-up from controlling the industry. A single roll-up, even when large, should not comprise more than ten percent of the industry as a whole.
  2. Platform Company – A platform company typically has a recast EBIT (Earnings Before Interest and Taxes) of at least $2 million.
  3. Cost-cutting opportunities – Impressive economies of scale should be achievable through volume purchases, pooled resources and sophisticated operating systems.
  4. Management Ability – There must be experienced and highly qualified executives to manage a platform company and lead the roll-up.
  5. Marketplace connections – There must be industry specialists available such as clients and others familiar with the industry and its characteristics.

RYS & CO. coordinates the entire consolidation process from the conceptual stage to the exit strategy. Set up the marriage, operating agreement, and the divorce or exit essentially.

RYS & CO. combines the components necessary to accomplish the consolidation including industry executives and management team members, platform company candidates, equity partners, financing sources and acquisition targets. RYS & CO. continues to assist throughout the consolidation process by serving as the in-house mergers and acquisition department, providing integration and strategic planning, operations assistance, industry updates, and serving as a board member.

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