Understanding Acquisition Rollups and Their Benefits for Business Growth

The benefits of an acquisition rollup are numerous.  For many businesses and in some markets in New Zealand acquisition rollups can provide additional revenue streams, new geographic expansion, increase in economies of scale, greater brand recognition, much higher company valuation, new opportunities for growth and access to new innovations and technology.

These are just a few of the advantages of rolling up similar business in a market sector or industry, over just focusing on organic growth and innovation within your business to achieve your objectives. That said, even though the potential for growth is immense, there are serious considerations any business should think about before committing to pursuing a rollup strategy in any industry.

So, what is a rollup acquisition strategy?

First off, what’s all the hype and discussion around rollups and could this approach benefit you and your company? A rollup acquisition and merger are when you “roll up,” or consolidate, two more companies in the same industry via acquisition and merge then into a new company like what our founders did when they created SHAPE Energy for STILL.  For example, if you wanted to buy several Back up Power companies in New Zealand (or even start with merging two) and put them into a new company and create a new brand, that would be considered a roll-up.

Although you’re probably familiar with large firms like Fletcher Building owning a portfolio of businesses that are diversified across various industries, a roll-up focuses on a specific sector like what SHAPE is in the back up energy sector. It starts with acquiring a foundational company within that industry, then gradually adding smaller, related businesses to become a larger, more formidable entity.

The goal of a rollup acquisition strategy is to create synergy between merging companies that operate in the same vertical and market with similar customers.  We believe from our experience as detailed earlier that this can lead to more efficiencies in the new business, give you greater scale, and more critical mass to execute your business strategy, with the objective of course of increased profitability.

This being said, a rollup acquisition strategy is not for the faint of hearted and the inexperienced. It is not an approach we would recommend unless you have a clear plan and a good understanding of the market you are entering. It is a growth strategy normally taken by larger companies as private equity firms, venture capital funds, or corporate venture funds that are well funded and resourced, though you can always start small.

"Rollup acquisitions is like solving a good puzzle - it can be frustrating but when they all come together it is very rewarding says" Managing Partner, Andrew Edwards

So why now is a good time to look at rollup acquisition strategy in New Zealand?

In New Zealand like many developed countries, we have an aging demographic with Boomer-Owned SMEs being about 25% of all companies owned equating to roughly 13,770 businesses. Many of these are also not small business in a NZ perspective and in some cases are sizable regional players.  Therefore approximately 1,370 businesses per year may be sold or transitioned due to retirement over the next decade and within these numbers present several rollup acquisition opportunities.

With the mass-exodus of boomers from well-established SME businesses up and down NZ, the opportunity will not be here forever. Without a clear roll-up strategy, owners need to consider if they are happy with their competition benefiting from the addition of these companies into their portfolio. Not to sell through fear, but if you don’t have a clear strategy…….the

n your competition likely will, and this my friends is a once in a generation opportunity to scale your business exponentially through smart, focussed acquisitioned where value is not measured in single digit multipliers once complete”

Boomers still own 25% of all NZ SME's, this creates a great opportunity for rollup acquisitions on the coming years

Now for the Plug!

We understand that for those who have survived COVID and recessions through bootstrapping and organic growth, the space of acquisitions can be extremely daunting. This is where Pirongia Capital is here to help. We don’t bombard you with board rooms full of M+A specialist, aggressively pushing for the next deal. Our approach is to help you to develop a strategy that suits your business, sector and your risk appetite. Once your road map is clear, we can either take a lead, or a supporting role in helping you to execute your strategy. Flexibility, transparency and experience (been there, done that, got the tee shirt thanks!) are what make our approach the easy choice for any company looking to grow their mountain!

So what’s your rollup acquisition strategy – do you need a hand with that – reach out to info@priongiacapital.co.nz