Keep rolling, rolling, rolling, rolling up
Knowing how to best proceed in today’s market is a difficult task, especially when there are so many different strategies a company can adopt to improve their revenue and stay afloat. One of the best approaches, especially for smaller companies, is without any doubt the Roll-Up.
A Roll-Up strategy is what happens when two or more agencies in the same industry merge, creating a larger entity. Roll-ups are great because the rolling agencies don’t need to have a lot of capital to buy, in this strategy all the companies involved are on the same level and there isn’t a transfer of money from one to another.
For a single company to expand usually means to dedicate a lot of time and money to, this can be risky because it doesn’t always have a positive outcome. If you have a small business, merging with other similar-sized firms to create a bigger company means being able to increase the revenues without the risk of compromising the single company. Helping increase margins by sharing the fixed costs required, for instance, to run the company.
It’s like when the Power Rangers combine their robots to create a bigger one to defeat their enemies if you know what I mean.
Knowing how to best proceed in today’s market is a difficult task, especially when there are so many different strategies a company can adopt to improve their revenue and stay afloat. One of the best approaches, especially for smaller companies, is without any doubt the Roll-Up.
A Roll-Up strategy is what happens when two or more agencies in the same industry merge, creating a larger entity. Roll-ups are great because the rolling agencies don’t need to have a lot of capital to buy, in this strategy all the companies involved are on the same level and there isn’t a transfer of money from one to another.
For a single company to expand usually means to dedicate a lot of time and money to, this can be risky because it doesn’t always have a positive outcome. If you have a small business, merging with other similar-sized firms to create a bigger company means being able to increase the revenues without the risk of compromising the single company. Helping increase margins by sharing the fixed costs required, for instance, to run the company.
It’s like when the Power Rangers combine their robots to create a bigger one to defeat their enemies if you know what I mean.
The Difference Between Roll Ups and Acquisitions
It might seem a bit confusing; roll-ups and acquisitions kind of look like the same thing, but there are three main differences between the two, which should help to understand both of them better:
- Roll-ups mainly involve smaller companies that don’t have a consolidate presence on the market; merging means that there isn’t a transfer of money from a company to another because they will stay at the same level after the deal is done. On the contrary, an acquisition happens when a larger company that has a strong market value buys a smaller company.
- Roll-ups mainly involve smaller companies that don’t have a consolidate presence on the market; merging means that there isn’t a transfer of money from a company to another because they will stay at the same level after the deal is done. On the contrary, an acquisition happens when a larger company that has a strong market value buys a smaller company.
- Roll-ups mainly involve smaller companies that don’t have a consolidate presence on the market; merging means that there isn’t a transfer of money from a company to another because they will stay at the same level after the deal is done. On the contrary, an acquisition happens when a larger company that has a strong market value buys a smaller company.
Roll Up in History
Roll-up strategies were born a long time ago and have been a successful business model ever since.
Looking back, the first successful example can be the rolling up of thirteen American colonies of the British Empire to give birth to the United States of America: difficult to say what would have happened otherwise but as far as today, it seems it was a pretty good choice.
The first glance at roll-ups can be found at the end of the 19th Century when entrepreneurs such as John D. Rockefeller and James Buchanan Duke started small businesses and using the roll-up strategy ended up controlling more than half of the oil and the tobacco industries.
J. D. Rockefeller was able to create the wealthiest empire in the modern era through partnering and acquisitions. His strategy was based on merging with smaller competitors in the industry to widen his reach and strengthen his control of the market and ultimately creating a monopoly in the oil refinery industry.
Roll-ups are such a good strategy, that not only small companies are using it; in 1987 Moët Hennessy and Louis Vuitton merged into the very well-known LVMH group. Moët Hennessy itself was born in 1971 from the merger between the champagne brand Moët & Chandon and the cognac brand Hennessy. More recently, in 2014 we’ve seen the creation of the FCA, a group created as a result of the merge between FIAT and Chrysler.
Roll-ups give their best, however, with small companies that tie their competencies together to maximise their position on the market.
In this regard, an example of a successful roll-up strategy comes from Brainlabs, a digital marketing agency that in February 2020 has merged with the American digital marketing company Hanapin. “On a 30-year view we want to build the biggest and best advertising agency in the world,” said Brainlabs CEO Daniel Gilbert. Merging with Hanpin meant to have a significant presence overseas for Brainlabs; at the same time, Brainlabs was the perfect company to merge with for Hanapin due to the more analytics set up of the company and its international reach.
Benefits of a Roll Up
The fact that companies like the ones mentioned earlier have used roll-ups to become giants in their industry means that roll-ups are a winning strategy; small companies should think of this strategy as the best road towards success. There are three major benefits to roll-ups that will positively affect all the firms involved:
- Cutting down costs of sourcing external partners: Usually, a small company needed to outsource services aimed to reach the audience or sell products; with a roll-up this will be easily achieved internally, meaning that there won’t be any additional costs.
- Share fixed costs: Staff functions, like HR and AFC, can be unified thus allowing additional resources to be dedicated to business development.
- Cross-selling and up-selling: Despite being all part of the same industries, the small companies that create a roll-up specialise into different types of services and products to their customers. Cross-selling will increase the visibility of each small company, widening their audience reach.
- Increasing the single company’s value: Without any extra cost or operational improvement, the companies involved in a roll-up will automatically increase the company’s value due to the aggregation of resources. The value of the bigger company born from the roll-up is the sum of all the values of the smaller companies that have merged.
How to Succeed
So how do you start you roll up journey? The first step to consider would be to identify the best targets and negotiate with them efficiently. This is important because you don’t want to end up merging with a company that doesn’t bring any benefit to the table. This is why most of the times it’s better to consult an agency. M&A agencies work towards their client’s success by analysing the market and finding the best solutions to their needs. This way you can be sure that the companies involved in the roll-up are the best options and the outcome of the merger will make a difference.
The creative industry in particular is rapidly expanding and the opportunities to grow and build successful businesses are almost unlimited. Roll-ups are the quickest way for small firms to grow and increase their value and presence on the market, and Capital A is very knowledgeable about the creative industry, and having a wide and varied network, it’s a leader in the M&A field.
