July 24, 2025 • 38 mins
Overview:
In this episode of The Private Equity Experience, Emily, Rory, and Ed dive into the world of rollup mergers in private equity. Rollup mergers involve acquiring and consolidating multiple smaller companies in the same industry to create a larger, more efficient entity. The hosts discuss the intricacies, challenges, and potential pitfalls of this strategy, providing insights into how private equity firms can navigate these complex transactions successfully.
Key Discussions:
Understanding Rollup Strategies:
A rollup strategy involves acquiring and integrating multiple businesses in the same industry to achieve economies of scale and cost reductions.
Example: Consolidating independent accounting firms into a larger firm to leverage shared resources and economies of scale.
Benefits of Rollup Mergers:
Economies of Scale: Consolidating businesses can lead to significant cost savings
through shared resources, operations, and infrastructure.
Increased Valuation: A larger, integrated entity often commands a higher valuation multiple.
Operational Efficiency: Standardizing processes and leveraging technology can lead to operational improvements and cost synergies.
Challenges & Risks:
Integration Complexity: Merging multiple businesses with different cultures, processes, and systems can be challenging.
Regulatory & Antitrust Concerns: Regulatory scrutiny may increase as the consolidated entity gains market share.
Financial Risks: Leveraging debt to finance multiple acquisitions can increase financial risk, especially if acquisition targets underperform.
Customer Alienation: The loss of personalization and unique value propositions can drive customers away.
Execution Matters:
Hiring Experienced Executives: Bringing in experienced managers who understand the complexities of business integration is crucial.
Transparent Communication: Being transparent about rollup strategy with potential acquisition targets and investors can mitigate future issues.
Risk Management: This strategy requires careful planning and continuous monitoring to mitigate both financial and integration risks.
Listener’s Questions:
Q: Can a founder implement a mini rollup strategy to make their company more attractive to private equity groups?
A: Yes, positi
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
emily-sander_1_07-08-2025_1 (00:34):
All right.
We are on the Private EquityExperience Podcast.
rory-liebhart_1_07-08-2025 (00:38):
It's good to be back.
emily-sander_1_07-08-2025_1 (00:39):
two quick questions to get us warmed
up here.
So we'll settle this once andfor all.
Please stack rank the followingkinds of rollups fruit, rollups
sushi roll, rock and rollpayroll Ed.
Go.
man-myth-legend_1_07-08- (00:55):
always is at the top of the list.
And then I'll do rock and roll.
Then I'll do.
Sushi roll.
Then I'll do a fruit rollup.
'cause fruit rollups are justlike leather fruit crap.
I mean, that's, it's like,
emily-sander_1_07-08-20 (01:12):
They're leather sugar.
Yeah, that disolve in yourmouth,
rory-liebhart_1_07-08-202 (01:15):
Yeah,
emily-sander_1_07-08-2025_1 (01:16):
but if running a marathon, you might
need that.
rory-liebhart_1_07-08-202 (01:19):
Yeah, I was just gonna say, if you're
into endurance things and havinga fruit roll, uh, at hand is not
a bad, a bad way to go, youknow, it's pretty dense, but I'm
with Ed, you know, payroll topsboth as on the receiving end.
As a CFO, you always wanna bemaking payroll.
That means you're doing allright.
Um, rock and roll.
I, I'm into that as well.
Um, sushi rolls.
(01:39):
Yeah.
Uh, I, I love a good tempuraroll.
So those, those tend to tend tohold weight in my world too.
So you.
to
emily-sander_1_07-08 (01:48):
Excellent.
rory-liebhart_1_07-08-2025 (01:48):
with those.
Those are
emily-sander_1_07-08-2025 (01:49):
Yeah, there we go.
Basically, I'm picturing Ed andRory doing payroll while
listening to rock and roll.
They're eating sushi rolls andthey'll have a fruit roll up for
maybe like a dessert once in awhile.
Um,
rory-liebhart_1_07-08- (02:01):
exactly.
emily-sander_1_07-08-202 (02:02):
second quickfire question.
If you had to own 17 of the samekinds of businesses, which ones
are you picking and YA coffeeshops.
B dog groomers.
C car washes, D nail salons, E,mini golf courses.
man-myth-legend_1_07-08-202 (02:18):
Oh, car washes, that's easy.
Those are far more passive thanthe others.
I
emily-sander_1_07-08-2025_1 (02:24):
Oh,
man-myth-legend_1_07-08-2025 (02:24):
op car washes and kind of go.
Fill up the soap and collect mycoins,
rory-liebhart_1_07-08-202 (02:30):
Yeah.
man-myth-legend_1_07-08-202 (02:31):
and that's it, man.
The rest of'em, I gotta getpeople to actually do the work.
rory-liebhart_1_07-08-2025_16 (02:35):
I like, I like that.
I also, the others, I wouldprobably put dog groomers up
there.
So it's
emily-sander_1_07-08-2025_1 (02:41):
oh.
rory-liebhart_1_07-08-2025_1 (02:41):
a, a luxury and a necessity for
people.
So you could do all sorts ofcrazy creative things to grow
that kind of business.
You can offer financing andthey're typically probably a
good credit risk.
People are gonna look to paytheir, uh, bills related to
their pets before, you know,before other things.
And after a mortgage in the carprobably.
So.
that would be a good one.
(03:01):
Um, probably hard to build aback office for it, but Could be
done.
Could be done for sure.
emily-sander_1_07-08-2025_160 (03:10):
I like how seriously you're taking
that question thought out from afinancial perspective.
Awesome.
rory-liebhart_1_07-08-202 (03:14):
Yeah.
emily-sander_1_07-08-2025 (03:15):
Rory, take us away.
What?
What is a private equity roll upstrategy?
rory-liebhart_1_07-08-202 (03:20):
Well, I like a lot of these things.
I would say in the privateequity world, the terminology is
a lot of times prettyself-explanatory, which I'm, I'm
grateful for.
But, uh, you know, what it is,is really, it's a strategy to,
to investment capital to buy up,you know, kind of, uh,
businesses in the same industry,but in a kind of, uh, be like a
(03:41):
kind of a fragmented sectorperhaps.
Put'em together, make thembetter, eke out costs, take on
debt, sell it later at a highermultiple.
In a, in a nutshell, that's whatit is.
There's a lot more to it, ofcourse, but that's what, uh,
what it is at the fundamentallevel
emily-sander_1_07-08-202 (03:58):
That's a good, that's a good summary,
ed.
rory-liebhart_1_07-08-2 (04:00):
Podcast over, no, I'm kidding.
man-myth-legend_1_07-08-202 (04:03):
No, and it's far more common than
you think.
We've talked a fair bit, youknow, during the podcast and in
the book around the strategicacquisition.
So you know, you wanna getacquired by a strategic.
emily-sander_1_07-08-20 (04:15):
Mm-hmm.
man-myth-legend_1_07-08-2025 (04:16):
of times the strategic that's
acquiring you is private equitybacked, and it's actually part
of a rollup strategy.
And I can kind of point to anumber of the companies I've
worked with on a private equityside or own personally, where
part of the strategy is to lookfor a rollup.
And I'll give an example inprofessional services, you know,
(04:38):
which is, which is where I sittoday.
You can look at, uh, let's sayan accounting firm.
Accounting firms will tradesmall ones, 2, 3, 4 partners,
you know, solo practitioners.
They trade at two x to three xebitda.
A well-organized mid-sizeaccounting firm will trade at
seven to 10 x ebitda.
(04:59):
And so there's a strategy asRory noted, where you go, okay,
I'm gonna find these small firmsthat.
know, they've got a good book ofbusiness, they've got an
interesting niche, they've gotsomething, but I'm buying it at
three x.
rory-liebhart_1_07-08-202 (05:11):
Yeah.
man-myth-legend_1_07-08-2025 (05:11):
it into my ecosystem.
I it more efficient.
I put new systems in place, Iput new processes in place, and
now I get an arbitrage,essentially free money of like
it doubles in value just bybringing it into that ecosystem.
And if I can do that four orfive times, I could grow a very
(05:32):
large firm and make a ton ofmoney doing it now.
The execution is the hard part,but the concept is very
straightforward.
rory-liebhart_1_07-08-202 (05:40):
Yeah.
emily-sander_1_07-08-2025 (05:41):
Okay, so I'm hearing like some of the
same things though because yougo in, you have to make the
business more efficient.
Maybe the internal processes arenot.
Set up like they should be, oryou need some, some different
things here and there.
So that part seems similar towhat we've talked about in the
past, but then you're putting itin this strategy, in this
ecosystem where you're, you'releveraging, you're arbitraging.
(06:05):
The nature of it almost is that.
rory-liebhart_1_07-08-202 (06:07):
Yeah, I mean, there is so much to it
and I, it can be a highlyeffective strategy in, in one
that is, uh.
pretty much the private equityplaybook, but it is also one
where it could be a really greatspreadsheet exercise, but making
it happen and come together,along the lines of how you're
(06:28):
trying to go ahead and buildvalue and sell.
It's way more easier said thandone.
Um, think about what we'retalking about here, and I'm not
saying every single.
Rollup instances is, uh, youknow, uh, fragmented sort of
independent businesses.
But most of the time that'swhere you're gonna get the most
value if you can execute it.
But think about any independentbusiness you know of likely has
(06:51):
its own culture, likely it hasits own ERP system, its own way
of going to market, you know,yada, yada yada.
Has its own independentstrategy.
And then to try to bring inother businesses sort of in that
same, you know, uh.
Cohort and then make them allcome together, you know,
cohesively.
(07:12):
That's, that's really difficultto do.
And, you know, us being inleadership and it's, it's so
much of a people thing.
It's so much of a systems thing.
making that happen is, isoftentimes the hardest part,
right?
Um, you know, the, if themarket's there and you can get
bigger multiples by combiningbusinesses, great.
But there's a lot of spade workthat has to happen to get
yourself to that point whereyou're ready to sell and realize
(07:34):
that value.
emily-sander_1_07-08-2025_1 (07:36):
And just for folks listening, are we
talking about the exact sametypes of business, like
accounting firm, accountingfirm, or is this um, I'm trying
to think of one off the top ofmy head Accounting firm and like
something adjacent to anaccounting firm that they would
typically need.
I.
man-myth-legend_1_07-08-2025_ (07:50):
A lot of times if you're rolling
up, you're rolling up somethingthat's very similar, so you're,
you roll, roll up essentiallyimplies that you're taking a
bunch of smaller things andyou're rolling'em into a bigger
thing.
The vertical integration, youknow, that you're kind of
talking about, which is, well,maybe I've got a, and going back
to our, our.
(08:11):
Prior employer, um, we acquireda smaller web services provider,
and then we acquired a differentweb services provider in a
different niche.
But it was basically the samebusiness.
It just was in a differentvertical.
That's a classic roll-upstrategy.
