Now is the time for roll-ups

MBA — Thu, 26 Feb 2009 22:47:39 +0000

The traditional signs of a roll-up opportunity are found in industries with high fragmentation, similar products, weak management, good profitability, high fixed costs, and the chance of realizing economies of scale through centralized efficiencies. However, favorable industry characteristics are just one factor that should go into the decision to pursue a roll-up strategy. The other factor concerns the larger economic climate. The best time for a roll-up is when you have the following:

Low interest rates
Low transaction volumes in the M&A market
Low equity values
A preference in the equity markets for reliable earnings over high earnings with more risk

The last time we had such conditions for a sustained period of time was in the early 1990s. So, unless you want to wait another 20 years, I suggest that now is the time to get rolling. Perhaps, we’ll see a return of poof IPOs, even without Lehman Brothers underwriting them.

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Now is the time for roll-ups