Best Industries/Companies for a Rollup Strategy
I was recently asked an interview question for a MM PE role on rollups, "If you had to execute a roll-up strategy, what industries or types of companies would you target / what companies make the best roll-up candidates?"
I gave the preface of a fragmented industry that was somewhat mature/stable and geographic proximity helps. I used vet clinics as my example but think I could have done better.
What industries would you say are the best for rollups? Any uncommon ones?
Any current PE examples? I know KKR owns Heartland Dental and they were somewhat acquisitive.
Another common group over the past decade has been contract research organisations (CROs).
These guys provide clinical testing services to the mega pharma players at high margins.
Has been a hugely popular space for significant PE investments over the last decade.
A few examples would be Carlyle/H&F via PPD, KKR via PRA Health, TPG via IQVIA, Advent via Syneos...the list goes on!
Few others to add:
Fragmented, and high amount of mom and pop shops helps. Distribution-type businesses make good roll-ups because scale gives you better leverage with your suppliers -- for example, there have been a few insurance distribution rollups (USI, Alliant) where acquisitions were immediately accretive because brokers could renegotiate their commission structure with underwriters (and also normal PE deal stuff like back office synergies, multiple arbitrage, etc.)
And while a good cashflow profile is important in any PE deal strategy, it's especially important here so that the company can self-finance more of their acquisitions without the PE firm putting more equity to work
Within SaaS (not the poster child for this strategy, but the space I know best), rollups are most compelling when it allows you to broaden your wallet share with customers, i.e. what products integrate with mine, what other products do my current customers use / need, etc. Some good examples in this space would be Frontline, Diligent, Ministry Brands
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