great point! That is a strategy that public companies can execute well.

you're welcome!

You're welcome!

you're welcome, George. Completely agree on the cultural audit!

thank you, Toby!

you're welcome, Jeremy!

thank you, Jeff!

yw!

Hello Brett, I sent you an email about a pharmaceutical company in Georgia. We’re having a difficult time in securing funding. Would rollups be a viable strategy to build a business and grow it to sell it at a later point ?

@@franciscaraballo173that's a tough question to answer without knowing anything more about your market and strategy. Rollups are often a viable strategy for (1) fragmented industries (no clear market leader or one that is clearly resting on its laurels and underserving the market) that (2) can benefit significantly from either (a) the increased sales that come with national branding or (b) cost savings from back-office integration. There are fragmented industries where neither (a) or (b) is true (at least, not to the degree necessary), and those industries are not good candidates for rollups. One that comes to mind is dry cleaning, which is a commoditized business where consumers tend to choose a provider based on geographic convenience (vs. brand name), and they are operated tightly as mom and pop businesses, often cash businesses, without a lot of excess operating expense to eliminate. Most fragmented industries fit the bill (number (2) is true), although most industries are not fragmented (number (1) is not true). There is so much M&A action in the US that it's not super easy to find an industry ripe for a rollup that hasn't already been grabbed. If you're talking about retail pharmacies, that industry is highly concentrated. CVS and Walgreens own something like half of the market. So, they already have national recognition (brand name) and back-office integration. The rollup doesn't appear to offer any competitive advantage. You may be targeting a different portion of the pharmaceutical industry, I don't know, although my analysis (as simple as it is) will still be helpful. Regardless, though, if your issue is funding, I don't think shifting to a rollup strategy is the solution. Rollups are heavy on capital needs. You need strong financing sources to make them happen and, generally speaking, I'd expect a management team to have more challenges convincing investors to give them money for a rollup strategy than for a one-off acquisition because, while the rollup gets the money people excited, it's much tougher to execute a rollup strategy than to find one undervalued business to buy and turn-around. I suppose I could imagine a rollup opportunity so exciting that the upside of it carries the day, and investors will back a management team that is having trouble raising capital for a one-off deal, although that does not seem super likely, IMO. In that case, the solution would be probably one of the following: (1) finding a more attractive acquisition candidate, (2) improving the terms to investors (e.g., giving them a better return, having the management team contribute more equity), (3) strengthening the management team, or (4) getting highly creative with the acquisition deal structure (e.g., use (more) seller financing, pay less upfront and more as an earn-out if the company performs post-closing, use assets of the business or its revenue to help secure funding upfront, all of the above, etc.).

sounds great, JP. And you're welcome - glad you enjoyed the video!

You're welcome!

I took a crack at that here - kzfaq.info/get/bejne/qtudrM-GravDXWQ.html

Thank you, MIchael!

Pablo, answers: Financial buyers (i.e., PE firms) often don't integrate much, if at all. Strategic buyers almost always should integrate, either front-end with brand or back-end with office. There are instances when low/no integration appears to work. A good example is VetCor, which is a rollup in the veterinary industry. Clients of a small vet practice may be turned off by a corporate acquirer. In that industry, rebranding is risky. Still, I suspect they're integrating the back office fairly significantly. To me, the polar opposite options are no rebranding but some centralization of back-office functions vs. a full-on integration (not zero integration vs. full-on integration). I don't see a whole lot of instances where a logo change and other slight surface changes make sense, more the opposite -- either make substantive changes or don't. Ultimately, though, a super successful rollup typical has a high degree of integration, if not with the front-facing brand then with back-office ops. Otherwise, you can execute successfully for a while by acquiring companies in the emerging lower middle market ($2MM - $25MM), especially at the lower end of the range, because the multiples you pay to acquire are relatively low. As your organization grows, though, you need to do bigger deals. That's the law of large numbers. To move the needle with a bigger organization, you need larger deals. You can't make it up in volume. Competition and price go up as you move up the food chain and eventually, you need some strategic advantage / unique strategy to make that work successfully. Price won't do it, too much competition. So, you need an execution advantage, and that comes in the form of some type of integration.

You're welcome!

Could become an immigration lawyer

Toby, this is a great question, although I do not have a great answer. I've recommended various business books in the past, although none that are specifically valuable for learning corporate structures. There are two books that I've wanted to go through but haven't yet that may be a good fit here - Business Basics for Law Students (by Hamilton), which is a textbook. However, it appears to be high-level and aimed at giving lawyers an excellent overview of the business world, which I think is what you want. I know that book has structured-related content. The other is The Personal MBA (by Kaufman). I've heard great things about this book. I'm not sure if it is as geared toward corporate structures as you want, it may be more marketing and finance-driven. I'm sure you can look at the contents easily online. Both of these books are on my to-read list, although that list is growing a lot faster than I'm able to keep up (i.e., who knows when I'll get to them, so let me know if you give them a look).

