The Keystone Acquisition: Laying the Foundation for your Roll Up

Companies with new technology will often times strategically grow their business through a roll up, a series of planned acquisitions over a multi-year period. The goal of this strategy is to execute what is known as a land grab, establishing your company’s presence in several regions before any other company with similar tech can beat you to those regions.

Executing a successful roll up is the key to realizing your company’s vast potential and emerging as a market leader. The most crucial part of a roll up is the first step: the keystone acquisition.

The keystone acquisition sets the tone for the rest of the roll up; it is the foundation upon which the rest of the roll up is balanced on. When companies search for a target to be their keystone acquisition, they should look for a larger, complete company.

You want a business that is diverse in its products, deeper in management talent, and already has well-established internal processes. When building a basketball team, GM’s start with their core pieces and go from there.

They have one or two players who can do it all: play both offense and defense, make their own shot or create for others. Then and only then, they will add role players who may not be great all-around, but excel at one or two things that the team is in need of.

Executing the roll up is not dissimilar to building a team; you start with the core, already complete companies and go from there. The common mistake of starting with a small company can be extremely detrimental to the overall success of the roll up.

When you take on a smaller, cheaper company first, you will often run into roadblocks in the form of having to restaff, retrain, and reorient new people. Recall that speed in a roll up is crucial since there are usually multiple roll up competitors vying for the best properties, so these roadblocks are more than just inconvenient.

They act as an added weight you must carry as you try to outrun your competition.Although a larger acquisition requires you to invest more in equity and attain a larger loan, it pays off in the long run.

As mentioned, adding a company that already operates soundly eases the path of integrating future acquisitions. A larger company with polished people takes less time and effort to integrate.

Plus, the added manpower makes assimilating future acquisitions through unifying systems, processes, and facilities quicker and easier. Consolidating companies is a difficult process that calls for experienced, specialized people.

That’s why you add a company with those experienced, specialized people first rather than later, even if it is more expensive.

Benefits of a Larger Company for a Keystone Acquisition

Ease of Integration

These companies already have well-designed, established internal processes that need not be amended

Greater Value Added

More diverse in products, deeper in management talent

Strong Foundation for a Roll Up

This acquisition is the central part of a roll up that all future acquisitions depend on, so a larger and more complete company is worth the extra cost

A Strong Helper for Future Acquisitions

The experienced, specialized management as well as extra manpower will make integration of future acquisitions of smaller companies quicker and more fluid