Assume you're starting a fund this year, and it's LMM. The goal is $100m for your first fund and US based - but that doesn't mean you can only invest in the US!
What kind of product would you be pitching to LPs? Where do you feel alpha is atm?
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At that fund level I'm still pretty bullish on the roll-up strategy. Obviously within certain sectors this has gotten incredibly popular and too competitive such as HVAC/pest control/plumbing in home services or dental clinics within healthcare, but there are still some smaller niches within these verticals. For example, look at Guild Garage Group, a garage door services company. They found a niche within the competitive home services sector that had barely been touched and have executed an incredible roll-up in a short amount of time.
I think there's more opportunity with this strategy, but you have to be willing to move down market to industries with a smaller TAM.
What's an example? I actually think you can't go much smaller because who is the person buying you really going to resell to?
Your options are just some sort of PE backed group doing a broader home services roll up effectively, right?
Personally I do not love the strategy because it's quite reliant on macro.
I agree, that's a valid concern. That is an option if you are in that small of a market though.
As an example, I'm not going to name the exact industry but it's within the home services sector, has a TAM around $6 billion, highly fragmented, and limited existing PE interest. Let's say you execute a roll-up to $20m in EBITDA. That leaves plenty of meat on the bone for the buyer as well as who they resell to.
I am curious to hear your thoughts on why it's reliant on macro?
This has become incredibly depressing to me as a customer. When I sniff out that the plumbing or crawlspace company I am looking at is a PE rollup, I run the other way. Not looking forward to a sleek presentation, a salesman, and worker who hardly cares. I'd rather look around for the guy whose whole livelihood is staked on his reputation.
I needed some simple mudjacking work done and all the local places are PE portcos- gave me the runaround and would not answer if they had a bid minimum. The first wanted $3k for simple work, because he had to bid all kinds of extra work to get to their minimum.
Same with the local optometrist rollup. 20-something year old doctors charging through the nose. I expect if the economy stumbles, many of these things break.
AI-driven value creation regardless of sector HAS to be one of the theses. Especially in smaller businesses there's just too much automation available for those efficiency gains to not be a highlight for juicing EBITDA/integrating add-ons.
I think it's just SOP for operating now. I made a thread about this a few weeks ago and it didn't receive many comments (or maybe 0 lol), but I noticed we are hiring WAY less.
Our teams are increasingly looking like hedge funds > consumer brands.
Do you have any specific use cases/case studies you'd recommend diving into for someone interested in learning more about the value prop of leveraging AI to cost-reduce bolt-ons? I'm curious if there's industry agnostic application potential or if you'd be looking at more tech enabled services.
Back-office automation, basic legal work (cut down on the hourly spent on lawyers), contract/proposal generation, code generation (obviously tech-oriented but also to spin up simple apps if you're in like field services or something consumer-facing), top of funnel customer service, there's a bunch of them.
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