We acquired two differentbusinesses, rolled those up,
(08:32):
built some efficiency into it,you, you know, kind of
redeployed the best people to,to the right places and
executed.
Um.
at various levels of good.
Um, but the, the process isnormally not, well, I've got a
accounting firm and now I'mgonna go roll up a law firm and
(08:52):
then I'm gonna go roll up a HRconsulting firm.
You can do that, but you really,that takes all the risks that
Rory just talked about withpeople, processes, tools.
And technology and, andamplifies those risks because
you now have, it's not the samebusiness.
The, the key is basically theMcDonald's method of, you know,
(09:14):
you acquire these businesses andthen you, you work to put them
into a framework that is proven,that's efficient, that's
scalable, to be able to realizethe value out of those
businesses.
emily-sander_1_07-08-2025_1 (09:25):
You put'em into a framework, but
it's not a franchise.
rory-liebhart_1_07-08-20 (09:28):
Right.
Yep.
emily-sander_1_07-08-2025 (09:30):
Okay.
rory-liebhart_1_07-08-2025 (09:30):
It's a good, good way to think about
that.
Exactly.
So yeah, it's, um, it, it's oneof those areas where if you're
gonna have a rollup strategy, I.
You really, really need tounderstand the customer from
each of the independent businessstandpoints.
And this could easily turn froma private equity podcast to just
a business leadership podcast inso far as you, if you alienate
(09:55):
your customer by making, makingyour sort of roll up, you know,
merged business portfolio moregeneric and you lose some of the
nuance with your customers,especially for independent
businesses, you could basicallybe cannibalizing the overall
picture for yourself.
So, you know, at the very end ofthe.
You, you need to be able to dothe things that make these, uh,
(10:17):
these strategies create value,which is get cost synergies, get
supply chain leverage by beingbigger, get access to cheaper
debt by being bigger, et cetera,et cetera.
But if you, even if you do thosethings and yet you alienate your
market, you're in somehow bymaking things less, uh,
personalized or independent,whatever.
I mean, it's a risk that youtake to.
(10:38):
Destroy the value of yourcompany this, you know, while
you're financially engineeringyour way to more value, if that
makes sense.
So you can't lose, well justcan't lose sight of the
fundamental aspect of, know,treating your customers well,
understanding your productmarket fit, you know, delivering
basically.
man-myth-legend_1_07-08-202 (10:53):
And in some of those, in some of
those cases, the risks are, youknow, dramatically different.
So for example, executed, Iexecuted on a roll up strategy
in the glass business, glasscontracting business.
So glazing contracting, I.
Much less risk because folkstend to hire you for a project.
You don't have these long-termrelationships.
(11:15):
Your folks tend to be, you know,you either have a unionized
workforce or you have, you know,tech, a technical workforce that
is in and out, but they're.
rory-liebhart_1_07-08-2 (11:23):
Mm-hmm.
man-myth-legend_1_07-08-2025_ (11:23):
I don't wanna say they're
homogenous, but you're able toreplace them easier, um, from a
skillset perspective.
Not necessarily find themeasier, especially in the
trades, but it, from a skillsetperspective, the A glazer as a
glazer as a glazer tends to be,I.
Um, you go into accounting, forinstance, where I sit today and
you have long-termrelationships.
(11:44):
It's a very personalrelationship with your CPA.
So all of a sudden they decideto leave or you execute the
strategy and some of theemployees decide, you know,
emily-sander_1_07-08-2025_16 (11:55):
Oh yeah.
man-myth-legend_1_07-08-202 (11:56):
and they take the clients with them.
That becomes a very tough.
Strategy to execute.
So rollups, that executionpiece, like Rory said, the
alienation of the customer base,the risk level is dramatically
different depending on type ofwhat business you are in and,
and what your interactions arewith those clients.
rory-liebhart_1_07-08-2025 (12:15):
Yep.
Yeah.
emily-sander_1_07-08-2025_16 (12:16):
So if I'm a PE firm, do I decide
like we're we're just doingrollups across everything.
We're like, like a rollup PEfirm, or is it we're gonna
deploy this strategy?
For some, or in some conditionsor for like, how do I decide as
a PE firm how to utilize therollup strategy?
man-myth-legend_1_0 (12:33):
interesting thing from my C is.
Every PE backed business thatI've worked in has all said
we're gonna, we've got capitalavailable and we're gonna go
look for, strategic acquisitions
rory-liebhart_1_07-08-202 (12:46):
Yeah.
man-myth-legend_1_07-08-2025 (12:46):
up into this business.
In most cases, they've actuallydone that, and in most cases,
that has also been.
At least in a couple cases.
That's also been when I wasbrought in because it was not
going well.
rory-liebhart_1_07-08-2025 (13:00):
Yep.
man-myth-legend_1_07-08-2025 (13:01):
it was, you know, the, the, the
roll up strategy is sexy onpaper.
It's extraordinarily difficultto execute in practice, and you
need folks who both get thevision of, okay, here's what
we're trying to accomplish.
Are willing to, and again, thisis my bias, but willing to go,
okay, maybe the better mousetrapsits with the acquired company.
(13:22):
So, you know, we're, we'regonna, we're gonna kind of take
the best of everything and youbecome a true operator.
How do I operate for greatestefficiency?
Um, but it is kind of in theplaybook of pretty much every
private equity backed businessI've been in.
It's just whether that play isexecuted well.
Or in some cases they're like,yeah, well we said that, but we
(13:44):
don't have capital left in thefund, so we're not gonna execute
on that anymore.
rory-liebhart_1_07-08-20 (13:48):
Right.
Or in other cases, I've beenpart of a, a group, I've, I've,
I've, uh, been part of a groupthat was financial services
rollup strategy, so maybe notexactly homogenous as saying,
you know, like a accountingfirm.
Accounting firm, but basicallycomplementary.
You know, tech enabled services,business, yada, yada, yada.
So, so by virtue of the capitalmarkets being robust, the m and
(14:11):
a market being robust, one ofthe strategies that can, that is
employed sometimes is go aheadand, and buy up a bunch of
companies, start the integrationprocess, but basically hand off
the half integrated company toanother PE firm.
To
emily-sander_1_07-08-2025_1 (14:25):
Oh.
rory-liebhart_1_07-08-2025_1 (14:26):
of the way.
And so a lot of times that'sdone unintentionally where you
know, you, you execute a roll upstrategy and you're just like,
this is way harder than Iexpected.
But maybe in that time that youheld that business, the capital
markets improved in your favorand the m and a market got
better.
So you could actually sell forhigh on multiple, even though
you didn't realize the.
(14:47):
The value creation from theactual rolling up itself.
So then you, you, you trade itoff and you sell that as an
excess to your, uh, success toyour LPs, and you're off and
you're doing it again.
But, but that's just to say thatsome of these things get half
baked and, and maybe evensometimes just par baked even,
uh, and then, and then traded.
And it can lead to be, it couldactually turn out to be a
(15:08):
successful deal, uh, just byvirtue of luck and some timing
and, you know, some vision, butmaybe not as much execution.
man-myth-legend_1_07-08-20 (15:16):
Now.
emily-sander_1_07-08-20 (15:17):
without the luck and timing though, can
you walk me through thearbitrage piece?
Like let's say, I mean likewhat's an example, like an HVAC
company or a landscaping companyor a whatever veterinarian
company.
Pick your, pick your flavorhere, but how, how do I get that
arbitrage advantage?
man-myth-legend_1_07-08-202 (15:33):
you actually hit on one that's, that
is in the, the sexy categoryright now, which is
veterinarians, um, on roll-ups,um, veterinarians, dentists, uh,
optometrists, a lot of themedical professionals.
rory-liebhart_1_07-08- (15:45):
exactly.
man-myth-legend_1_07-08-202 (15:46):
so.
how the, the rollup strategyworks.
Here's how the arbitrage works.
You've got, you know, let's callit a veterinarian.
They've got, you know, it's adoctor with a couple vet
assistants and, you know,they're serving.
And I'll, I'll use, I'll use a,a composite of a few of my
clients'cause I've got a fewthat are in that business.
rory-liebhart_1_07-08-2025 (16:06):
Yep.
man-myth-legend_1_07-08 (16:07):
they've got, you know, they're maybe
doing a couple million dollarsof business and they've, they do
farms out in Arlington, uh,Washington VCA, which is Vet
Corporation of America.
Comes up to'em and goes, and,you know, the dock might be in
her, in her late fifties, kindof looking at what the
transition looks like, andyou've got a couple choices.
(16:27):
You could sell the practice ornot.
Um, or you could close it downor, or try and bring someone in
and transition over time.
And VCA comes in and goes, look,here's what we can do.
give you cash, we're gonnaretain you for 10 years.
We're gonna give you options, orwe're gonna you stock in the
business.
And what's gonna happen isyou're gonna be on the VCA
(16:50):
system.
So we're gonna do your marketingfor you.
So now you don't have themarketing cost.
We're gonna do your accountingfor you, we're gonna do your
payroll, we're gonna do yourtaxes, we're gonna, so now you
eliminate a lot of, like Roryled off with the back office
piece, the back office.
Yeah, all that goes away.
So now you save yourself 10, 15points on your bottom line, just
on the back office.
(17:10):
And then they go, okay, wellthis business, if you look at
the risk premium, you would payfor a business associated with a
sole practitioner.
sole practitioner doctor in asmall town, that risk premium's
gonna be pretty high.
So you might only pay three XEBITDA for that business, but
now you've all of a sudden gotVCA as your owner and they've
(17:32):
got 450 vets that, that they'vegot in their ecosystem,
including folks fresh outtacollege all the way through
getting ready to retire.
And so.
Doc decides that she wants toretire a little bit early.
They've got 450 vets that theycan go, we're gonna transition
you.
They're an employee, we're gonnatransfer you to Arlington.
You're gonna take over thispractice.
(17:52):
So now that risk premium goesdown and you might go from a
three X EBITDA to a six X orseven X ebitda.
And so you've not only cut costbecause you don't have redundant
back office and those things.
You've also reduced the risk inthe business because you've got
e in professional services like,like vets or optometrists or
what have you, that that risk ofit's all revolving around that
(18:15):
single doctor or those twodoctors now is mitigated by the
fact that they've got a pool ofprofessionals that they're gonna
be able to, to draw and attract,recruit, um, and so it drives
value up.
And then when they go to sellthat business, they go, now it's
not a$2 million practice.
It's really.
A component of a$250 millionmedical medical practice that
(18:39):
they're selling, you know, fortwo, two or$3 billion as opposed
to, you know, one X revenue orthree x ebitda.
rory-liebhart_1_07-08-202 (18:47):
Yeah.
emily-sander_1_07-08-2025 (18:48):
Okay, so there's some different
players in there though.
rory-liebhart_1_07-08-202 (18:52):
yeah.
And you
emily-sander_1_07-08-2 (18:53):
There's.
rory-liebhart_1_07-08-2025_ (18:53):
one that enters the fray, you know,
as is the case pretty much with,I would almost venture to say
almost every private equity dealis, is lenders.
