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May 20, 2024

In a highly fragmented industry, roll ups are a great strategy for growth. But integrating multiple entities can be difficult, especially if you don’t have a proven framework. Ntiva has been successful in their M&A strategy, and has completed 15 acquisitions as of today. In this article, Steven Freidkin, CEO and Founder of Ntiva, Inc. and Christopher Vollmond-Carstens, Chief M&A Officer at Ntiva, Inc., share their strategy on how to execute the roll up strategy in the tech industry. 

“When doing roll-ups, be intentional. Know what you're looking for and be intentional about what you're trying to create with it.” - Steven Freidkin

Creating value using roll up strategy

According to Steven, Ntiva is all about growing people with the help of technology. Which is why cultural fit is extremely important to them. Before they can create any value in a rollup, they ensure that the organization has similar values to them. 

After that, they create value by bringing their expertise to the acquired company such as improving operations, and increasing the number of solutions for cross-selling opportunities. 

It’s important to implement changes in a collaborative way to avoid friction. Be open  to better processes, but also communicate the non-negotiables, which are tied to the deal rationale. 

Evaluating a target company

When evaluating a target company, be aware of customer concentration. Avoid companies that rely on a single anchor client to grow. It's important to see a strong mix or an even spread of clients. The best target companies are the ones that are still growing, rather than stagnant or declining. 

In the tech industry, one of the most crucial parts of evaluating the target company is their recurring revenue. The certainty of revenue, now and into the future, is where value comes from in these types of businesses.

Challenges of doing roll ups

The biggest challenge in doing roll ups is culture. It is essential to be on the same page as the seller from a vision, mission, and priority standpoint, before pursuing the deal completely. 

Another challenge in doing roll ups is the involvement of unqualified investment bankers. They block good buyers from working directly with the seller, and whisper outrageous prices that destroy negotiations and make the entire process more difficult. 

Lastly, the emotion of the sellers can also be challenging to handle. Roll ups usually involve mom and pop shops who have been operating the business for many years of their lives. They can get very scared and confused during the M&A process.

Red flags pre-LOI

Beware of companies that suddenly become wildly profitable in the last year or two. It could mean over-preparedness for a sale, which includes the removal of extra technical resources, and squeezing every last ounce of water out of a rock. Also, customer churn is a concern, and high employee turnover. 

Another red flag is when the owners are not super articulate, or  don't come across as open and genuine about what they want to do after the transaction. This affects the deal structure, and the  ancillary attributes around the business. 

Lastly, if the target business looks very different during the due diligence phase, walk away.

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