How Private Equity Roll-Up Strategies Work (And What It Means for Sellers)

If you've received a cold email or LinkedIn message from a private equity firm interested in your business, you're not imagining things. PE firms are executing roll-up strategies across dozens of industries — and they're hungry for acquisitions.

Understanding how roll-ups work gives you a significant advantage as a seller. It changes how you position your business, who you negotiate with, and what kind of deal you can expect.

What Is a Roll-Up?

A roll-up (also called a buy-and-build strategy) is when a private equity firm acquires multiple companies in the same industry and combines them into a larger, more valuable platform. The core thesis is simple: a collection of businesses operating together is worth more than the sum of its parts.

A PE firm might buy a $3M EBITDA HVAC company at 5x, add four more $1M EBITDA companies at 3.5x–4x each, and end up with a $7M+ EBITDA platform that could sell for 7x–8x or more. The difference between the acquisition multiples and the exit multiple — the multiple arbitrage — is where a significant portion of PE returns come from.

Platform vs. Add-On: Why It Matters

In a roll-up, there are two types of acquisitions:

Platform Acquisitions

The platform is the first (and usually largest) acquisition that serves as the foundation for the roll-up. Platform companies typically:

• Have $2M–$10M+ in EBITDA
• Have a strong management team that can lead the combined entity
• Operate in an attractive geography or market segment
• Have systems and infrastructure that can scale
• Are well-run enough to integrate additional acquisitions

Platform acquisitions command the highest multiples — often 5x–7x EBITDA or higher — because the PE firm is buying the foundation for their entire strategy.

Add-On Acquisitions

Add-ons (also called tuck-ins or bolt-ons) are smaller companies acquired after the platform is established. Add-ons typically:

• Have $500K–$3M in EBITDA
• Fill geographic gaps or add service capabilities
• Can be integrated into the platform's existing infrastructure
• May not have strong standalone management (the platform team absorbs the functions)

Add-on acquisitions trade at lower multiples — typically 3x–5x EBITDA — because they're smaller and the platform provides the management, systems, and infrastructure.

How This Affects Your Valuation

If you're selling into a roll-up, the most important question is: are you a platform or an add-on?

The valuation gap can be enormous. A $2M EBITDA business positioned as a platform might sell for $12M (6x). The same business positioned as an add-on might sell for $7M (3.5x). That's a $5M difference driven entirely by positioning.

Factors That Make You a Platform

• Size — larger businesses are more likely to be platforms
• Management depth — a team that can run acquisitions and integrations
• Systems maturity — ERP, CRM, financial reporting that can scale
• Geographic reach — a footprint that serves as a logical hub
• Growth trajectory — consistent revenue and EBITDA growth

Factors That Push You to Add-On Status

• Small size — under $1.5M EBITDA
• Owner dependence — the business runs on the owner
• Limited systems — no scalable infrastructure
• Single location — limited geographic presence
• Flat or declining performance

Industries Where Roll-Ups Are Most Active

PE roll-up activity is concentrated in industries with specific characteristics: fragmented markets, recurring revenue, essential services, and predictable demand. The most active sectors right now include:

• Home services — HVAC, plumbing, electrical, pest control, landscaping
• Healthcare services — dental practices, veterinary clinics, physical therapy, behavioral health
• Business services — IT managed services, staffing, janitorial, waste management
• Auto aftermarket — collision repair, tire/service, car washes
• Food & beverage — restaurants (multi-unit), food manufacturing, distribution
• Construction trades — electrical, mechanical, specialty subcontractors
• Financial services — insurance agencies, wealth management, accounting firms

If your business is in one of these sectors, you're likely already getting inbound interest from PE firms or their portfolio companies.

What a PE Deal Looks Like for Sellers

PE deals differ from strategic or individual buyer deals in several important ways:

Deal Structure

PE firms rarely pay 100% cash at close. A typical PE deal structure might include:

• 60-80% cash at closing
• 10-20% equity rollover — you retain an ownership stake in the combined platform
• 0-20% seller note or earnout

The equity rollover is worth understanding deeply. The PE firm wants you to have "skin in the game" post-close. The pitch is that your rolled equity will be worth significantly more at the next exit (when the PE firm sells the entire platform). This can be true — some sellers make more on their rolled equity than on their initial sale — but it's also illiquid and tied to the PE firm's execution.

Management Expectations

PE firms typically want the owner to stay for 1-3 years post-close to ensure transition and help integrate add-on acquisitions. Your role will shift from owner to executive, and you'll report to a board or PE operating partner.

Pace and Process

PE firms move relatively quickly and run professional processes. They have deal teams, standard LOI templates, and established QofE firms. They also conduct rigorous diligence — financial, operational, commercial, and legal.

Value Creation Plans

Before closing, the PE firm will have a 100-day plan for the business. Expect discussions about organic growth initiatives, potential add-on targets, operational improvements, and management team augmentation. Understanding their plan helps you evaluate whether the partnership will be successful.

How to Position Your Business for a Roll-Up

If You Want to Be a Platform

• Invest in management — hire strong operators and give them real authority
• Build scalable systems — ERP, CRM, financial reporting that can handle 2-3x current volume
• Grow EBITDA above $2M — the platform threshold varies by industry, but $2M+ opens significantly more doors
• Document your growth playbook — PE firms want to see that your growth model is repeatable and scalable
• Demonstrate integration capability — if you've already acquired a smaller company, that's a huge positive signal

If You're Likely an Add-On

Being an add-on isn't bad — it just means positioning your business differently:

• Emphasize strategic value — geographic coverage, customer relationships, specialized capabilities that complement the platform
• Highlight customer stickiness — recurring revenue, long-term contracts, low churn
• Be realistic on valuation — add-on multiples are lower, but the certainty of close can be higher since the platform already has financing and infrastructure
• Consider approaching existing platforms — if you know which PE-backed companies are active in your market, a proactive approach can generate strong interest

Negotiating With PE Firms

A few things to keep in mind when negotiating with PE buyers:

They've done this before — many times. PE deal teams are professional acquirers. Having experienced M&A representation on your side levels the playing field.

Equity rollover is negotiable. The percentage, the valuation at which you roll, governance rights, and anti-dilution protections are all negotiable. Don't accept boilerplate terms.

Management terms matter. Your post-close employment agreement, comp package, authority level, and non-compete terms will define your life for the next few years. Negotiate them carefully.

Understand the fund timeline. PE funds typically have 5-7 year hold periods. Knowing where the fund is in its lifecycle tells you how long they plan to own the platform before the next exit — which affects your rolled equity timing.

Reference check the firm. Talk to other founders who've sold to the same PE firm. How did integration go? Did they honor their commitments? What's the culture like post-close?

The Bottom Line

PE roll-ups are a dominant force in middle-market M&A. If your business is in a fragmented industry with $1M+ in EBITDA, you're likely a target. Understanding the dynamics — platform vs. add-on, deal structure, equity rollover, management expectations — puts you in a stronger negotiating position.

If you're considering selling to private equity and want to understand how to position your business for the best outcome, let's talk.