So you might ask, you might beasking a question.
go roll up a bunch ofbusinesses, that's just gotta be
a lot of capital.
You gotta put out the door.
Uh, yes, to a degree.
Uh, a lot of it not your own,uh, if you have a lender that
you're working with.
And so if you might, you canjust think about people.
(19:14):
We like to, in our book, we liketo analogize real estate.
This is, this can also be thesame, right?
Like you go buy one veterinarypractice and that has cash flow
to it.
you can use the assets and thecash flow of business.
To secure more debt financing togo buy another one,
emily-sander_1_07-08-2025_1 (19:36):
Ah.
rory-liebhart_1_07-08-2025_ (19:36):
buy that one and it has cashflow
characteristics and it's gotsome assets and it's got some
predictability.
Banks like that, you can go buyanother one and another one.
You keep stacking and stackingand stacking until you get to
have a big enough portfolio.
you can demonstrate that it'sworking cohesively and you can
continue to get better financingand better financing, and then
(19:58):
you're increasing your ROI toyour original LP investors for
that original bit of equity theyput in, and you're using debt
smartly.
Now, that also poses some of thebiggest risk in this whole
thing.
Let's say you have fourportfolio rolled up.
One of'em goes sideways, but yousaddled the whole thing with a
(20:19):
bunch of debt.
I.
Well, that could pose a lot ofcovenant issue or just general
non-performance issues as itrelates to, uh, keeping up with
the terms of your loan.
So you might end up findingyourselves with.
Tight to covenants or, you know,low on cash flow.
So you end up having torestructure things and it, and
in a worst case scenario, byusing all that leverage, you
(20:40):
could tank the whole deal foryour LPs.
But, um, you know, that's,that's what these, you know,
financial engineers are paid todo.
They're very smart.
They generally use, use debtwisely, but it, it is a big risk
for sure.
man-myth-legend_1_07-08-202 (20:53):
The other,
emily-sander_1_07-08-2025_16 (20:54):
So
man-myth-legend_1_07-08-20 (20:55):
Rory just hit on, on the.
On the leverage side is yourfinancial engineers, your
private equity folks, most ofthem do not have on the ground
practical experience in actualexecution of a rollup.
They've done it by spreadsheet.
They've done it, you know,
emily-sander_1_07-08- (21:13):
textbook.
man-myth-legend_1_07-08-2025 (21:14):
as a, as a portfolio.
As a company in a portfolio.
rory-liebhart_1_07-08-2025_ (21:18):
and pitched via PowerPoint.
man-myth-legend_1_07-08-2 (21:19):
Yeah.
But they, they have not had tobe in the trenches.
And so in some cases, and I haverun into this.
rory-liebhart_1_07-08-2025_1 (21:25):
I.
man-myth-legend_1_07-08- (21:25):
Where, you know, and I, I won't name
names, but everybody knowsprobably who I'm talking about.
was a rollup where basically thechief operating officer and I
said, do not do this.
This makes no sense.
There are no, there are noefficiencies.
I see vapor in their, in theirtechnology.
It doesn't make, well, you know,we're gonna move forward'cause
(21:46):
this is, this just makes a worldof sense for us.
It did not, and it distracted.
It was, it was a nightmare for ayear and a half until we
essentially sold the businessagain.
it, you know, the, the executionpart.
Is hard.
And if you do that withleverage, you've added a
significant amount of risk intothe deal.
And if you don't execute, and alot of times, as we've talked
(22:07):
about on the pod, the, theleverage that's added is coupled
with covenants and thosecovenants and you know, kind of
factor in the expectedefficiencies associated with
rory-liebhart_1_07-08-2025 (22:17):
Yep.
man-myth-legend_1_0 (22:18):
acquisition and the cost savings and the
increased cash flow and allthose things.
And if that doesn't getrealized, you're gonna blow
yourself up real fast.
rory-liebhart_1_07-08-2 (22:25):
Mm-hmm.
man-myth-legend_1_07- (22:25):
execution piece, you know, if you're in
the.
you're on the operator side of arollup strategy, so you're a,
you know, kind of a, anoperating management team, if
that is a stated strategy ofyour PE sponsor and they are
actively looking for rollupcandidates, it is imperative
that you be part of that processand that you understand what's
(22:49):
being asked of you going into itfrom a thesis perspective,
because it may or may not.
rory-liebhart_1_07-08-202 (22:55):
Yeah.
man-myth-legend_1_07-08-20 (22:55):
They may take a very good business
and blow it up because they'vegotten too aggressive on a roll
up and don't understand theactual blocking and tackling of
that integration and, andefficiency gain.
rory-liebhart_1_07-08-202 (23:06):
Yeah.
And that, that raises anotherreally important point, and
you've, you've actually been inthis situation, ed, where you're
one of the sort of, call it, uh,you know.
Executives parachuted in to tryto execute one of these things.
You, you did it in therestaurant space specifically,
and, and I'm gonna use anotherkind of, uh, derivative of that
(23:27):
is to say you, a lot of timesyou just need to figure on
bringing in executives andprofessionals.
That know what it takes to do anintegration, to do a roll up.
Not even necessarily an industrypro ed.
You, you weren't necessarily arestaurant retail guy, but
you're a, you were an executivemanager that knew how to put
businesses together and getpeople to walk in the same
(23:47):
direction together.
So that's what it takes.
You have to budget that in and,and these, these folks, uh,
they're high value, so theyain't cheap.
Like bringing in a team likethat is a massive investment in
its own right.
So it just, just doesn't happenmagically.
It takes.
Real grit in, in the trencheswork to bring it all together.
Um, and maybe a little luck too,you
man-myth-legend_1_07-08 (24:08):
Mm-hmm.
emily-sander_1_07-08-2025_1 (24:11):
And you said if the PE sponsor has a
stated strategy of, of a rollup,but do they always announce.
Said, is that transparent?
Are they flying by the seat oftheir pants and figuring out as
they go, or is that always Nope,we're doing a rollup strategy.
Everyone knows about that.
rory-liebhart_1_07-08-2025_ (24:26):
not flying by the seat of your
pants.
I would say that I think there'ssome, some decision making that
can be flip at times, but I'dsay on something like this,
you're generally not flying bythe seat of your pants, but, but
sometimes it is a matter of anevolving understanding of the
business.
So like a, maybe a PE.
Gets into a business andrealizes that the industry is
(24:48):
way more
emily-sander_1_07-08-2025_1 (24:49):
Mm.
Yeah.
rory-liebhart_1_07-08-2025 (24:50):
than they originally anticipated.
And some of that comes from, youknow, they buy a company and the
founder, they get to know thefounder more, that they learn
the business that much more,figure out the trials and
tribulations of being in thatspace.
And they're like, well, screwit.
I got a ton of capital todeploy.
Let's go roll this whole thingup.
You know, if, if your businesshas this much to unlock and it's
(25:10):
been run inefficiently until wejust bought it.
Imagine these other businessesare in the same boat, we can
extract more value that way, solet's just go big.
That happens for
man-myth-legend_1_07-08 (25:19):
Mm-hmm.
emily-sander_1_07-08-2025_1 (25:21):
But with each one of those like
turns, which each one of thoseadditions.
It looks like a straight line ona spreadsheet, but then you have
the market conditions and theindustry and the leadership
teams and the synergies and theniches that you might blow up by
getting too big.
So all of these, it's eachlevel.
rory-liebhart_1_07-08-2025_ (25:37):
you know,
emily-sander_1_07-08-2025_16 (25:38):
Oh man.
rory-liebhart_1_07-08-2 (25:38):
things.
If you start to roll up toomuch, perhaps you, you bring an
antitrust type of, uh,perspectives, things like that.
I don't, we, you don't oftenthink about that, you know,
'cause you only think about thatwith like, you know, the largest
companies in the world.
But you know, it, it is aconsideration.
Regulatory factors that may notbe apparent out the gate, but as
you get into it could, couldemerge for sure.
man-myth-legend_1_07-08-2 (26:00):
Yeah, what I would,
emily-sander_1_07-08-2025 (26:01):
Okay.
man-myth-legend_1_07-08-202 (26:01):
say em is with one ex, maybe one
exception, every private equitybacked business that I've been
associated with has beenacquired by another business
executing a rollup strategy.
So
emily-sander_1_07-08-2025 (26:13):
Okay.
man-myth-legend_1_07-0 (26:14):
they've, they've been acquired by,
ultimately acquired by astrategic buyer, oftentimes
backed by private equity.
Although the, the one Rory, Rorywrote all the way through was a
public company, but it wasbasically a rollup strategy.
The rollup strategy is, is kindof the
rory-liebhart_1_07-08-2025_1 (26:31):
at that at the end of the day,
honestly.
Yeah.
man-myth-legend_1_07-08-2 (26:34):
Yeah, it was, it was, the roll up
strategy is the.
That is the cat's meow.
From the standpoint of, youknow, we've talked about get a
strategic buyer.
Get a strategic buyer, that'slikely where you're gonna be
able to get the highest value.
It's because of all the thingswe just talked about, the
elimination of redundancies, theability to get efficiencies, and
that's roll up strategy.
(26:54):
It's gonna get executed on youas opposed to executed by you.
rory-liebhart_1_07-08-2025_16 (26:59):
a good one that actually made me
think about it just from aslightly different perspective,
which is really kind of how itcan go is if you are part of a
business is, uh, being looked atby a private equity group that
is looking to execute a roll upstrategy, you may have some
leverage there, you know, toextract a higher price for your
(27:20):
company if you are.
If you, if you, if you know thattheir intention is to roll it up
and then, you know, gain, gainmore through size and scale,
then you can use that to yourown negotiating advantage and
say, look, you know, this is acritical piece to your strategy.
You know, this is why company isworth X amount more now than
what you're offering me.
(27:41):
So it can work both ways.
You can, you, you, you know, ifyou're a buyer, you need it to
work by paying the right price,as always very obvious.
As a seller, you know, that is amoving target.
The right price is the highestprice you can get for your
business.
And if you have a very motivatedbuyer that has a grander
strategy and maybe another partythat just wants the, buy your
(28:01):
business for cash flow and BAbasically, you know, do a DCF
analysis, discounted cash flowanalysis on your business to get
to a purchase price, maybe youwant to go with the, the group
that's looking at a big multipleon selling a rolled up, merged
entity someday.
I don't know.
That's just a perspective youcan think about.
emily-sander_1_07-08-2025_1 (28:19):
You just said something.
If you are a founder, can youstart a mini rollup strategy
yourself to become moreattractive to PE groups?
rory-liebhart_1_07-08- (28:27):
Totally.
Absolutely.
