Private equity rolling-up scenarios?

Framework Private Equity Structure
Recent activity on Apr 16, 2018
2 Answers
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Anonymous A asked on Apr 15, 2018

How should we create a framework for this case prompt?

Your client is a large private equity firm. It is looking into “rolling up” the tow-truck industry; that is, buying many small- and medium-sized firms and combining them to create one, larger firm. It wants your help in assessing industry attractiveness.

In terms of market, we need to look at market size/ growth trends, competitive landscape, and BtE, but how should we include customer analysis in this study such as key segments, what do they want, location etc?

Thanks.

(edited)

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Carlos replied on Apr 16, 2018

Hello,

I agree with others. I would add in the company (companies in this case) bucket:

  • Potential synergies: both positive (procurement, manufacturing, distribution, marketing, economies of scale and scope) and negative (cultural clash!).
  • Acquisition cost.

Regards.

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Vlad
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Content Creator
replied on Apr 15, 2018
McKinsey / Accenture Alum / Got all BIG3 offers / Harvard Business School

Hi,

Short answer - yes you may need to cover everything.

In the PE case ask in the beginning what's the objective (exit multiples) and desired exit time. Also, ask what is the strategy of the PE firm (Expertise in some area, other companies in the portfolio to have synergies with)

Then make a structure:

Market

  • Size
  • Growth rates
  • Profitability
  • Segments
  • Distribution channels

Competition

  • Market shares of competitors and their segments (see the next point)
  • Concentration / fragmentation (Fragmented market with lots of small players is less mature and easier to enter from a scratch. Concentrated market is hard to enter but has potential acquisition targets)
  • Unit economics of the players (Margins, relative cost position)
  • Key capabilities of the players (e.g. suppliers, assets, IP, etc)

Company

  • Unit economics (Margins, costs) in current or target markets
  • Brand
  • Product mix
  • Key capabilities

Feasibility of exit:

  • Exit multiples
  • Exit time
  • Existence of buyers

Best!

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