Creating Value – Successful M&A Roll Ups in Action

Execution is the key

To create value and growth quickly, a roll up might be a strategy might be the answer. A “roll up” or “consolidation strategy” is a mergers and acquisitions strategy where your company buys up other companies in the same market and merges them into one larger entity.

To make them work, however, you need to do more than just acquisition deals.  You need an A Team that sits above the acquired companies and conducts the acquisitions as well as a team that goes into each acquired business to instigate the efficiency drive.  This latter team is necessary because of the very nature of roll ups: they rely on acquiring smaller businesses in a fragmented industry, stripping out costs, centralising back office functions and rolling out a new “big idea.”  These smaller businesses will all be different.  They mostly operate according to the whims of the founders, not according to big company procedures and practices.  So your execution team needs to be in each business daily for the first 100 days to assess which of their idiosyncratic practices are quite brilliant and need to be made part of the combined operation, and which are plain awful and need to be put down as soon as possible.

Watch Out for More Overhead, Not Less

Your investment thesis prior to embarking on the roll up probably included estimated savings on:

  • Economies of scale in purchasing, marketing, advertising and back office functions.
  • Increased earnings in each acquisition due to more efficient offerings, new offerings and more efficient delivery of offerings through a larger network.

What you may not have factored in is the increase in overheads in administering all the people you have just acquired.  For a start, you are going to need your execution team travelling to each acquired company and this will entail not only their salary and bonus costs, but airfares, hotels and administrative back up for all the reporting back to you.  The acquired businesses never had these overheads, so they won’t be reflected in their accounts.

Other costs will be incurred in writing and implementing the procedures for each new business – and getting buy-in from each of the acquired employees to follow them!  It is difficult to gauge exactly how enthusiastic the staff in each business will be in getting with your program.  This is because prior to the announcement of the acquisition, for confidentiality reasons it is unlikely that the owners will have given you free range to talk to all the staff to make your own assessment.  You can expect push back from employees who fear that their job is at risk.  These are usually the accounting people and anyone else whose functions will be taken over by your head office.

Get Buy-In From Customer-Facing Staff

Of course, you think the acquisition of this company and the roll up process in general is wonderful, but don’t assume that the front-line staff all agree with you.  You need to paint the picture to these staff of exactly how they are going to benefit from your project.  This means detailed discussions on new salaries, bonuses, KPIs, opportunities for advancement, flexible working hours and everything else you are going to be offering them.

This is important because the moment the deal is announced, customers will be asking them what it all means – for the customers and for the staff.  It is difficult to be sure of a positive response if the staff are still unsure about their job security, or worse still, are opposed to the acquisition.

Actually, it is difficult to be sure of a positive response anyway.  The only tried-and-true method is a combination of intense reassurance and the passage of time where they can see that your promises are coming true. If the acquired company has up until the acquisition been a benevolent dictatorship under a loved owner where they all sing Kumbaya together, then it will take at least six months for your new systems and procedures to gain their trust.

Get Buy-In from Middle Management 

To get buy-in from the owners of the targets before the acquisition, you can make the consideration payable by a mixture of cash and shares in the main company, or with an earn out.  Getting buy-in from senior and middle management before the acquisition depends on whether you are even allowed to talk to them. If you are, then you could consider working together on the plan for:

  • Bringing salaries and benefits into line with the rest of the enlarged organisation.
  • Closure or disposal of underperforming business units, properties or branches.
  • Redundancy packages.
  • Increased efficiencies.
  • New sales opportunities.

The problem with having so many people inside the tent, however, is that word of the deal will probably leak.  You could try confidentiality agreements, but enforcing them can be an issue.

Get Buy-In from Senior Management

You are going to need management of the acquired company to back your plan 100% so that he or she can lead the acquired team in the new direction.  It would be unusual when acquiring 10 or 20 companies that you would have 10 or 20 talented managers on standby ready to be parachuted in to each acquisition.  Mostly, you will have to rely on the incumbents.

Most of the time, with the old owner gone, the senior manager views your trust as a career advancement and an exciting new opportunity.  Even if you are not quite sure yourself about the manager’s ability to step up to the plate, give him or her a chance to prove themselves. The difficulty, however, is that because of the upheaval, senior managers are often too keen to please the new owner, so promises are made by them that can’t be kept and this ends in tears around about 40-50 days after the acquisition.  Managers may also unquestioningly accept your new systems and procedures because they want to please you, even though they know or suspect they might not work in this particular instance.  The way of out this one is to identify the target’s practices that don’t conform with your own, then ask open-ended questions about why they do it that way.  You never know when they might be right.

At the other end of the spectrum is the other difficulty: senior management resist changes that have been proven somewhere else.  They don’t want to jettison unprofitable customers or market segments, don’t want to deliver management reports as often as you want them and don’t want day-to-day interference from head office.

Be Tough and Stick to Your Guns

Unless your investment thesis and business plan was deficient to start with, most of your problems in execution are going to be people related.  Be prepared to make the hard decisions early.  Don’t be fooled into thinking a poor manager is better than no manager at all.  Stay within the unfair dismissal guidelines, but having said that, the adage is “hire slowly and fire quickly.”  Your plan cannot succeed unless you have the people 100% committed to making it happen. This can happen in your own acquisition organisation as well as the target companies.  Don’t let centralised administration and marketing become another word for “bloated bureaucracy.”   There is no point saving costs in the targets only to recreate them in the acquisition company.


Identifying targets, negotiating with them and acquiring them are just part of the roll up strategy.  The other part is the execution of the “big idea.” You need good people in the trenches with the acquired companies getting top-down and bottom-up support and if you don’t do this, your strategy may well fail.

Do everything you can to get people on board, don’t dismiss their old ways of doing things in case there are some gems in there, but above all, be tough when you need to be.

Ben Killerby B.Juris., LL.B., LL.M., M.A.I.C.D.

Ben is the manager of the Saxon Klein Corporate Advisory section. He has 21 years of experience in law and in private enterprise. As a lawyer, he worked in mergers and acquisitions at major law firms Mallesons Stephen Jaques in Australia and Simmons & Simmons in the City of London. In private enterprise, he has been involved in major property and corporate deals, including the establishment of the original Packer Murdoch Telstra pay television network in Australia (Foxtel).

Ben has three law degrees, including and Masters of Law from the University of Melbourne. He is also a legal practitioner admitted to the Supreme Court of Victoria, the Supreme Court of Western Australia, the Federal Court of Australia, the High Court of Australia and the Supreme Court of England and Wales.

He was the Team Attache for the Australian Olympic Winter Team at the Vancouver Olympic Games.

Telephone: 1300 898 898
Twitter: @benkillerby