Yeah.
emily-sander_1_07-08-2025_1 (28:29):
Oh, you can roll yourself up.
man-myth-legend_1_07-08-20 (28:30):
you, if you can demonstrate and it,
the,
rory-liebhart_1_07-08-202 (28:33):
Yeah.
man-myth-legend_1_07-08-202 (28:33):
the concept and we've heard it, is
this is the platform company.
essentially go, we've got this.
rory-liebhart_1_07-08-2025_16 (28:41):
a key buzzword.
Yes.
man-myth-legend_1_07-0 (28:42):
Platform company so that we've got
scalable systems, we're designedto be able to integrate new
businesses.
We've got folks on themanagement team that have done
this before.
We can be a good platformcompany for a rollup strategy
in.
And the one that was classicwhen I was younger was the
funeral home industry all rolledup.
'cause those all used to belittle individual ones.
(29:04):
And you had a couple platformcompanies that were like, look,
we know how to do this and.
They partner with private equityand then they go out and make
offers on all these othercompanies.
That is a, that is a way for youas even as a relatively small
business.
If as a founder, if you canposition yourself as an ideal
platform company, you're gonnaget a much higher valuation out
(29:25):
the gate than you would if thePE guys have to figure out how
to use you as a platform companyand kind of make that
transition.
First, it's gonna speed, have afaster, faster execution.
rory-liebhart_1_07-08-2 (29:37):
Exactly right.
emily-sander_1_07-08-2025_16 (29:38):
So the characteristics of an ideal
platform company is it kind oflike the hub of a, of a wheel
and you can, you can glob on,you can integrate other, other
companies.
It's like we know how to do thatvery well.
man-myth-legend_1_07-08-2 (29:49):
Yeah.
emily-sander_1_07-08-2025_1 (29:50):
how to do integration.
Ah,
man-myth-legend_1_07 (29:53):
excellence play.
We know how to, to sell well.
We know how to report well.
We know how to do finance well.
We know how to do, we do allthose things well, and our
systems are set up in such a waythat if you doubled us in size.
emily-sander_1_07-08-202 (30:05):
scale.
man-myth-legend_1_07-08-202 (30:06):
We, we can scale that quickly and
without, without linear cost.
rory-liebhart_1_07-08-202 (30:11):
Yeah.
You know what?
Don't make good rollupcompanies, banks, you know?
Yeah.
So much of, there's been so manybank acquisitions, obviously,
and you, you don't necessarilythink about it as rollup, but it
really is there So manycommunity banks have rolled up,
but so many of these systems areso unique to these entities that
integrating them.
And the in the architecturebehind it is it's, it's a
(30:33):
massive CapEx uh, spend.
So you see a lot of times, youknow, they'll roll up and
they'll be.
In the same company, but they'restill not integrated.
Like one that comes to mind, youknow, just more recently is
like, uh, with the SVB and, uh,first Republic and those guys
blowing up kind of I guess itwas two years ago now, you know,
(30:54):
first Republic got absorbed intoChase.
I have both of these banks islike business banks for my
entities that I, I work withand.
Still, they're basically treatedas largely separate from a
systematic standpoint.
So it just is what it is.
But you know, the, the biggestvalue you can get is through
cutting costs and getting betterdeals for yourself from, you
know, your vendor suppliers byvirtue of your scale and, you
(31:16):
know, kinda getting leveragefrom people and all of that
stuff.
And then on icing on the cakes,the capital markets advantage
and, you know, sounds easy, butyou know, there's so much to it.
emily-sander_1_07-08-2025_1 (31:27):
And just to pinpoint this for
people, we've talked about a lotof things that are really close
to roll up strategy, but notquite like I.
Vertical integration likefranchises.
And I imagine, I was thinkingthrough, well, I've been at
companies where they wannaacquire their competition so
they glob up market share,right?
And that's the strategy, butthat's not quite being a
platform company.
(31:48):
So this is a very kind ofspecific thing we're talking
about.
Not to be confused with otheradjacent strategies.
man-myth-legend_1_07-08-20 (31:54):
kind of qualify as roll up.
It's just kind of.
rory-liebhart_1_07-08-2025_ (31:58):
the rationale is still synergy and
efficiency on all those things.
man-myth-legend_1_07-08-2 (32:02):
Yeah,
emily-sander_1_07-08-2025_16 (32:02):
So different flavors of roll up.
man-myth-legend_1_07-08-2 (32:04):
role, one's a, but they're all roles,
you know, and it's, and it's,but it's the same.
It's the same theory.
They just taste a little bitdifferent.
rory-liebhart_1_07-08-202 (32:11):
Yeah.
emily-sander_1_07-08-2025 (32:12):
Okay.
Okay.
rory-liebhart_1_07-08-202 (32:13):
yeah.
And I mean, other things toconsider too.
I mean, you might have, uh,companies in the same industry,
very similar, but what if youhave some in the, you know, in
Europe and some here?
I mean, those are two totallydifferent animals in a lot of
ways, so it doesn't, it doesn't,yeah, I'd say like.
Almost as seamlessly, it's liketo be in the same market, in the
same geography, the same laws,and the same, uh, standards and
(32:36):
things like that, you know, uh,to make it more effective.
But that doesn't mean that itcan't be also effective to
acquire competition globally andthen, you know, gain synergies
from that.
We're just saying like, youknow, you know, a very vanilla
rollup strategy involves prettymuch like type things in the
same place that just couldbenefit from some scale.
emily-sander_1_07-08-2025_ (32:58):
Hmm.
Are there PE companies whospecialize in this where they
know all the.
All the creepy crawly thingsthat can crawl out of a rock if
you turn it over.
Or they know, like it's not aseasy as a spreadsheet guys, it's
it like, it sounds sexy, itsounds nice, but it's a lot of
work.
We're good at that work.
We specialize in that.
Or the PE firms just go like,yeah, it's part of our strategy.
(33:20):
It sounds great and we're greatat that.
rory-liebhart_1_07-08-20 (33:22):
that's a good question.
I, my, my sense, and, you know,keep me honest here, is there's,
it's easier to say that there'scompanies that just don't do
those things.
And what I mean by that is PEgroups and funds that basically
just, just buy assets ratherthan as much as operating
companies and things like that.
So you exclude that group.
(33:44):
I think you'd be hard pressed tofind a.
A PE group that says, yeah,we're not very good at
integrations and, and sort ofleading through value creation.
Like I don't think that that'sreally a thing, but I think
there are certainly some thatmaybe are, are better than
others by
man-myth-legend_1_07-08-2 (33:59):
Yeah.
rory-liebhart_1_07-08-2025 (34:00):
like just basically getting with the
right management team.
And it's one thing that we, weactually spend time too much
talking about in our book alittle bit we did, we haven't
really on our podcast, but PEgroups and PE funds.
So much of their success comesfrom who they have in their
corner as operating partners,which is a little bit different,
(34:23):
so different than a limitedpartner.
But what, what you see is a lotof, you know, call it
semi-retired, very, verysuccessful people that have done
a lot of, uh, exits and stuffbeing part of PE funds as a
second career.
You know, maybe they've senttheir first, you know, part of
their career as CEOs, cos chiefof staff, really successful
people in their own right asoperators.
(34:43):
But then you take that operatingknowledge.
And experience to a
emily-sander_1_07-08-2025_ (34:47):
Hmm.
rory-liebhart_1_07-08-20 (34:47):
That's an investment strategy.
That's a powerful combination.
So I'd say the, the, the PEfunds that have the best
operating partners to, to sortof compliment their investment
prowess are gonna be moresuccessful than others that are
just like, Hey, we're justreally smart investors.
You know?
'cause it takes people being intheir sleeves, rolled up to make
stuff happen.
emily-sander_1_07-08-2025_ (35:08):
That might be a future pod for us
too.
rory-liebhart_1_07-08-202 (35:10):
Yeah.
That kicked
emily-sander_1_07-08-2025 (35:11):
Yeah.
man-myth-legend_1_07-08-2025_ (35:11):
I mean, we, we live that.
We live that with Lone Starfunds.
They have an entire advisorythat has.
You know what I always calledwas like the shadow cabinet,
which you had.
You had CFOs, CIOs, COOs, CTOs,all those kind of sitting up at
the fund level.
At In Hudson.
rory-liebhart_1_07-08-2025 (35:29):
that guy for a
man-myth-legend_1_07-08-2 (35:30):
Yeah.
Yeah.
Hudson advisors and
rory-liebhart_1_07-08-2025_1 (35:32):
in and
man-myth-legend_1_07-08-2 (35:33):
yeah, multiple portfolio companies.
rory-liebhart_1_07-08-2 (35:36):
company PE go.
Yeah.
Yeah,
man-myth-legend_1_07-08-202 (35:37):
And I, and it was exactly for the,
for that reason is they wantedto have an operate, they wanted
to have a, a team that had beenthere, done that to help folks
there, do that, or to be thereand do that for them if they
couldn't.
And, you know, bigger firms,bigger, bigger PE firms.
I think that's a, I think that'stable stakes for them.
But, you know, we saw even, um,with the last PE firm we were
(36:00):
with Emily, that they weremoving that direction.
emily-sander_1_07-08-2025 (36:03):
Yeah.
man-myth-legend_1_07-08-202 (36:03):
and you know, I think that that's,
that's gonna be more, that ismore and more common and they
recog and I think folks arerecognizing what Rory just said,
which is there's a lot of valueto be unlocked with just a few
key operating partners that canhelp the help bridge the
difference between thespreadsheet and the execution.
emily-sander_1_07-08-2025_ (36:21):
I've seen that more and more with
chiefs of staff too, so yeah.
That's a cool, that's a cooltopic.
rory-liebhart_1_07- (36:24):
absolutely.
emily-sander_1_07-08-2025_1 (36:25):
Um, as we wrap up the roll up
strategy.
Anything else to add or justwhat would you leave people
with?
As a recap, I'm kind of pickingup, you can take small companies
and make them into large empiresif you want, but it's not an ATM
machine.
It's not free money.
There's lots of risk.
man-myth-legend_1_07-08-2025_ (36:42):
I think the biggest, the, the two
things to take away are.
It's far more difficult toexecute in practice than it is
to model.
And then the second piece is, Ibelieve kind of, and Rory kind
of alluded to this, I.
Every private equity firm thathas operating companies has this
tool in their toolbox and areprepared to deploy it if they
(37:04):
have capital to deploy.
rory-liebhart_1_07-08-202 (37:05):
Yeah.
emily-sander_1_07-08-2025_ (37:06):
Hmm.
man-myth-legend_1_07-08-2025_ (37:06):
a question of how well they deploy
it and whether that's a corecompetency or not of that PE
firm.
But it's, if you're a in aprivate equity backed
environment, that tool, andyou're an operator, that tool is
likely in your PE.
financial sponsors tool toolbox,and they're likely to at least
talk about it and explore it.
(37:27):
If not, if not, use it.
rory-liebhart_1_07-08-2025 (37:30):
Yep.
Yeah, I, I'd be hard pressed toelaborate anymore on that.
It's, there's always gonna be anage old.
