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A “roll-up” (also called “buy-and-build”) is when an investment firm buys one main company, then adds several smaller companies to it. They target fragmented industries (ones with many small players) like HVAC repair or plumbing services. The strategy works because: The Challenge: About 70% of these consolidations miss their targets. Common problems include: Why This Matters?: When done well, these strategies can deliver 3-5x+ MOIC (Multiple on Invested Capital—how many times you get back what you invested) through: Best Practices for a Successful Rollup: Real life Example: Morgan Stanley Capital Partners acquired Sila Services (a Pennsylvania-based residential HVAC company) in 2021. Over the subsequent 3.5 years, they built Sila into a platform operating over 30 brands across the Northeast, Mid-Atlantic, and Midwest regions through a combination of add-on acquisitions and operational improvements. In late 2024, they agreed to sell the company to Goldman Sachs Alternatives. While specific financial terms weren’t publicly disclosed, the transaction demonstrates how disciplined roll-ups can create significant value in fragmented service industries. Share Your Experience: Building a roll-up? We’d like to hear about your integration successes and challenges.

The foundation of value creation in M&A begins before the deal closes: detailed 100-day plans developed before signing the purchase agreement. This pre-acquisition planning discipline enables faster integration execution and earlier realization of synergies. The Challenge: Most buyers focus on deal execution and financing, leaving post-merger integration planning to the post-close period. This approach wastes the critical first 100 days when organizational momentum and change readiness are highest. Real Deal Context: A SaaS company under private equity ownership needed to modernize its finance function and integrate multiple acquisitions. Rather than waiting until after closing, they embedded integration planning into their due diligence process. The team worked with external consultants to develop a comprehensive plan covering two critical areas: The implementation set up the client so that future acquisitions could be integrated easily, as the data model and processes were already in place. When they completed another acquisition shortly after, integration was seamless. The difference comes down to Day One readiness. In successful integrations, employees receive offer letters, benefits information, and system access on day one. HR and IT know exactly what needs to happen. Success Factors Action Steps: For your next acquisition, mandate that the 100-day plan be board-approved before signing the definitive agreement. If you had any areas that drove significant synergies on your last deal, we would love to know more.

In our last issue, we explored working capital pegs and debt-like items. This issue examines revenue and margin quality—the bedrock of any Quality of Earnings (QoE) analysis and the primary driver of enterprise value. What This Means: Revenue and margin analysis evaluates not just how much a business earns, but how reliable, repeatable, and profitable those earnings really are. It dissects revenue drivers (price, volume, mix), customer and product economics, and cost structures to identify normalized earnings. The Challenge: Reported sales growth and margins often mask underlying fragility. Common issues include: Why It Matters (and How It Impacts Valuation): Valuation in deals is usually anchored on a multiple of normalized EBITDA. If revenue is less recurring than presented or margins are overstated, normalized EBITDA comes down—and every turn of the multiple compounds that value impact. Beyond the level of EBITDA, quality of revenue and margins affects the multiple itself: In effect, revenue and margin analysis influences both sides of the valuation equation: the normalized earnings, and the multiple (risk and sustainability). What Does the Financial Due Diligence Analyze?: A robust due diligence systematically dissects revenue and margins through the following lenses: Real Deal Context: During a sell-side due diligence for a commercial services company, our analysis revealed significant revenue and outsized margins from COVID-related supplies (hand sanitizers, disinfectants, etc.) during peak pandemic months. We adjusted reported revenue by removing these non-recurring sales and the associated margins from the normalized run-rate, thereby presenting a credible view of underlying performance. Deal Mechanisms to Address Revenue and Margin Issues: When revenue or margin risks are identified, common deal structuring mechanisms include: These tools allow parties to share risk around uncertain revenue and margin outcomes instead of walking away from the deal. Are You Prepared? If you are contemplating a transaction or want a pre-diligence ‘health check’ around your business, we would be happy to discuss.