Joey had prior experience in the world of venture capital investing, and with this venture he is bringing a technical eye to the blue-collar world of residential restoration. From the outset, Joey came to us with partners in place and plans to build a successful industry rollup. The first part of this initial project was to create the structure for the rollup. There are multiple ways to structure a rollup, each with both its benefits and limitations. One option is to amalgamate each acquisition into a single, unified operating company. This has the benefits of making it relatively easier to sell to potential buyers as those buyers can evaluate the whole business as it currently operates and it can make it easier to streamline operations across the entire structure. Opting for this path, though, can also create a problem if rollover equity is involved as each subsequent acquisition constitutes a relatively smaller portion of the overall entity’s size, constantly increasing the denominator. It can also cause effective working cultures to erode if the integration process is not managed well.

Another option is to maintain separate silos for operating companies and have a management company involved providing consolidated back-end operations. This has the benefit of making it easier to see how the different operating companies are performing, both relative to each other and relative to their own prior performance, but can create issues in allocating shared resources (both from an accounting and a time perspective) and can make it more difficult to convince a subsequent buyer that there is actually a single large business justifying the higher multiples that larger businesses achieve when they sell.

With the overall structure created, everything fell into place for a smooth process in the first acquisition. Like many restoration companies, there were tricky working capital issues to deal with. The sellers also pushed for carve-outs to the non-compete covenants, and we carefully balanced Joey’s interests with accommodating reasonable seller requests so we could get the deal across the finish line.