Discussion on whether valuecreation comes best from organic
growth or inorganic growththrough m and a and so forth.
And the the, I mean, the clicheanswer that you might expect is
probably somewhere in between,right?
Like you need to, you need to bevery fundamentally sound in
(37:53):
managing a business regardlessof the circumstances.
But if you are.
Then, you know, applying thatplaybook to other similar like
type businesses can acceleratethe timeframe to realizing
value.
And if you're very savvy and youunderstand the capital markets
really well and you are, as wekeep saying a, a little bit of
luck involved, that can, it cantake a or three x multiple two
(38:17):
or, you know, six, seven plusmultiple if you do it right.
So it's tantalizing for sure.
emily-sander_1_07-08-2025 (38:23):
There we go.
We'll call it a wrap there.
Thanks Rory.
Thanks, ed.
rory-liebhart_1_07-08-202 (38:26):
Thank you.
man-myth-legend_1_07-08 (38:27):
Thanks.
rory-liebhart_1_07-08-202 (38:27):
soon.
All right.
We are on the Private EquityExperience Podcast.
rory-liebhart_1_07-08-2025 (00:38):
It's good to be back.
emily-sander_1_07-08-2025_1 (00:39):
two quick questions to get us warmed
up here.
So we'll settle this once andfor all.
Please stack rank the followingkinds of rollups fruit, rollups
sushi roll, rock and rollpayroll Ed.
Go.
man-myth-legend_1_07-08- (00:55):
always is at the top of the list.
And then I'll do rock and roll.
Then I'll do.
Sushi roll.
Then I'll do a fruit rollup.
'cause fruit rollups are justlike leather fruit crap.
I mean, that's, it's like,
emily-sander_1_07-08-20 (01:12):
They're leather sugar.
Yeah, that disolve in yourmouth,
rory-liebhart_1_07-08-202 (01:15):
Yeah,
emily-sander_1_07-08-2025_1 (01:16):
but if running a marathon, you might
need that.
rory-liebhart_1_07-08-202 (01:19):
Yeah, I was just gonna say, if you're
into endurance things and havinga fruit roll, uh, at hand is not
a bad, a bad way to go, youknow, it's pretty dense, but I'm
with Ed, you know, payroll topsboth as on the receiving end.
As a CFO, you always wanna bemaking payroll.
That means you're doing allright.
Um, rock and roll.
I, I'm into that as well.
Um, sushi rolls.
(01:39):
Yeah.
Uh, I, I love a good tempuraroll.
So those, those tend to tend tohold weight in my world too.
So you.
to
emily-sander_1_07-08 (01:48):
Excellent.
rory-liebhart_1_07-08-2025 (01:48):
with those.
Those are
emily-sander_1_07-08-2025 (01:49):
Yeah, there we go.
Basically, I'm picturing Ed andRory doing payroll while
listening to rock and roll.
They're eating sushi rolls andthey'll have a fruit roll up for
maybe like a dessert once in awhile.
Um,
rory-liebhart_1_07-08- (02:01):
exactly.
emily-sander_1_07-08-202 (02:02):
second quickfire question.
If you had to own 17 of the samekinds of businesses, which ones
are you picking and YA coffeeshops.
B dog groomers.
C car washes, D nail salons, E,mini golf courses.
man-myth-legend_1_07-08-202 (02:18):
Oh, car washes, that's easy.
Those are far more passive thanthe others.
I
emily-sander_1_07-08-2025_1 (02:24):
Oh,
man-myth-legend_1_07-08-2025 (02:24):
op car washes and kind of go.
Fill up the soap and collect mycoins,
rory-liebhart_1_07-08-202 (02:30):
Yeah.
man-myth-legend_1_07-08-202 (02:31):
and that's it, man.
The rest of'em, I gotta getpeople to actually do the work.
rory-liebhart_1_07-08-2025_16 (02:35):
I like, I like that.
I also, the others, I wouldprobably put dog groomers up
there.
So it's
emily-sander_1_07-08-2025_1 (02:41):
oh.
rory-liebhart_1_07-08-2025_1 (02:41):
a, a luxury and a necessity for
people.
So you could do all sorts ofcrazy creative things to grow
that kind of business.
You can offer financing andthey're typically probably a
good credit risk.
People are gonna look to paytheir, uh, bills related to
their pets before, you know,before other things.
And after a mortgage in the carprobably.
So.
that would be a good one.
(03:01):
Um, probably hard to build aback office for it, but Could be
done.
Could be done for sure.
emily-sander_1_07-08-2025_160 (03:10):
I like how seriously you're taking
that question thought out from afinancial perspective.
Awesome.
rory-liebhart_1_07-08-202 (03:14):
Yeah.
emily-sander_1_07-08-2025 (03:15):
Rory, take us away.
What?
What is a private equity roll upstrategy?
rory-liebhart_1_07-08-202 (03:20):
Well, I like a lot of these things.
I would say in the privateequity world, the terminology is
a lot of times prettyself-explanatory, which I'm, I'm
grateful for.
But, uh, you know, what it is,is really, it's a strategy to,
to investment capital to buy up,you know, kind of, uh,
businesses in the same industry,but in a kind of, uh, be like a
(03:41):
kind of a fragmented sectorperhaps.
Put'em together, make thembetter, eke out costs, take on
debt, sell it later at a highermultiple.
In a, in a nutshell, that's whatit is.
There's a lot more to it, ofcourse, but that's what, uh,
what it is at the fundamentallevel
emily-sander_1_07-08-202 (03:58):
That's a good, that's a good summary,
ed.
rory-liebhart_1_07-08-2 (04:00):
Podcast over, no, I'm kidding.
man-myth-legend_1_07-08-202 (04:03):
No, and it's far more common than
you think.
We've talked a fair bit, youknow, during the podcast and in
the book around the strategicacquisition.
So you know, you wanna getacquired by a strategic.
emily-sander_1_07-08-20 (04:15):
Mm-hmm.
man-myth-legend_1_07-08-2025 (04:16):
of times the strategic that's
acquiring you is private equitybacked, and it's actually part
of a rollup strategy.
And I can kind of point to anumber of the companies I've
worked with on a private equityside or own personally, where
part of the strategy is to lookfor a rollup.
And I'll give an example inprofessional services, you know,
(04:38):
which is, which is where I sittoday.
You can look at, uh, let's sayan accounting firm.
Accounting firms will tradesmall ones, 2, 3, 4 partners,
you know, solo practitioners.
They trade at two x to three xebitda.
A well-organized mid-sizeaccounting firm will trade at
seven to 10 x ebitda.
(04:59):
And so there's a strategy asRory noted, where you go, okay,
I'm gonna find these small firmsthat.
know, they've got a good book ofbusiness, they've got an
interesting niche, they've gotsomething, but I'm buying it at
three x.
rory-liebhart_1_07-08-202 (05:11):
Yeah.
man-myth-legend_1_07-08-2025 (05:11):
it into my ecosystem.
I it more efficient.
I put new systems in place, Iput new processes in place, and
now I get an arbitrage,essentially free money of like
it doubles in value just bybringing it into that ecosystem.
And if I can do that four orfive times, I could grow a very
(05:32):
large firm and make a ton ofmoney doing it now.
The execution is the hard part,but the concept is very
straightforward.
rory-liebhart_1_07-08-202 (05:40):
Yeah.
emily-sander_1_07-08-2025 (05:41):
Okay, so I'm hearing like some of the
same things though because yougo in, you have to make the
business more efficient.
Maybe the internal processes arenot.
Set up like they should be, oryou need some, some different
things here and there.
So that part seems similar towhat we've talked about in the
past, but then you're putting itin this strategy, in this
ecosystem where you're, you'releveraging, you're arbitraging.
(06:05):
The nature of it almost is that.
rory-liebhart_1_07-08-202 (06:07):
Yeah, I mean, there is so much to it
and I, it can be a highlyeffective strategy in, in one
that is, uh.
pretty much the private equityplaybook, but it is also one
where it could be a really greatspreadsheet exercise, but making
it happen and come together,along the lines of how you're
(06:28):
trying to go ahead and buildvalue and sell.
It's way more easier said thandone.
Um, think about what we'retalking about here, and I'm not
saying every single.
Rollup instances is, uh, youknow, uh, fragmented sort of
independent businesses.
But most of the time that'swhere you're gonna get the most
value if you can execute it.
But think about any independentbusiness you know of likely has
(06:51):
its own culture, likely it hasits own ERP system, its own way
of going to market, you know,yada, yada yada.
Has its own independentstrategy.
And then to try to bring inother businesses sort of in that
same, you know, uh.
Cohort and then make them allcome together, you know,
cohesively.
(07:12):
That's, that's really difficultto do.
And, you know, us being inleadership and it's, it's so
much of a people thing.
It's so much of a systems thing.
making that happen is, isoftentimes the hardest part,
right?
Um, you know, the, if themarket's there and you can get
bigger multiples by combiningbusinesses, great.
But there's a lot of spade workthat has to happen to get
yourself to that point whereyou're ready to sell and realize
(07:34):
that value.
emily-sander_1_07-08-2025_1 (07:36):
And just for folks listening, are we
talking about the exact sametypes of business, like
accounting firm, accountingfirm, or is this um, I'm trying
to think of one off the top ofmy head Accounting firm and like
something adjacent to anaccounting firm that they would
typically need.
I.
man-myth-legend_1_07-08-2025_ (07:50):
A lot of times if you're rolling
up, you're rolling up somethingthat's very similar, so you're,
you roll, roll up essentiallyimplies that you're taking a
bunch of smaller things andyou're rolling'em into a bigger
thing.
The vertical integration, youknow, that you're kind of
talking about, which is, well,maybe I've got a, and going back
to our, our.
(08:11):
Prior employer, um, we acquireda smaller web services provider,
and then we acquired a differentweb services provider in a
different niche.
But it was basically the samebusiness.
It just was in a differentvertical.
That's a classic roll-upstrategy.
We acquired two differentbusinesses, rolled those up,
(08:32):
built some efficiency into it,you, you know, kind of
redeployed the best people to,to the right places and
executed.
Um.
at various levels of good.
Um, but the, the process isnormally not, well, I've got a
accounting firm and now I'mgonna go roll up a law firm and
(08:52):
then I'm gonna go roll up a HRconsulting firm.
You can do that, but you really,that takes all the risks that
Rory just talked about withpeople, processes, tools.
And technology and, andamplifies those risks because
you now have, it's not the samebusiness.
The, the key is basically theMcDonald's method of, you know,
(09:14):
you acquire these businesses andthen you, you work to put them
into a framework that is proven,that's efficient, that's
scalable, to be able to realizethe value out of those
businesses.
emily-sander_1_07-08-2025_1 (09:25):
You put'em into a framework, but
it's not a franchise.
rory-liebhart_1_07-08-20 (09:28):
Right.
Yep.
emily-sander_1_07-08-2025 (09:30):
Okay.
rory-liebhart_1_07-08-2025 (09:30):
It's a good, good way to think about
that.
