Roll-Up vs. Holding Company: Two Paths to Building Business Value

For entrepreneurs building value through acquisitions, two distinct strategies dominate the landscape: Roll-ups and holding companies. While both involve acquiring multiple businesses, the similarities often end there.

"The difference between the two is effectively that a holding company is buying a handful of companies that can operate relatively independently under one umbrella," said Judd Goodrich, Head of Capital Markets at Mainshares. "A roll-up strategy is really about integration. Unless you integrate these businesses, there's not nearly as much value creation."

This distinction drives everything from deal structure to post-acquisition management. Roll-ups focus on consolidating companies within the same industry to create economies of scale, often aiming for a profitable exit. Holding companies typically maintain diverse portfolios of independent businesses, focusing on long-term cash flow rather than consolidation.

The integration question

Roll-up and holding company strategies differ fundamentally in how they approach business integration. For example, in collision repair services, a roll-up strategy might consolidate multiple repair shops into a single operation, allowing better negotiation power with auto insurers, or consolidate multiple mom-and-pop HVAC and electrical companies into a singular brand recognized by local customers.

"Unless you integrate these businesses, there's no value creation," Goodrich said. "Each HVAC business can't have its own accounting, its own sales and marketing team, its own procurement. But if I combine them under one platform, now these small businesses can tap into shared resources."

This integration extends beyond just back-office functions. Customer service, training programs, and even culture must be standardized across the roll-up to achieve operational efficiency. 

Holding companies, on the other hand, take the opposite approach. Rather than seeking operational synergies, they largely maintain each business's independence. A holding company might own a landscaping company, a digital marketing agency, and a manufacturing company—with each operating under a separate management team. This independence allows each business to maintain its culture and operations while the parent company focuses on strategic guidance and capital allocation. 

Sometimes, holding companies may provide select back-office services to the individual companies like bookkeeping and accounting, but normally the overlap ends there.

The value creation approach in each model reflects this fundamental difference. Roll-ups typically aim to boost growth and profitability through brand, centralized sales, cost reduction and operational efficiencies, while holding companies focus on improving each business individually through strategic oversight and resource allocation.

Value creation mechanics

The path to building value differs markedly between these models. While roll-ups typically start with platform acquisitions in the $5 million to $10 million range before adding “tuck-in” acquisitions that are much smaller, holding companies often target smaller businesses around $1 million to $3 million. A platform business in a roll-up normally has the brand and back office functions that will be shared by future acquisitions of the roll-up. 

In addition to creating value through operational leverage, a roll-up also sees value through multiple expansion. This occurs when the multiple a buyer will pay for the roll-up is higher than the multiple a buyer would pay for any single company. A large driver of multiple expansion is unlocking more financial buyers who prefer buying larger companies. Private equity buyers place a premium on scale as it means that any change they make will have a larger impact on EBITDA or revenue (e.g., a 2% cost saving on a $500K EBITDA business may only increase profitability by ~$25K, but a 2% cost saving on a $10M EBITDA roll-up may increase profitability by $500K).

"A lot of times for a roll-up, what most people are doing is following whatever industries have the most appeal for large buyers, which is mostly private equity," Goodrich said. This exit-focused approach means roll-up operators often target fragmented industries where consolidation creates clear value. Healthcare practices and collision repair shops have become popular roll-up targets because larger players see value in consolidated operations. By buying and integrating multiple dental practices or repair locations, operators can achieve better vendor terms and standardize customer service.

Roll-up success stories like Stress-Free Auto Care, which consolidated more than 12 shops, demonstrate how rapid scaling can attract premium valuations from larger buyers. 

Holding companies create value differently. Rather than seeking operational synergies, they focus on strategic improvements at each portfolio company. Success depends more on strong general managers and proven operational playbooks than integration expertise. "For Holdco, it's much more individual execution of that business," Goodrich said. "It's probably just super strong operating partners, GMs within that business."

Typically, the owners of holding companies are less focused on a near-term exit to a strategic or financial buyer for the entire group and are more focused on buying and holding for the long haul.

Financial structures and returns

The financial architecture of these models often reflects their differing approaches to value creation. Roll-ups typically focus on growth and eventual exit, which influences how they structure acquisitions and operations. "Most roll-ups aren’t running distributions regularly," Goodrich said. "It's almost always a value appreciation play, where all additional free cash flow is reinvested into the business to buy more businesses and scale the entire operation’s value."

This growth-focused approach extends to how sellers are paid. Roll-ups often use earnouts tied to specific milestones, while holding companies might offer equity rollovers that align with their longer-term ownership horizon. "If I want to receive the money earlier, an earnout might make more sense," said Goodrich. "The rollover probably translates to me being more mission-aligned with you as the new operator from a long-term perspective."

Both models can leverage initial acquisitions to finance growth, using cash flow from existing businesses to fund new purchases. However, their distinct time horizons and exit expectations often lead to varying approaches to debt and equity structuring. This approach to financing can be particularly powerful in a rising rate environment, where organic cash flow becomes increasingly valuable for funding future acquisitions.

Industry dynamics and trends 

Recent market shifts have highlighted where each model thrives. “In hot sectors like HVAC, we're seeing a rush of buyers trying to reach a size that will unlock private equity interest,” Goodrich said. “They hope to sell at a higher multiple than an individual business would command.” Home services businesses like HVAC and plumbing have become particularly hot targets, with buyers realizing they can consolidate small contractors and sell to larger acquirers at higher multiples.

Holding companies tend to be more opportunistic in their approach. Rather than chasing specific industries, successful holding companies often focus on businesses with strong cash flow, regardless of sector. This flexibility allows them to take advantage of opportunities across different market cycles and avoid overpaying in overheated sectors.

Choosing between a roll-up and holdco

For buyers considering both approaches, the choice often comes down to three key factors: operational expertise, industry dynamics and exit expectations. Roll-ups require deep industry knowledge and integration experience. "Everyone wants to do a roll-up before they even start," Goodrich said. "We want to see that they have successfully operated one of these businesses before going and tossing five into the mix."

Holding companies demand different skills: the ability to select strong managers, implement proven operational playbooks and manage diverse businesses at the same time. They're often a better fit for buyers seeking steady cash flow compared to those seeking rapid growth and exit potential.

For sellers, understanding these models helps in evaluating potential buyers. Roll-up acquisitions typically entail significant operational changes but might offer higher valuations thanks to synergy potential. Holding company acquisitions usually preserve more operational independence, but might offer different compensation structures.

In the end, the right choice depends on your goals and capabilities. Roll-ups suit those ready to execute complex integrations in consolidating industries, while holding companies appeal to those seeking to build diversified portfolios. As market conditions evolve and more buyers enter the space, both models continue to prove their value—but success hinges on choosing the approach that best matches your operational strengths and investment timeline.

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.