by Mike Stark, partner at Consolidation Partners
The Partnership Roll-Up™ strategy can be used to assist privately held companies in growing during the current economic environment as well as preparing for a business transition plan that will provide significantly greater value and multiple liquidity options for the owner(s).
In summary, a formal cooperative relationship is formed among geographically diverse, non-competing companies from the same industry and/or with complementary companies supporting the same industry. In phase one, the independent companies form an umbrella LLC and align their sales and procurement processes. In phase two, they consolidate their companies in a tax free merger, eliminate redundant overhead and engage an investor to fund additional acquisitions or provide a partial liquidity event for the owners. In the final phase, the company has several options, seek a strategic buyer/investor to acquire all of the LLC or to provide funds to facilitate an exit for some of the owners, or keep it private; all determined by the Board of Directors, not an outside investor.
The value in this unique Partnership Roll-Up™ strategy is that the companies, while remaining independent, collaborate to share best practices and focus on growing revenue, improving efficiencies and expanding their market presence, thereby increasing the value of the member companies in an economy that is challenging on all sides. Moreover, the owners gain additional value by remaining engaged until the end liquidity event when the capital markets improve. The economic benefits of the model are compelling, and the utility of this model in today’s environment (no capital required; scale up rapidly during the downturn; emerge larger and more profitable, and trade at a superior multiple when the market returns to normal) is even more compelling.
A case study that models this is Advantage Sales and Marketing (ASM), a food brokerage that started as a $10M organization. After using this unique process and rolling up with 16 other similar organizations over four years, ASM sold a 75% interest to Allied Capital in a transaction valued at 5.5x EBITDA ($268m). Less two years later, ASM sold again for $1.05B or 9x EBITDA, resulting in a 7x ROI for Allied and the ASM member-owners. ASM sold again in December 2010 for $1.89B.
For more information, please contact Mike Stark at
mstark@consolidationpartners.comThe Successful Transition Planning Institute of Cambridge, MA teaches Baby Boomers and their advisors how to avoid boring, meaningless retirements. STPI's books, tools, training and seminars empower Baby Boomers to "Think", "Live" and "Decide" what to do with their companies and careers. By doing so, Baby Boomers create plans for dynamic new lives, full of meaning and purpose. (see video).