Exactly.
So yeah, it's, um, it, it's oneof those areas where if you're
gonna have a rollup strategy, I.
You really, really need tounderstand the customer from
each of the independent businessstandpoints.
And this could easily turn froma private equity podcast to just
a business leadership podcast inso far as you, if you alienate
(09:55):
your customer by making, makingyour sort of roll up, you know,
merged business portfolio moregeneric and you lose some of the
nuance with your customers,especially for independent
businesses, you could basicallybe cannibalizing the overall
picture for yourself.
So, you know, at the very end ofthe.
You, you need to be able to dothe things that make these, uh,
(10:17):
these strategies create value,which is get cost synergies, get
supply chain leverage by beingbigger, get access to cheaper
debt by being bigger, et cetera,et cetera.
But if you, even if you do thosethings and yet you alienate your
market, you're in somehow bymaking things less, uh,
personalized or independent,whatever.
I mean, it's a risk that youtake to.
(10:38):
Destroy the value of yourcompany this, you know, while
you're financially engineeringyour way to more value, if that
makes sense.
So you can't lose, well justcan't lose sight of the
fundamental aspect of, know,treating your customers well,
understanding your productmarket fit, you know, delivering
basically.
man-myth-legend_1_07-08-202 (10:53):
And in some of those, in some of
those cases, the risks are, youknow, dramatically different.
So for example, executed, Iexecuted on a roll up strategy
in the glass business, glasscontracting business.
So glazing contracting, I.
Much less risk because folkstend to hire you for a project.
You don't have these long-termrelationships.
(11:15):
Your folks tend to be, you know,you either have a unionized
workforce or you have, you know,tech, a technical workforce that
is in and out, but they're.
rory-liebhart_1_07-08-2 (11:23):
Mm-hmm.
man-myth-legend_1_07-08-2025_ (11:23):
I don't wanna say they're
homogenous, but you're able toreplace them easier, um, from a
skillset perspective.
Not necessarily find themeasier, especially in the
trades, but it, from a skillsetperspective, the A glazer as a
glazer as a glazer tends to be,I.
Um, you go into accounting, forinstance, where I sit today and
you have long-termrelationships.
(11:44):
It's a very personalrelationship with your CPA.
So all of a sudden they decideto leave or you execute the
strategy and some of theemployees decide, you know,
emily-sander_1_07-08-2025_16 (11:55):
Oh yeah.
man-myth-legend_1_07-08-202 (11:56):
and they take the clients with them.
That becomes a very tough.
Strategy to execute.
So rollups, that executionpiece, like Rory said, the
alienation of the customer base,the risk level is dramatically
different depending on type ofwhat business you are in and,
and what your interactions arewith those clients.
rory-liebhart_1_07-08-2025 (12:15):
Yep.
Yeah.
emily-sander_1_07-08-2025_16 (12:16):
So if I'm a PE firm, do I decide
like we're we're just doingrollups across everything.
We're like, like a rollup PEfirm, or is it we're gonna
deploy this strategy?
For some, or in some conditionsor for like, how do I decide as
a PE firm how to utilize therollup strategy?
man-myth-legend_1_0 (12:33):
interesting thing from my C is.
Every PE backed business thatI've worked in has all said
we're gonna, we've got capitalavailable and we're gonna go
look for, strategic acquisitions
rory-liebhart_1_07-08-202 (12:46):
Yeah.
man-myth-legend_1_07-08-2025 (12:46):
up into this business.
In most cases, they've actuallydone that, and in most cases,
that has also been.
At least in a couple cases.
That's also been when I wasbrought in because it was not
going well.
rory-liebhart_1_07-08-2025 (13:00):
Yep.
man-myth-legend_1_07-08-2025 (13:01):
it was, you know, the, the, the
roll up strategy is sexy onpaper.
It's extraordinarily difficultto execute in practice, and you
need folks who both get thevision of, okay, here's what
we're trying to accomplish.
Are willing to, and again, thisis my bias, but willing to go,
okay, maybe the better mousetrapsits with the acquired company.
(13:22):
So, you know, we're, we'regonna, we're gonna kind of take
the best of everything and youbecome a true operator.
How do I operate for greatestefficiency?
Um, but it is kind of in theplaybook of pretty much every
private equity backed businessI've been in.
It's just whether that play isexecuted well.
Or in some cases they're like,yeah, well we said that, but we
(13:44):
don't have capital left in thefund, so we're not gonna execute
on that anymore.
rory-liebhart_1_07-08-20 (13:48):
Right.
Or in other cases, I've beenpart of a, a group, I've, I've,
I've, uh, been part of a groupthat was financial services
rollup strategy, so maybe notexactly homogenous as saying,
you know, like a accountingfirm.
Accounting firm, but basicallycomplementary.
You know, tech enabled services,business, yada, yada, yada.
So, so by virtue of the capitalmarkets being robust, the m and
(14:11):
a market being robust, one ofthe strategies that can, that is
employed sometimes is go aheadand, and buy up a bunch of
companies, start the integrationprocess, but basically hand off
the half integrated company toanother PE firm.
To
emily-sander_1_07-08-2025_1 (14:25):
Oh.
rory-liebhart_1_07-08-2025_1 (14:26):
of the way.
And so a lot of times that'sdone unintentionally where you
know, you, you execute a roll upstrategy and you're just like,
this is way harder than Iexpected.
But maybe in that time that youheld that business, the capital
markets improved in your favorand the m and a market got
better.
So you could actually sell forhigh on multiple, even though
you didn't realize the.
(14:47):
The value creation from theactual rolling up itself.
So then you, you, you trade itoff and you sell that as an
excess to your, uh, success toyour LPs, and you're off and
you're doing it again.
But, but that's just to say thatsome of these things get half
baked and, and maybe evensometimes just par baked even,
uh, and then, and then traded.
And it can lead to be, it couldactually turn out to be a
(15:08):
successful deal, uh, just byvirtue of luck and some timing
and, you know, some vision, butmaybe not as much execution.
man-myth-legend_1_07-08-20 (15:16):
Now.
emily-sander_1_07-08-20 (15:17):
without the luck and timing though, can
you walk me through thearbitrage piece?
Like let's say, I mean likewhat's an example, like an HVAC
company or a landscaping companyor a whatever veterinarian
company.
Pick your, pick your flavorhere, but how, how do I get that
arbitrage advantage?
man-myth-legend_1_07-08-202 (15:33):
you actually hit on one that's, that
is in the, the sexy categoryright now, which is
veterinarians, um, on roll-ups,um, veterinarians, dentists, uh,
optometrists, a lot of themedical professionals.
rory-liebhart_1_07-08- (15:45):
exactly.
man-myth-legend_1_07-08-202 (15:46):
so.
how the, the rollup strategyworks.
Here's how the arbitrage works.
You've got, you know, let's callit a veterinarian.
They've got, you know, it's adoctor with a couple vet
assistants and, you know,they're serving.
And I'll, I'll use, I'll use a,a composite of a few of my
clients'cause I've got a fewthat are in that business.
rory-liebhart_1_07-08-2025 (16:06):
Yep.
man-myth-legend_1_07-08 (16:07):
they've got, you know, they're maybe
doing a couple million dollarsof business and they've, they do
farms out in Arlington, uh,Washington VCA, which is Vet
Corporation of America.
Comes up to'em and goes, and,you know, the dock might be in
her, in her late fifties, kindof looking at what the
transition looks like, andyou've got a couple choices.
(16:27):
You could sell the practice ornot.
Um, or you could close it downor, or try and bring someone in
and transition over time.
And VCA comes in and goes, look,here's what we can do.
give you cash, we're gonnaretain you for 10 years.
We're gonna give you options, orwe're gonna you stock in the
business.
And what's gonna happen isyou're gonna be on the VCA
(16:50):
system.
So we're gonna do your marketingfor you.
So now you don't have themarketing cost.
We're gonna do your accountingfor you, we're gonna do your
payroll, we're gonna do yourtaxes, we're gonna, so now you
eliminate a lot of, like Roryled off with the back office
piece, the back office.
Yeah, all that goes away.
So now you save yourself 10, 15points on your bottom line, just
on the back office.
(17:10):
And then they go, okay, wellthis business, if you look at
the risk premium, you would payfor a business associated with a
sole practitioner.
sole practitioner doctor in asmall town, that risk premium's
gonna be pretty high.
So you might only pay three XEBITDA for that business, but
now you've all of a sudden gotVCA as your owner and they've
(17:32):
got 450 vets that, that they'vegot in their ecosystem,
including folks fresh outtacollege all the way through
getting ready to retire.
And so.
Doc decides that she wants toretire a little bit early.
They've got 450 vets that theycan go, we're gonna transition
you.
They're an employee, we're gonnatransfer you to Arlington.
You're gonna take over thispractice.
(17:52):
So now that risk premium goesdown and you might go from a
three X EBITDA to a six X orseven X ebitda.
And so you've not only cut costbecause you don't have redundant
back office and those things.
You've also reduced the risk inthe business because you've got
e in professional services like,like vets or optometrists or
what have you, that that risk ofit's all revolving around that
(18:15):
single doctor or those twodoctors now is mitigated by the
fact that they've got a pool ofprofessionals that they're gonna
be able to, to draw and attract,recruit, um, and so it drives
value up.
And then when they go to sellthat business, they go, now it's
not a$2 million practice.
It's really.
A component of a$250 millionmedical medical practice that
(18:39):
they're selling, you know, fortwo, two or$3 billion as opposed
to, you know, one X revenue orthree x ebitda.
rory-liebhart_1_07-08-202 (18:47):
Yeah.
emily-sander_1_07-08-2025 (18:48):
Okay, so there's some different
players in there though.
rory-liebhart_1_07-08-202 (18:52):
yeah.
And you
emily-sander_1_07-08-2 (18:53):
There's.
rory-liebhart_1_07-08-2025_ (18:53):
one that enters the fray, you know,
as is the case pretty much with,I would almost venture to say
almost every private equity dealis, is lenders.
So you might ask, you might beasking a question.
go roll up a bunch ofbusinesses, that's just gotta be
a lot of capital.
You gotta put out the door.
Uh, yes, to a degree.
Uh, a lot of it not your own,uh, if you have a lender that
you're working with.
And so if you might, you canjust think about people.
(19:14):
We like to, in our book, we liketo analogize real estate.
This is, this can also be thesame, right?
Like you go buy one veterinarypractice and that has cash flow
to it.
you can use the assets and thecash flow of business.
To secure more debt financing togo buy another one,
emily-sander_1_07-08-2025_1 (19:36):
Ah.
rory-liebhart_1_07-08-2025_ (19:36):
buy that one and it has cashflow
characteristics and it's gotsome assets and it's got some
predictability.
Banks like that, you can go buyanother one and another one.
