Mastering Rollup Strategy: Structuring Equity & Control

Mastering Rollup Strategy: Structuring Equity & Control

Mastering Rollup Strategy: Structuring Equity & Control

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When considering a rollup strategy, structuring equity and control effectively can be the difference between a successful acquisition and a failed one. In this blog post, I’ll break down a proven framework for equity distribution, seller retention, and the formation of a platform company based on real-world experience.

What is a Rollup Strategy?

A rollup strategy involves acquiring multiple businesses within the same industry and integrating them under a single platform company to increase efficiency and market value. The goal is to create operational synergies, streamline processes, and ultimately drive a higher exit valuation for all involved parties.

Structuring Equity in a Rollup

One of the most common questions I receive is: “How much equity should the seller retain after an acquisition?”

The key to effective equity structuring lies in balancing control while keeping the seller engaged for future growth. Here’s how I typically approach it:

  • 80/20 Split for Control: In most rollup deals, I acquire 80% ownership upfront while the seller retains 20% equity. This ensures I have control while still aligning the seller’s interests with the company’s future success.
  • Valuation Growth: The retained 20% can become even more valuable after a successful rollup. For instance, if the company’s value increases sixfold after integration, the seller’s 20% stake could be worth significantly more than the original sale price.
  • Retained Interest Value: This approach motivates the seller to remain involved and support the company’s growth, as they benefit directly from the increased valuation upon exit.

Key Insight: Acquiring control upfront allows you to lead strategic decisions while retaining a motivated seller who has a vested interest in the company’s long-term success.

The Role of a Platform Company in a Rollup

A platform company serves as the foundation for future acquisitions and integrations. Here’s how it works:

  1. Form a Holding Company (HoldCo): Once you acquire the first business, it becomes your platform company for the rollup.
  2. Establish Financial Agreements: For example, if you acquire 80% of a company valued at $1 million, you would pay the seller $800,000 upfront, with the remaining 20% retained as equity.
  3. Leverage for Future Acquisitions: This platform can then be used to acquire additional companies and create operational efficiencies across the entire rollup.

Pro Tip: Even before the deal closes, positioning the acquired company as the platform company strengthens your acquisition narrative and simplifies future negotiations.

Communicating Day-One Changes with Sellers

A common concern from sellers is how their business will operate post-acquisition. To ease these concerns, I emphasize continuity while establishing a long-term growth plan:

  • No Major Operational Changes: Initially, the business continues running as before while collaboratively identifying areas for optimization.
  • Growth Collaboration: The seller and I work together to identify growth opportunities, including additional acquisitions and market expansion.
  • System Optimization: Only after the first company is optimized do we integrate new acquisitions, ensuring a smoother transition.

By positioning the acquisition as a partnership for growth rather than a hostile takeover, sellers often feel more comfortable staying involved and supporting the rollup vision.

Key Takeaways for a Successful Rollup Strategy

  • Acquire Control: Aim for an 80/20 split where you maintain control but keep the seller invested.
  • Platform Company Foundation: Use your first acquisition as the launchpad for future rollups.
  • Motivate with Retained Equity: Seller retention drives long-term success when they share in the upside.

Final Thoughts

A successful rollup strategy is all about balance—controlling the deal while keeping sellers engaged for long-term value creation. By structuring equity thoughtfully and using a platform company, you can maximize returns while minimizing risks.

Additional Resources on Rollup Strategy:


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Picture of Meet Roland Frasier

Meet Roland Frasier

Roland Frasier is an investor and business strategist with over 1,000 acquisitions and exits completed for himself and his clients.

His current portfolio companies include real estate, restaurants, business and home services, events, eLearning, e-commerce, franchise and SaaS businesses.

He has been a principle of 6 different Inc. fastest growing companies and serves on the Stanford University Advisory Board for Global Projects and their Family Office Steering Committee.

He has been featured in Business Insider, Fast Company, Forbes, Entrepreneur, Inc, Yahoo Finance and has appeared on all major television networks.

Roland has interviewed Sir Richard Branson, Sarah Blakely, Arnold Schwarzenegger, Martha Stewart, Magic Johnson and other business celebrities, many on his award winning Business Lunch podcast.

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