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What if one of the biggest opportunities to build wealth isn’t starting the next tech company, investing in cryptocurrency, or creating a groundbreaking app? What if it’s buying an ordinary local business and combining it with others like it?
In this episode, Sharran explains the business roll-up strategy: acquiring smaller businesses in the same industry, combining their operations, and building a larger company that can command a higher valuation.
Drawing from his experience rolling up 11 property management companies and selling the combined business for $198 million, Sharran walks through how the strategy works, including acquisition financing, seller equity, and the importance of building a scalable operation.
He also shares three big lessons that can make or break an acquisition strategy.
The takeaway? Sometimes, the biggest opportunities aren’t found in flashy new industries. They’re found in making ordinary businesses bigger, stronger, and more valuable.
“Every acquisition conversation is a buy versus build conversation.”
~Sharran Srivatsaa
Timestamps:
00:00 – Introduction
00:37 – The biggest wealth-building opportunity
02:09 – How Sharran turned property management into an opportunity
03:52 – Financing and executing the deal
06:17 – Three things to evaluate before buying a business
09:14 – Why buyers choose to buy rather than build
11:16 – How bigger businesses can become more resilient
12:44 – Why bigger companies command higher valuation multiple
Resources:
– The Next Billion by Sharran Srivatsaa
– Board Member: ARC Multifamily Real Estate Investing
– Board Member: The Real Brokerage
Connect with Sharran:
– X
– YouTube
– Threads
Transcript:
[00:00:00] The greatest wealth-building opportunity in America is not the next fancy app, the next crypto coin, or the new AI startup, but there is something that may be worth significantly more than any of these other opportunities. And I know this because I have done this myself. In fact, doing this helped me and my partner exit a business for $198 million to private equity.
[00:00:20] And today, I believe it is the greatest wealth-building opportunity in America, which is why, in this video, I’m going to show you exactly what this wealth-building opportunity is, how to do it, and the three biggest lessons I wish I knew that could have saved me a lot of time and a lot of money. So what is the biggest wealth-building opportunity in America?
[00:00:40] It’s buying boring local businesses, rolling them up, and selling the bigger company for a much higher multiple. In short, you have several small businesses in the same industry, and you combine them together into one bigger company. This could be buying multiple business types of the same local business, like a dentist office or a HVAC company or a [00:01:00] property management business or even a real estate business, and bundling them all together to get a much higher multiple.
[00:01:06] And so a business that could be worth four times its profit on its own could be worth 10 times its profit once it’s part of a bigger platform, which makes the biggest wealth-building opportunity in America rolling up service businesses and then selling them. Let me give you an example. In 2017, Mars acquired Vet Centers of America for $9.1 billion.
[00:01:28] That’s right, Mars, the same company that makes Mars candy bars. They bought a pet care business, and so Mars added 800 hospitals, 60 labs, and several pet food brands to their Mars Petcare holdings. But the real question is, why would a chocolate bar company want to invest in pet care? Because now Mars owns the pet care ecosystem.
[00:01:50] They took a lucrative market, bought the businesses, brands, and products, and then packaged them together. And while Mars hasn’t sold the business, it makes up a [00:02:00] significant part of their overall revenue, even rivaling their traditional candy business. But it’s not just billion-dollar companies that use roll-ups.
[00:02:08] I have used them myself. When I was a kid, I thought real estate was the be-all, end-all for building massive wealth. I thought that if you did not buy real estate, you could never become wealthy because the US tax code was engineered for real estate investors. And so I bought my first real estate property in Mount Shasta, California, using credit cards.
[00:02:27] And over the next seven years, I was able to build 150-plus property portfolio. But here’s the thing It was a total pain in the butt, and I hated it. I realized I was overpaying to manage these rental units myself, so I outsourced the management to a third-party company instead. And this was when I realized that the fees I was paying to these companies were 7% to 10% of all the rents collected.
[00:02:51] This meant that because I was making $1,500 a month in rent, $150 would immediately go to the property management business, and all they would do is they would [00:03:00] answer the calls of the tenants, and they would ask me whether I wanted to approve the expenses and repairs. That’s it. And every year, this was costing me over $250,000.
[00:03:10] But I didn’t see this as a bad thing. I saw this as an opportunity. I realized these property management companies are profitable on their own, but if they were bundled, they could be worth significantly more from a value perspective. So my partner and I started to buy and roll up these property management companies, and this is exactly how we did it.
[00:03:28] We went to small property management companies that were doing roughly 2 million to 3 million in EBITDA. Well, what is EBITDA? EBITDA just means operating profit, but with four expenses added back, interest, taxes, depreciation, and amortization. This is just a standard way companies are valued because it lets you compare real operating profit without any accounting or financing.