You keep stacking and stackingand stacking until you get to
have a big enough portfolio.
you can demonstrate that it'sworking cohesively and you can
continue to get better financingand better financing, and then
(19:58):
you're increasing your ROI toyour original LP investors for
that original bit of equity theyput in, and you're using debt
smartly.
Now, that also poses some of thebiggest risk in this whole
thing.
Let's say you have fourportfolio rolled up.
One of'em goes sideways, but yousaddled the whole thing with a
(20:19):
bunch of debt.
I.
Well, that could pose a lot ofcovenant issue or just general
non-performance issues as itrelates to, uh, keeping up with
the terms of your loan.
So you might end up findingyourselves with.
Tight to covenants or, you know,low on cash flow.
So you end up having torestructure things and it, and
in a worst case scenario, byusing all that leverage, you
(20:40):
could tank the whole deal foryour LPs.
But, um, you know, that's,that's what these, you know,
financial engineers are paid todo.
They're very smart.
They generally use, use debtwisely, but it, it is a big risk
for sure.
man-myth-legend_1_07-08-202 (20:53):
The other,
emily-sander_1_07-08-2025_16 (20:54):
So
man-myth-legend_1_07-08-20 (20:55):
Rory just hit on, on the.
On the leverage side is yourfinancial engineers, your
private equity folks, most ofthem do not have on the ground
practical experience in actualexecution of a rollup.
They've done it by spreadsheet.
They've done it, you know,
emily-sander_1_07-08- (21:13):
textbook.
man-myth-legend_1_07-08-2025 (21:14):
as a, as a portfolio.
As a company in a portfolio.
rory-liebhart_1_07-08-2025_ (21:18):
and pitched via PowerPoint.
man-myth-legend_1_07-08-2 (21:19):
Yeah.
But they, they have not had tobe in the trenches.
And so in some cases, and I haverun into this.
rory-liebhart_1_07-08-2025_1 (21:25):
I.
man-myth-legend_1_07-08- (21:25):
Where, you know, and I, I won't name
names, but everybody knowsprobably who I'm talking about.
was a rollup where basically thechief operating officer and I
said, do not do this.
This makes no sense.
There are no, there are noefficiencies.
I see vapor in their, in theirtechnology.
It doesn't make, well, you know,we're gonna move forward'cause
(21:46):
this is, this just makes a worldof sense for us.
It did not, and it distracted.
It was, it was a nightmare for ayear and a half until we
essentially sold the businessagain.
it, you know, the, the executionpart.
Is hard.
And if you do that withleverage, you've added a
significant amount of risk intothe deal.
And if you don't execute, and alot of times, as we've talked
(22:07):
about on the pod, the, theleverage that's added is coupled
with covenants and thosecovenants and you know, kind of
factor in the expectedefficiencies associated with
rory-liebhart_1_07-08-2025 (22:17):
Yep.
man-myth-legend_1_0 (22:18):
acquisition and the cost savings and the
increased cash flow and allthose things.
And if that doesn't getrealized, you're gonna blow
yourself up real fast.
rory-liebhart_1_07-08-2 (22:25):
Mm-hmm.
man-myth-legend_1_07- (22:25):
execution piece, you know, if you're in
the.
you're on the operator side of arollup strategy, so you're a,
you know, kind of a, anoperating management team, if
that is a stated strategy ofyour PE sponsor and they are
actively looking for rollupcandidates, it is imperative
that you be part of that processand that you understand what's
(22:49):
being asked of you going into itfrom a thesis perspective,
because it may or may not.
rory-liebhart_1_07-08-202 (22:55):
Yeah.
man-myth-legend_1_07-08-20 (22:55):
They may take a very good business
and blow it up because they'vegotten too aggressive on a roll
up and don't understand theactual blocking and tackling of
that integration and, andefficiency gain.
rory-liebhart_1_07-08-202 (23:06):
Yeah.
And that, that raises anotherreally important point, and
you've, you've actually been inthis situation, ed, where you're
one of the sort of, call it, uh,you know.
Executives parachuted in to tryto execute one of these things.
You, you did it in therestaurant space specifically,
and, and I'm gonna use anotherkind of, uh, derivative of that
(23:27):
is to say you, a lot of timesyou just need to figure on
bringing in executives andprofessionals.
That know what it takes to do anintegration, to do a roll up.
Not even necessarily an industrypro ed.
You, you weren't necessarily arestaurant retail guy, but
you're a, you were an executivemanager that knew how to put
businesses together and getpeople to walk in the same
(23:47):
direction together.
So that's what it takes.
You have to budget that in and,and these, these folks, uh,
they're high value, so theyain't cheap.
Like bringing in a team likethat is a massive investment in
its own right.
So it just, just doesn't happenmagically.
It takes.
Real grit in, in the trencheswork to bring it all together.
Um, and maybe a little luck too,you
man-myth-legend_1_07-08 (24:08):
Mm-hmm.
emily-sander_1_07-08-2025_1 (24:11):
And you said if the PE sponsor has a
stated strategy of, of a rollup,but do they always announce.
Said, is that transparent?
Are they flying by the seat oftheir pants and figuring out as
they go, or is that always Nope,we're doing a rollup strategy.
Everyone knows about that.
rory-liebhart_1_07-08-2025_ (24:26):
not flying by the seat of your
pants.
I would say that I think there'ssome, some decision making that
can be flip at times, but I'dsay on something like this,
you're generally not flying bythe seat of your pants, but, but
sometimes it is a matter of anevolving understanding of the
business.
So like a, maybe a PE.
Gets into a business andrealizes that the industry is
(24:48):
way more
emily-sander_1_07-08-2025_1 (24:49):
Mm.
Yeah.
rory-liebhart_1_07-08-2025 (24:50):
than they originally anticipated.
And some of that comes from, youknow, they buy a company and the
founder, they get to know thefounder more, that they learn
the business that much more,figure out the trials and
tribulations of being in thatspace.
And they're like, well, screwit.
I got a ton of capital todeploy.
Let's go roll this whole thingup.
You know, if, if your businesshas this much to unlock and it's
(25:10):
been run inefficiently until wejust bought it.
Imagine these other businessesare in the same boat, we can
extract more value that way, solet's just go big.
That happens for
man-myth-legend_1_07-08 (25:19):
Mm-hmm.
emily-sander_1_07-08-2025_1 (25:21):
But with each one of those like
turns, which each one of thoseadditions.
It looks like a straight line ona spreadsheet, but then you have
the market conditions and theindustry and the leadership
teams and the synergies and theniches that you might blow up by
getting too big.
So all of these, it's eachlevel.
rory-liebhart_1_07-08-2025_ (25:37):
you know,
emily-sander_1_07-08-2025_16 (25:38):
Oh man.
rory-liebhart_1_07-08-2 (25:38):
things.
If you start to roll up toomuch, perhaps you, you bring an
antitrust type of, uh,perspectives, things like that.
I don't, we, you don't oftenthink about that, you know,
'cause you only think about thatwith like, you know, the largest
companies in the world.
But you know, it, it is aconsideration.
Regulatory factors that may notbe apparent out the gate, but as
you get into it could, couldemerge for sure.
man-myth-legend_1_07-08-2 (26:00):
Yeah, what I would,
emily-sander_1_07-08-2025 (26:01):
Okay.
man-myth-legend_1_07-08-202 (26:01):
say em is with one ex, maybe one
exception, every private equitybacked business that I've been
associated with has beenacquired by another business
executing a rollup strategy.
So
emily-sander_1_07-08-2025 (26:13):
Okay.
man-myth-legend_1_07-0 (26:14):
they've, they've been acquired by,
ultimately acquired by astrategic buyer, oftentimes
backed by private equity.
Although the, the one Rory, Rorywrote all the way through was a
public company, but it wasbasically a rollup strategy.
The rollup strategy is, is kindof the
rory-liebhart_1_07-08-2025_1 (26:31):
at that at the end of the day,
honestly.
Yeah.
man-myth-legend_1_07-08-2 (26:34):
Yeah, it was, it was, the roll up
strategy is the.
That is the cat's meow.
From the standpoint of, youknow, we've talked about get a
strategic buyer.
Get a strategic buyer, that'slikely where you're gonna be
able to get the highest value.
It's because of all the thingswe just talked about, the
elimination of redundancies, theability to get efficiencies, and
that's roll up strategy.
(26:54):
It's gonna get executed on youas opposed to executed by you.
rory-liebhart_1_07-08-2025_16 (26:59):
a good one that actually made me
think about it just from aslightly different perspective,
which is really kind of how itcan go is if you are part of a
business is, uh, being looked atby a private equity group that
is looking to execute a roll upstrategy, you may have some
leverage there, you know, toextract a higher price for your
(27:20):
company if you are.
If you, if you, if you know thattheir intention is to roll it up
and then, you know, gain, gainmore through size and scale,
then you can use that to yourown negotiating advantage and
say, look, you know, this is acritical piece to your strategy.
You know, this is why company isworth X amount more now than
what you're offering me.
(27:41):
So it can work both ways.
You can, you, you, you know, ifyou're a buyer, you need it to
work by paying the right price,as always very obvious.
As a seller, you know, that is amoving target.
The right price is the highestprice you can get for your
business.
And if you have a very motivatedbuyer that has a grander
strategy and maybe another partythat just wants the, buy your
(28:01):
business for cash flow and BAbasically, you know, do a DCF
analysis, discounted cash flowanalysis on your business to get
to a purchase price, maybe youwant to go with the, the group
that's looking at a big multipleon selling a rolled up, merged
entity someday.
I don't know.
That's just a perspective youcan think about.
emily-sander_1_07-08-2025_1 (28:19):
You just said something.
If you are a founder, can youstart a mini rollup strategy
yourself to become moreattractive to PE groups?
rory-liebhart_1_07-08- (28:27):
Totally.
Absolutely.
Yeah.
emily-sander_1_07-08-2025_1 (28:29):
Oh, you can roll yourself up.
man-myth-legend_1_07-08-20 (28:30):
you, if you can demonstrate and it,
the,
rory-liebhart_1_07-08-202 (28:33):
Yeah.
man-myth-legend_1_07-08-202 (28:33):
the concept and we've heard it, is
this is the platform company.
essentially go, we've got this.
rory-liebhart_1_07-08-2025_16 (28:41):
a key buzzword.
Yes.
man-myth-legend_1_07-0 (28:42):
Platform company so that we've got
scalable systems, we're designedto be able to integrate new
businesses.
We've got folks on themanagement team that have done
this before.
We can be a good platformcompany for a rollup strategy
in.
And the one that was classicwhen I was younger was the
funeral home industry all rolledup.
'cause those all used to belittle individual ones.
(29:04):
And you had a couple platformcompanies that were like, look,
we know how to do this and.
They partner with private equityand then they go out and make
offers on all these othercompanies.
That is a, that is a way for youas even as a relatively small
business.
If as a founder, if you canposition yourself as an ideal
platform company, you're gonnaget a much higher valuation out
(29:25):
the gate than you would if thePE guys have to figure out how
to use you as a platform companyand kind of make that
transition.
