Common in PE?
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It does happen. Probably more common with smaller firms though, so it rarely makes headlines.
For example, tougher for a megafund to acquire 4-6 firms worth $1Bn each than for a Lower MM PE shop to acquire even 5-10 smaller/regional operations for $10-100 MM. It would be harder to integrate many large companies with well defined company cultures and structures that it would be to put a few mom and pop operations together. Also, the deal timelines for large companies can be quite long (a substantial portion of the intended holding period, especially when accounting for integration). On the other hand, a small PE shop might say, "Ok Mr. Niche Manufacturer CEO. We would like to pay 8x EBITDA (or $50 MM) for your company, we'll roll it up to a bigger company with synergies and give you equity incentives" - deals like that can close much more quickly. Also, if you are talking about rolling up large companies, anti trust concerns come into play.
Figures are just for exemplary purposes - don't put too much weight behind them.
Lastly, some funds may want to rollup other companies but not have enough dry powder to Execu|Searchte on the plan, especially if the company they are trying to roll into isn't one of their first investments of the fund.
For decent sized companies, it is harder to underwrite a roll-up strategy because often if it is obvious that is what you are doing, the sellers of other companies will want to extract the value of the synergies. It is most common where you can take a market leader/large player and roll-up a lot of sub scale local players where you have a long list of targets to work from rather than say, an industry where there are 6 players and you try to combine 2.
The answer is that is insanely common, but it's nowhere near as easy as you're making it sound. There is a lot of risk to putting two businesses together, let alone multiple.
It's much more common in complimentary consumer products and service type businesses (healthcare). The integration issues (ie converting to same IT platforms) and centralizing of operations (in addition to management structure) is a significant problem when rolling up smaller businesses. At the same time, with the right platform acquisition and strong management team it can be easier.
The geographical and customer overlap can be an issue when you get involved with larger companies. Hence why it is typically done with smaller companies and smaller/lower MM PE Funds.
Also interested.
I have only seen this in the lower MM and with more service-oriented businesses. That said, if you can get it to work the multiple expansion alone can pay for the deal...
It is far more common than some of you think at any level. Someone pointed to a Blackstone roll-up and KKR just completed one (not sure if has been announced yet). Many times, it is considered an acquisition by the portfolio company, so KKR isn't necessarily going to be attached to the headline that you may read.
If you have access to CapIQ, I urge you to take some time and look at the amount of roll-ups across the PE fund sizes. MM may be more active, but I've seen large funds (think Huntsman, Lindsay Goldberg) stretch down and acquire several portfolio companies, including small deals (sub-$50mm).
It isn't always a large acquisition with larger portfolio companies.
While I do think that it's more common than you've made it out to be, many of the types of companies that would benefit from a roll-up strategy are companies that rely upon logistics, manufacturing scale, etc. Many of those companies would likely deal in natural resources in some manner, which could qualify the income for MLP status. A private equity firm cannot compete on value vs. a public MLP, which essentially has the lowest cost of capital in the market, which makes it difficult to achieve a sizable roll-up with that fierce of competition. I have seen PE shops jump on certain types of assets to roll them up in anticipation that companies with low cost of capital will eventually try to do the same, at which point they will sell to said companies and make a nice return.
You definitely see it a lot at the MM level. Like others have said, you just don't see them making headlines because these are much smaller companies that are being rolled up.
What about this rollup by Blackstone? PGI buying Fiberweb and Providencia?
http://www.bizjournals.com/charlotte/blog/outside_the_loop/2014/01/polymer-group-inc-to-buy-much-of-providencia-of.html
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