Acquiring your first business and thinking about doing a roll-up/hold-co?
By William Fry
Feb 7, 2024
In Buying a Business
We've been working with a number of self-funded searchers who are thinking a few steps ahead beyond their first acquisition. That leads to a few common questions:
Should I do a roll-up or a hold-co?
How should I structure my acquisition entity? LLC or C-corp?
Should I raise equity at the acquisition level? Or for a roll-up/hold-co play?
What type of investors should I bring on?
All of these questions are fair and worth considering, however, it can lead to some over-complicating of the transaction.
In our experience, for first-time searchers, it's best to focus on the single acquisition entity and finding investors who believe in your ability to execute against that acquisition. That means optimizing for the chance of that deal to work out well while giving you some optionality for the future (e.g., owning your management stake through another entity and/or structuring a provision for equity buy-outs down the line).
In all likelihood, you'll need to spend at least 2-3 years stabilizing your first acquisition before you move onto another target.
In that time, you'll be able to better understand if it makes sense to aggressively grow within the industry (e.g., do you get economies of scale? is there brand value? etc) or to add-on across industries (e.g., a hold-co approach).
Additionally, by showing that you are capable of operating, it'll be easier to raise equity at the hold-co or parent-co level - allowing you to quickly execute on your strategy, without having to convince investors on a deal-by-deal basis.
Information posted on this page is not intended to be, and should not be construed as tax, legal, investment or accounting advice. You should consult your own tax, legal, investment and accounting advisors before engaging in any transaction.
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