Three powerful reasons the roll-up model outperforms organic growth — and the mathematics that prove it.
Three powerful reasons the roll-up model outperforms organic growth.
Reason one: Arbitrage
By acquiring companies, you can add £1m to £10m in profit to your business and £10m to £100m to its value. Acquiring a company that you have prepared to acquire is a very low-risk strategy compared to growing organically. It's also considerably faster. The larger the profit, the larger the multiple you can sell your business for. For example, one company with £500k profit is probably worth 3 times the profit, i.e., £1.5m. But, if you own 10 of these companies and they each make £500k, giving you a total of £5m, the multiple of their worth jumps to 6x profit. So the first business that was worth £1.5m is now worth £3m without making any more profit. That's why scaling is considerably more profitable than organic growth
Reason two: reduce overheads
By creating a group, you can amalgamate services such as the finance function and other back office and head office functions. This reduces the cost burdens. You can implement cross-group ERP and AI systems, improving margins and therefore increasing the value on an exit.
Reason three: attract Private Equity
Once you reach £3m in Ebitda, Private Equity becomes interested in acquiring you. As long as the business is underpinned by ERP, has a robust AI system and a superb leadership team to run the business. PE DO NOT run businesses! If any of these systems are missing, expect PE to run a mile or ask for a discount that will cost you £millions!
One Company
Group of Ten
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