Roll Up Investments
As an investorpreneur the best strategy for business growth is the bolt-on-wealth investment strategy.
The team at FatRank love to build out rank and rent websites to earn passive income.
But building lead generation websites is time-consuming if starting on a brand new domain.
To quickly build our digital real estate portfolio we invest in digital assets from aged domain suppliers like ODYS or Spamzilla.
In our Roll Up Investments guide, we explain everything you need to know about roll-up strategy in December 2024.
Contents
Why I Love Roll-Up Investments
Roll Up Investments are a powerful method of buying multiple businesses that have innate synergy with each other.
When you combine these acquisitions together in a harmonious portfolio, they start scaling off each other, making your business grow even faster.
What is a Roll-Up Strategy?
The roll-up strategy is the process of acquiring and merging multiple companies in the same industry into a large company.
When consolidating multiple businesses you can pull resources together, cut down on operational costs, and increase revenues.
A Rollup (also “Roll-up” or “Roll up”) is a process used by investors (commonly private equity firms) where multiple small companies in the same market are acquired and merged. The principal aim of a rollup is to reduce costs through economies of scale.
Investors and shareholders enjoy the benefits of a large pool of investments.
Roll-Up Strategy Benefits
Here are the main benefits of rollups.
Increasing the Valuation Multiplier
The biggest benefit of the rolling-up investment strategy is the effect of increasing the valuation multiples the business can command as it acquires greater scale.
Generally speaking, a small digital asset sells on average at 2-3 years EBITDA.
When you combine and consolidate several digital assets into one portfolio the multiplier can be almost treble at 6-8 years EBITDA.
The higher earnings multiple is achievable in businesses with large scale, compared to smaller operations which remain vulnerable to changing markets and poor access to capital markets.
Investors look at acquiring eCommerce websites or digital assets with a pure arbitrage mindset.
Rationalizing Competition
Rollups may also have the effect of rationalizing competition in crowded and fragmented markets.
Rational competition is the idea that corporations, knowing their own costs, and their competition’s pricing, will price their products to maximize profits.
Where there are often many small participants but room for only a few to succeed, rationalizing competition can help increase prices.
Create a Full-Capability Company
Building a full-capability company that completes the full cycle from marketing, and sales to operations demand a higher sale price.
Many decide on acquiring missing parts of the puzzle when it would be too costly or time-consuming to develop the missing pieces through internal expansion.
Creating a full-capability company eliminates any dependency on other companies to grow.
Economies of scale
The Merger Arbitrage approach gives the investment company access to a wider market for its products.
By leveraging economies of scale, it can cut down on production costs and increase its revenues.
Economies of scale are cost advantages reaped by companies when production becomes efficient. Companies can achieve economies of scale by increasing production and lowering costs. This happens because costs are spread over a larger number of goods.
Cross-selling
Cross-selling gives the investment company a competitive edge as now can sell different products to existing customers.
Investors look for mergers that complement each other for the products or services being sold.
The key takeaway in cross-selling is the exponential growth that the company expects from selling added products and services to a wider audience.
Summary
Roll-Up M&A is an investment strategy where you buy similarly related businesses and combine them under a single corporate entity.
This approach helps you benefit from scale, diversification, and valuation arbitrage between small and larger businesses.
Roll-Ups are becoming an increasingly popular career path for investment bankers, private equity investors, and consultants as it combines dealmaking with entrepreneurship.
If you understand the digital world and we are living in a time where it has never been as easy to become a millionaire, you will quickly see the advantages of the rollup investment approach in December 2024.
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