[00:03:51] Each deal had two parts, cash and equity. First, we gave these property management businesses some cash up front, and then we gave them stock [00:04:00] in the bigger enterprise, which was the roll-up. We explained to them that when we put all of these businesses together, the bigger company would be worth significantly more.
[00:04:08] But we couldn’t afford to buy these businesses with our own cash, mainly because we didn’t have the money to buy multiple businesses at one time, so we used SBA loans. SBA loans are small business loans funded by the US government. They let buyers acquire a business with a small down payment, like 10%, instead of needing the full purchase price in cash.
[00:04:29] Think of it like a mortgage for a business instead of your house. You put down around 10%, and the loan covers the rest, and this loan is funded by the government instead of the bank. And since we were not actually buying the company outright, we were able to add our equity to the deal, which meant that we didn’t have to use any of our own money.
[00:04:49] About 50% of the purchase price came from an SBA loan or other types of bank loans. The rest was covered by the seller, who took stock in the new rolled up company instead of upfront cash. So we [00:05:00] never paid out of pocket to buy each property management company, and this was the whole magic of the model.
[00:05:05] We were able to identify the company, give the business owner two exits, the first with cash up front and the second with stock in the bigger company that would eventually be sold, and do all of this for no money out of pocket. And so the net-net cost at the end of putting each of these deals together was just legal fees, because the lawyers still had to structure the contracts and the legal agreements.
[00:05:26] And after we did the first deal, I was able to rinse and repeat the same process for every deal after that. This is how we pulled together 11 different property management companies into one big roll-up. We paid them three to four times EBITDA in the beginning with the cash and stock deal, and we were able to sell the business for 6.6 times EBITDA net net over a three-and-a-half-year period.
[00:05:48] And this was how we sold the rolled up business for $198 million to private equity. And this was the boring property management roll-up. But if you want to do a roll-up yourself, there’s just one problem. [00:06:00] Nobody has ever shown you how to do a roll-up. Why? Because most of the finance and business gurus have never done a roll-up themselves.
[00:06:07] They can yap about them for days, but they have no idea what it actually takes, which is why they have no idea how to give you real world advice. So let me tell you from personal experience what creating a good roll-up takes. This could be cash up front and stock in the new company, or an SBA loan like I used in the property management companies.
[00:06:27] But before you buy anything, you should always walk every deal all the way to the end, including the ones that may look absurd. Fully map out the deal before rejecting or accepting it. Number one, what it costs to buy versus what it costs to actually run the business. Number two, who gets paid first if things go badly?
[00:06:46] And number three, what assets are you actually inheriting versus what you’d have to rebuild from nothing? And if you can’t answer these questions, then you like the idea of the deal more than you understand it. And the [00:07:00] purpose of these three steps is to prove the model before you try to scale it. In the next two years, you’re actually building out the roll-up and acquiring the dentists.
[00:07:09] You do this by finding the dental offices where the owner wants to retire or just wants cash now. You offer to buy them, and then you check the numbers. If an owner tells you that the practice does $600,000 a year in revenue but can’t show you where half of that actually comes from, you probably should walk away You should never make an investment that you don’t fully understand.
[00:07:30] But if you close, you combine all the practices into one big system. You now have one supply chain, one shared SOP for scheduling and billing, one finance team to keep the books all on the same page. And this is how you make 50 dental offices start running like one well-oiled company instead of 50 dental offices that just share a single owner.
[00:07:50] So now you’re at the final stretch. You are, number one, stabilizing earnings, which means you make sure the combined company’s profits are consistent and predictable. This is so the [00:08:00] business doesn’t fall apart if one dental office has a bad month, and you can do this by having several locations, so a slow month in Las Vegas gets covered by a good month in California, and the overall numbers stay steady.
[00:08:13] Number two, growing the combined company by increasing revenue and profit across the entire platform. This means making more money across all your clinics together, not just adding new locations. Maybe you do this by adding the latest technology into all your dental offices, sending all the dentists a specialized training course, or even new services like maybe in-house orthodontics.
[00:08:34] And number three, proving you can sell it with steady earnings, healthy finances, and growth. This means showing a buyer years of steady profit and real growth, not just one year. This is what you call economies of scale, and this is what you need to create an effective roll-up. Nobody said it was easy, but the reward at the end of it could be bigger than any opportunity in America today.