First, it's gonna speed, have afaster, faster execution.
rory-liebhart_1_07-08-2 (29:37):
Exactly right.
emily-sander_1_07-08-2025_16 (29:38):
So the characteristics of an ideal
platform company is it kind oflike the hub of a, of a wheel
and you can, you can glob on,you can integrate other, other
companies.
It's like we know how to do thatvery well.
man-myth-legend_1_07-08-2 (29:49):
Yeah.
emily-sander_1_07-08-2025_1 (29:50):
how to do integration.
Ah,
man-myth-legend_1_07 (29:53):
excellence play.
We know how to, to sell well.
We know how to report well.
We know how to do finance well.
We know how to do, we do allthose things well, and our
systems are set up in such a waythat if you doubled us in size.
emily-sander_1_07-08-202 (30:05):
scale.
man-myth-legend_1_07-08-202 (30:06):
We, we can scale that quickly and
without, without linear cost.
rory-liebhart_1_07-08-202 (30:11):
Yeah.
You know what?
Don't make good rollupcompanies, banks, you know?
Yeah.
So much of, there's been so manybank acquisitions, obviously,
and you, you don't necessarilythink about it as rollup, but it
really is there So manycommunity banks have rolled up,
but so many of these systems areso unique to these entities that
integrating them.
And the in the architecturebehind it is it's, it's a
(30:33):
massive CapEx uh, spend.
So you see a lot of times, youknow, they'll roll up and
they'll be.
In the same company, but they'restill not integrated.
Like one that comes to mind, youknow, just more recently is
like, uh, with the SVB and, uh,first Republic and those guys
blowing up kind of I guess itwas two years ago now, you know,
(30:54):
first Republic got absorbed intoChase.
I have both of these banks islike business banks for my
entities that I, I work withand.
Still, they're basically treatedas largely separate from a
systematic standpoint.
So it just is what it is.
But you know, the, the biggestvalue you can get is through
cutting costs and getting betterdeals for yourself from, you
know, your vendor suppliers byvirtue of your scale and, you
(31:16):
know, kinda getting leveragefrom people and all of that
stuff.
And then on icing on the cakes,the capital markets advantage
and, you know, sounds easy, butyou know, there's so much to it.
emily-sander_1_07-08-2025_1 (31:27):
And just to pinpoint this for
people, we've talked about a lotof things that are really close
to roll up strategy, but notquite like I.
Vertical integration likefranchises.
And I imagine, I was thinkingthrough, well, I've been at
companies where they wannaacquire their competition so
they glob up market share,right?
And that's the strategy, butthat's not quite being a
platform company.
(31:48):
So this is a very kind ofspecific thing we're talking
about.
Not to be confused with otheradjacent strategies.
man-myth-legend_1_07-08-20 (31:54):
kind of qualify as roll up.
It's just kind of.
rory-liebhart_1_07-08-2025_ (31:58):
the rationale is still synergy and
efficiency on all those things.
man-myth-legend_1_07-08-2 (32:02):
Yeah,
emily-sander_1_07-08-2025_16 (32:02):
So different flavors of roll up.
man-myth-legend_1_07-08-2 (32:04):
role, one's a, but they're all roles,
you know, and it's, and it's,but it's the same.
It's the same theory.
They just taste a little bitdifferent.
rory-liebhart_1_07-08-202 (32:11):
Yeah.
emily-sander_1_07-08-2025 (32:12):
Okay.
Okay.
rory-liebhart_1_07-08-202 (32:13):
yeah.
And I mean, other things toconsider too.
I mean, you might have, uh,companies in the same industry,
very similar, but what if youhave some in the, you know, in
Europe and some here?
I mean, those are two totallydifferent animals in a lot of
ways, so it doesn't, it doesn't,yeah, I'd say like.
Almost as seamlessly, it's liketo be in the same market, in the
same geography, the same laws,and the same, uh, standards and
(32:36):
things like that, you know, uh,to make it more effective.
But that doesn't mean that itcan't be also effective to
acquire competition globally andthen, you know, gain synergies
from that.
We're just saying like, youknow, you know, a very vanilla
rollup strategy involves prettymuch like type things in the
same place that just couldbenefit from some scale.
emily-sander_1_07-08-2025_ (32:58):
Hmm.
Are there PE companies whospecialize in this where they
know all the.
All the creepy crawly thingsthat can crawl out of a rock if
you turn it over.
Or they know, like it's not aseasy as a spreadsheet guys, it's
it like, it sounds sexy, itsounds nice, but it's a lot of
work.
We're good at that work.
We specialize in that.
Or the PE firms just go like,yeah, it's part of our strategy.
(33:20):
It sounds great and we're greatat that.
rory-liebhart_1_07-08-20 (33:22):
that's a good question.
I, my, my sense, and, you know,keep me honest here, is there's,
it's easier to say that there'scompanies that just don't do
those things.
And what I mean by that is PEgroups and funds that basically
just, just buy assets ratherthan as much as operating
companies and things like that.
So you exclude that group.
(33:44):
I think you'd be hard pressed tofind a.
A PE group that says, yeah,we're not very good at
integrations and, and sort ofleading through value creation.
Like I don't think that that'sreally a thing, but I think
there are certainly some thatmaybe are, are better than
others by
man-myth-legend_1_07-08-2 (33:59):
Yeah.
rory-liebhart_1_07-08-2025 (34:00):
like just basically getting with the
right management team.
And it's one thing that we, weactually spend time too much
talking about in our book alittle bit we did, we haven't
really on our podcast, but PEgroups and PE funds.
So much of their success comesfrom who they have in their
corner as operating partners,which is a little bit different,
(34:23):
so different than a limitedpartner.
But what, what you see is a lotof, you know, call it
semi-retired, very, verysuccessful people that have done
a lot of, uh, exits and stuffbeing part of PE funds as a
second career.
You know, maybe they've senttheir first, you know, part of
their career as CEOs, cos chiefof staff, really successful
people in their own right asoperators.
(34:43):
But then you take that operatingknowledge.
And experience to a
emily-sander_1_07-08-2025_ (34:47):
Hmm.
rory-liebhart_1_07-08-20 (34:47):
That's an investment strategy.
That's a powerful combination.
So I'd say the, the, the PEfunds that have the best
operating partners to, to sortof compliment their investment
prowess are gonna be moresuccessful than others that are
just like, Hey, we're justreally smart investors.
You know?
'cause it takes people being intheir sleeves, rolled up to make
stuff happen.
emily-sander_1_07-08-2025_ (35:08):
That might be a future pod for us
too.
rory-liebhart_1_07-08-202 (35:10):
Yeah.
That kicked
emily-sander_1_07-08-2025 (35:11):
Yeah.
man-myth-legend_1_07-08-2025_ (35:11):
I mean, we, we live that.
We live that with Lone Starfunds.
They have an entire advisorythat has.
You know what I always calledwas like the shadow cabinet,
which you had.
You had CFOs, CIOs, COOs, CTOs,all those kind of sitting up at
the fund level.
At In Hudson.
rory-liebhart_1_07-08-2025 (35:29):
that guy for a
man-myth-legend_1_07-08-2 (35:30):
Yeah.
Yeah.
Hudson advisors and
rory-liebhart_1_07-08-2025_1 (35:32):
in and
man-myth-legend_1_07-08-2 (35:33):
yeah, multiple portfolio companies.
rory-liebhart_1_07-08-2 (35:36):
company PE go.
Yeah.
Yeah,
man-myth-legend_1_07-08-202 (35:37):
And I, and it was exactly for the,
for that reason is they wantedto have an operate, they wanted
to have a, a team that had beenthere, done that to help folks
there, do that, or to be thereand do that for them if they
couldn't.
And, you know, bigger firms,bigger, bigger PE firms.
I think that's a, I think that'stable stakes for them.
But, you know, we saw even, um,with the last PE firm we were
(36:00):
with Emily, that they weremoving that direction.
emily-sander_1_07-08-2025 (36:03):
Yeah.
man-myth-legend_1_07-08-202 (36:03):
and you know, I think that that's,
that's gonna be more, that ismore and more common and they
recog and I think folks arerecognizing what Rory just said,
which is there's a lot of valueto be unlocked with just a few
key operating partners that canhelp the help bridge the
difference between thespreadsheet and the execution.
emily-sander_1_07-08-2025_ (36:21):
I've seen that more and more with
chiefs of staff too, so yeah.
That's a cool, that's a cooltopic.
rory-liebhart_1_07- (36:24):
absolutely.
emily-sander_1_07-08-2025_1 (36:25):
Um, as we wrap up the roll up
strategy.
Anything else to add or justwhat would you leave people
with?
As a recap, I'm kind of pickingup, you can take small companies
and make them into large empiresif you want, but it's not an ATM
machine.
It's not free money.
There's lots of risk.
man-myth-legend_1_07-08-2025_ (36:42):
I think the biggest, the, the two
things to take away are.
It's far more difficult toexecute in practice than it is
to model.
And then the second piece is, Ibelieve kind of, and Rory kind
of alluded to this, I.
Every private equity firm thathas operating companies has this
tool in their toolbox and areprepared to deploy it if they
(37:04):
have capital to deploy.
rory-liebhart_1_07-08-202 (37:05):
Yeah.
emily-sander_1_07-08-2025_ (37:06):
Hmm.
man-myth-legend_1_07-08-2025_ (37:06):
a question of how well they deploy
it and whether that's a corecompetency or not of that PE
firm.
But it's, if you're a in aprivate equity backed
environment, that tool, andyou're an operator, that tool is
likely in your PE.
financial sponsors tool toolbox,and they're likely to at least
talk about it and explore it.
(37:27):
If not, if not, use it.
rory-liebhart_1_07-08-2025 (37:30):
Yep.
Yeah, I, I'd be hard pressed toelaborate anymore on that.
It's, there's always gonna be anage old.
Discussion on whether valuecreation comes best from organic
growth or inorganic growththrough m and a and so forth.
And the the, I mean, the clicheanswer that you might expect is
probably somewhere in between,right?
Like you need to, you need to bevery fundamentally sound in
(37:53):
managing a business regardlessof the circumstances.
But if you are.
Then, you know, applying thatplaybook to other similar like
type businesses can acceleratethe timeframe to realizing
value.
And if you're very savvy and youunderstand the capital markets
really well and you are, as wekeep saying a, a little bit of
luck involved, that can, it cantake a or three x multiple two
(38:17):
or, you know, six, seven plusmultiple if you do it right.
So it's tantalizing for sure.
emily-sander_1_07-08-2025 (38:23):
There we go.
We'll call it a wrap there.
Thanks Rory.
Thanks, ed.
rory-liebhart_1_07-08-202 (38:26):
Thank you.
man-myth-legend_1_07-08 (38:27):
Thanks.
rory-liebhart_1_07-08-202 (38:27):
soon.
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