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What is a Roll-Up Merger?

     

Most people are likely familiar with traditional mergers and acquisitions (M&A) in which one company purchases or joins forces with another company. This sort of transaction is always strategic, but there are many different ways to accomplish essentially the same thing. One type of merger that is not quite as common and thus perhaps not as familiar to many folks is the roll up version. This type of merger usually entails the establishment of one larger company that is created by simultaneously merging, or rolling up, several smaller ones. Sometimes this is done because there is fragmentation in need of consolidating, but sometimes it is merely a matter of dominating a particular market. Here are a few reasons this type of merger may be done.


Geography

Lots of companies start out in just one city or region and subsequently seek to expand to other regions of the country or even hope to open offices abroad. When this happens, there may be businesses in the new location that could serve as barriers to entry and/or would be advantageous to scoop up to allow for better market penetration. Of course, there may also be instances in which a company just wants to grow where it began but the local market may be making it difficult to do so and thus may necessitate a buyout or merger with existing enterprises. In any of these scenarios, a roll up merger may be the best course of action to allow for geographical domination.


Industry

For many companies, the pursuit of large scale success requires an expansion of their product lines and/or services. Depending on the nature of a business, it may not make sense to create new areas by trying to reinvent the wheel. Instead, it is often wise to target several companies that have had success in the various industries the company seeks to enter and then roll up those companies into the existing infrastructure to allow for expansion.


Competition

Incorporating the competition is a common reason for mergers, particularly when it comes to the roll up type. When there are multiple companies offering an almost identical set of goods and services, it may be rather difficult for one to stand out. In these cases, it is not surprising that one company makes the move to absorb the others as soon as practical in order to capture a larger share of the market. Of course, antitrust laws may prevent some of these mergers since eliminating competition could very well lead to a monopoly and rising prices.


Talent

Recruiting individuals with diverse backgrounds and expertise is critical to the success of countless companies, but enticing some of the highly desired talent to leave their own businesses may prove futile. As a result, engaging in a roll up merger is a great way to get the desired talent as well as an additional revenue stream. Just because companies merge does not mean that one of those businesses must cease to exist. There are various ways to structure a roll up merger, such as having a parent company and several separate but related subsidiaries, with all working toward a common goal.

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