[00:08:55] Because the truth is, the process of doing all of this is hard in the [00:09:00] beginning, messy in the middle, and glorious at the end. And you could do the same once you choose what business you would like to roll up. But there are three big lessons I wish I knew when I did my first roll-up, and knowing these things would have saved me a lot of time and a lot of money.
[00:09:14] These are the lessons I still use today as the CEO of acquisition.com and have used to exit five businesses. So here is lesson number one. Every acquisition conversation is a buy versus build conversation. Now, what does that mean? It means every time somebody wants to acquire a business, they ask a simple question, “Can I buy this, or can I build this?”
[00:09:34] If it’s a build decision, they realize that they can build the business from scratch themselves instead of paying for it. If it’s a buy decision, then they realize that it’s going to take them way too long to build what you have. They would much rather pay for speed than spend the time building it from scratch, so this is why they’re willing to pay significantly more.
[00:09:53] For example, let’s say it takes you five years to build a single property management company that is making two million dollars in [00:10:00] profit, and a buyer comes along and says, “Wow, I could invest five years and spend no money and build this, or I could just buy this business that already exists and skip those five years.”
[00:10:10] But if you put together 11 property management companies now, the buyer says Bro, how am I gonna build this myself? So the time period it takes to build this is so long that they’re leaving a massive market opportunity on the table by not just buying it instead. And so if you’re ever thinking about selling your business, you have to think about what is happening in the potential buyer’s mind.
[00:10:32] All they’re thinking is, “Should I buy this business or can I just build it myself?” This is exactly what happened with Mark Zuckerberg and Instagram. He knew that the platform had already been built, he knew there were already users, and he knew he could try to build it with Facebook, but he thought it would be much easier if he just bought Instagram because this would do two things.
[00:10:51] Number one, he would buy it and then put it under his umbrella at Meta without spending the time to build it, and number two, when he bought it, he would also remove [00:11:00] a competitor from the table. This is why buying versus building is so important to understand. Because if you want to buy a business, you’re taking on strategic risk, meaning you need the game plan and the resources.
[00:11:10] But if you wanna build it, you’re taking on execution risk because you need a lot of time and a lot of energy to get it working. Now, this next lesson is how you make sure that the company you build can withstand any risks before someone tries to buy it because most people think a bigger company automatically means bigger risk.
[00:11:28] But lesson number two is Where a bigger business has a bad day, a smaller business may have their last day. For example, a sole dental office relies only on the dentist. If the dentist gets sick for a month, or breaks a hand, or burns out and quits, the entire business could fall apart. But if you have a roll-up of 200 dental offices, and one dentist quits tomorrow, the business barely feels it.
[00:11:51] You’ve already got another 199 dental offices to protect yourself against any possible loss. And so as the company gets bigger, [00:12:00] your P&L changes. One dental office’s bad month just gets averaged out across the other 199 other companies. Your opportunity changes. Multiple dental offices can negotiate supply and insurance rates that one office could never on its own.
[00:12:17] Your ability to have more resources changes. Now you can actually afford a finance team and systems that one office could never afford. And because of all of this, you’re going to be able to withstand bigger risks with a bigger business. This is what people are referring to when they say a business is too big to fail.
[00:12:36] There’s so many built-in controls and systems at scale that one business failing doesn’t take the entire company down with it. And this is also what makes lesson number three work so well. Small companies get small multiples, but big companies get big multiples. Ask yourself if a business can grow into something bigger, like a roll-up.
[00:12:56] Otherwise, it’s just an operating business, and an [00:13:00] operating business gets operating multiples. Let me give you an example. Let’s say a lemonade stand makes $100 in revenue and $50 in profit. That’s a 50% profit margin. And let’s say a bigger lemonade stand business with 15 lemonade stands makes $1,500 in revenue and only $500 in profit.
[00:13:15] That’s a 33% profit margin. So which business is more valuable? The single lemonade stand will get a smaller valuation than the bigger business with 15 lemonade stands because of its size. Why? A buyer looking at the $1,500 revenue business sees a bigger asset that’s already been built, even though it has a lower profit margin, because it has more customers, more employees, and more lemonade stands, even if their profit margin looks a little worse.
[00:13:42] And so it was understanding that small companies get small multiples and big companies get big multiples that helped me build towards a $198 million roll-up exit. But it was understanding the three biggest lessons together that made the roll-up so profitable. Number one, every acquisition conversation is a buy versus build [00:14:00] conversation.
[00:14:00] Number two, where a bigger business has a bad day, a smaller business has their last day. And number three, small companies get small multiples, but big companies get big multiples. Now, if you enjoyed this video, you’ll enjoy the next one where I talk about the four-part investing formula I learned from billionaires at Goldman Sachs.