Brett Cenkus I plan on it. I’m a reader. I sell insurance and work at a gas station but; I’m realizing as time goes on that I’m more geared toward other things then what I am currently doing. Thanks for the insight. I’m sure as I binge your videos; I will have tons of questions to bombard you with.

@@tobyespinoza591 sounds great - bring 'em on!

You can go public, stay private, or sell to a PE firm for a large multiple. The PE firm could take it to the next level or tear it apart. You decide depending on your business acumen and moral compass if you allow that. Either way, you won’t go unnoticed if you have 100 companies rolled up. You will have plenty eyes in the M&A world on you lol. Which could go good or bad. Good luck to you!

Jake, I see your point. I felt (still feel) like that comment stood on its own - a lot of risk generally, although I realize that the implication of my comment is that I'm suggesting that other types of M&A events don't have a lot of integration risk. That isn't always true. Some types of deals don't have much (or any) integration risk, e.g., financial M&A deals (where the acquirer is a financial buyer - looking purely for a return on its investment and intends to keep the target company intact, not operate the company). However, in most strategic deals (where the acquirer is buying for strategic reasons, e.g., where a competitor buys a target company), there is integration risk. The question of how much integration risk in a typical strategic deal depends on the acquirer's plan (how much they want to integrate). Some deals will carry as much integration risk as any particular roll-up acquisition.

Brett, I appreciate your detailed reply. Would an example of a financial M&A be if the owner is looking to sell the company, yet still run it? Any others you can think of?

@@jake.presents Financial and strategic are labels given to the buyers. There are financial buyers and strategic buyers. Those terms are also applied to describe the deal--financial buyers do financial transactions, strategic buyers do strategic transactions. Both types of buyers want a return on their investment. However, strategic buyers are evaluating target companies based on the buyer's strategic business plans, with the intent of running the target company (or, at least, managing the target company as a subsidiary). They usually already own a business, and the target company will become part of that business. Financial buyers are purely focused on the return on their investment. Back to your question, since a financial buyer isn't intending to run the acquired business, they often want management to stay in place. So, that would fit your example. Some strategic buyers want that, too, though. Some strategic buyers want to keep the management team intact, sometimes choosing to run the company as an independent subsidiary. So, looking at things from the seller's side is not that insightful (from the perspective of labeling deals).

If he has a history that reflects him being a key player in multiple successful rollups (just one would be enough if he doesn't have unsuccessful rollups to explain), he would have no problem raising capital in the U.S. If he is telling you that all he needs is a professional to go get him the money, and then he will have no problem executing, something is off. Engaging professionals to raise money may be an efficient approach. However, if this individual had that type of track record, he would not be positioning the capital as the missing item that he needs help getting. So, I suspect he has not been involved in true industry-changing rollups (with some level of size/visibility) or, if he has, he was only a tangential player. Any entrepreneur who raises money and then executes well and earns their investors solid venture-type returns will be able to go back to those same capital sources and raise more money next time. Okay, maybe not every single entrepreneur. There are some exceptions - some entrepreneurs get money from one source that is no longer in the venture business at the curtain call for the entrepreneur's second act, or some entrepreneurs torch their credibility and then still manage to pull off a huge exit, in which case investors may be ecstatic about the exit but no longer trust the entrepreneur (and good luck raising $1 once investors lose trust in you), and other things like that. But generally, there is a lot of capital in the world, and the toughest thing is to get it the first time. Actually, that's the second toughest thing. The toughest thing is to execute after raising capital for the first time, which is why those who do that well (raise then execute) find it super easy to circle money the next time - they are in a fairly rare circle. Here's an article that adds data to my assertion - medium.com/startupsoft/why-vcs-almost-blindly-invest-in-founders-with-previous-exits-23824334a260. NOTE: That you wouldn't seek venture capital for a rollup. Rollups are funded by private equity. Still, the point remains the same.

@@BrettCenkus Brett thanks for that information. I found you on linkedin, however I don’t have a premium account, therefore I’m not able to add you. Would it be impossible to connect with me over a phone call and discuss my acquisition situation?

@@alecrenteria You can book a paid call with me at clarity.fm/brettcenkus. That is the only option I'm offering to talk to prospective clients currently (other than generally on here) because we are inundated with new inquiries - way too many requests to talk than I can handle. If that doesn't work for you to go right to a paid arrangement, I understand. If it does, though, clarity.fm is a great option to jump right in and do as much work (we can get right into helping sort through what you have going on) as you want (that service bills by the minute).

Yes, I do. You can book one with me at clarity.fm/brettcenkus

Yeah

Joseph, do you still have a need to work through your situation?

SHOW RESPECT MORON.

@@pablov.viteri9345 I'll slap u in real life buddy

@@luigiqetta9710 SURE! MY SMART FRIEND

I love it! Thank you for letting me know.