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If you’re operating in a fragmented market - where there are numerous firms with relatively little differentiation going after the same client base - how can you create substantial value and stand out?
One way, if you have the necessary capital, is through a roll-up acquisition strategy.
In simple terms, a roll-up strategy involves the acquisition of smaller multiple smaller companies to create a bigger consolidated one with a stronger position in the market.
In theory, a well-executed roll-up strategy will result in a company with lower operational costs, higher revenues and, consequently, higher profits as a result of being able to combine resources and create synergies. The larger company will be able to offer a wider range of services, take on more clients and have a broader geographical reach.
Roll-ups have been increasingly popular in the e-commerce space, especially during the pandemic as online shopping has skyrocketed, and the trend is here to stay.
Rolling up smaller businesses into a big one does have its advantages, but also has important drawbacks you need to remain aware of.
Before you commit to a rollup strategy there are a number of things you need to consider. Firstly, these don’t come cheap, and you need to have sound financing - or at least a solid plan to finance - before you approach any seller, or you may end up in a tricky situation down the road.
Keep in mind that roll-ups typically work best in fragmented markets where you can become a dominant player - if there are already established big players in the space you may have to more closely assess whether the costs are worth the upside.
If you weigh the pros and cons and determine that it is in your strategic interest and you do want to go ahead with a roll-up, it is best practice to have a dedicated acquisitions team that has within it capabilities for identifying prospective target companies, finance and accounting, negotiation, strategy and more.
Finally, nothing will matter if you don’t have a good integration plan in place to actually extract the value from the smaller companies - if you go into it blind without proper plans to consolidate employees, processes, systems, sales channels and more, you can end up with a big clunky ship that you are unable to steer.
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About us
Threecolts acquires, launches, and grows eCommerce software & services, and owns other stellar businesses including Old Street Media, HotShp, SellerBench, Tactical Arbitrage, Bindwise, RefundSniper, ChannelReply, and FeedbackWhiz.
Old Street Media supports businesses with their advertising, inventory management, and other eCommerce services. We collaborate with over 4000 brands and have generated $600M in sales in the past year.
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