In the context of the formation of competitive markets, integration processes are an important factor in increasing competitiveness, increasing market share. A roll-up deal is one of the most popular types of business deals. So, what is a roll-up in business?
What is a roll-up strategy?
In today’s economic environment, companies use every means available to them in the struggle to expand market power, increase the number of buyers and increase financial efficiency. Integration processes are the most important tool in this struggle. Mergers with other companies make it possible to reduce production costs and increase investment attractiveness. The point of M&A is to get the maximum amount of all benefits from cooperation. In an example, it looks like this. Two organizations combine their efforts and create one, while they optimize personnel, reduce the number of employees, due to this first step, there is a tangible saving of material resources.
In modern corporate management, there are many different types of M&A of companies. We believe that the most important features of the classification of these processes can be called:
- the nature of the integration of companies;
- the nationality of the merging companies;
- the attitude of companies towards mergers;
- a way to combine the potential;
- merger conditions;
- merging mechanism
M&A has become a modern trend in the market concentration of production activities and capital. The process of mergers and acquisitions is closely related to the dynamics of the capital market. A roll-up merger is the purchase of two or more competitors in an industry with the intention of merging them into one larger company. Such ventures are often backed by private equity companies.
Roll-up M&A combines several small companies into one larger organization that has better opportunities for economies of scale. In some cases, this reduces direct competition. In other cases, the goal is to create a more efficient full-service business from a range of value-added companies. For example, an oil exploration company may be merged with a drilling company and an oil refinery.
Roll up companies in business transactions
To carry out roll-up operations, first of all, it is necessary to determine the state of the company’s fictitious capital – swollen, compressed, or efficient (corresponding to market needs), because the financial market situation has a direct impact on the company’s mode of operation. If the size of the real assets of the enterprise exceeds the size of its fictitious capital, the company becomes an object for a profitable acquisition (usually by buying up its shares on the stock exchange).
For roll-up M&A to be successful, you must:
- choose the right organizational form of the transaction;
- ensure that the deal is clearly in line with antimonopoly legislation;
- to have enough financial resources for the association;
- in the event of a merger, quickly and peacefully resolve the issue of “who is in charge”;
- as quickly as possible to include in the merger process not only top but also middle management personnel.
Most roll-up mergers do not harm competition in the market. However, some of them may lead to a change in the market structure, which is the basis for competition concerns. The merged business unit may be so powerful in the marketplace, with so few competitors left, that it may choose to reduce output and increase prices. Merger control aims to avoid the possible disruption of competition resulting from such mergers by preventing the creation, whether through acquisitions or other structural combinations, of associations that would have incentives and opportunities to exercise their market power.