The roll up play is an interesting business model on the ASX. The development goes something like this.
1. Company lists with some core asset in a "cottage" industry.
2. Company acquires private businesses in the same industry, by issuing shares or cash/debt.
3. Acquisitions are made at a lower multiple than the listed copmany itself.
4. As scale grows, comapny can potentially enjoy better operational leverage and hence higher margins.
5. This leads to EPS growth.
6. Rising EPS attracts higher earnings multiple for the acquirer, and hence more capital (again, shares or cash/debt) available to make further acquisitions.
This model is found in quite a few industries, some more obvious than others.
Childcare: ABC, GEM, AFJ
Education: VET
IT: PGA (now EGG), RXP
Healthcare: RHC?, SHL, CAJ
Financials: IFL, CUP, AUB, SDF
Others: IVC (undertaker), GXL (pet care/vet clinics), ONT (dental surgeries), SGH (legal services)
Some of these businesses failed, some of these businesses thrived. So let's this thread be the discussion point for these business. It can be company-specific discussions, discussions about the various industries, companies to add to the list, and investment approaches/opportunities etc.
If you have such companies in your portfolio, share your thoughts on them.
cheers
P.S. Two other articles on this topic.
http://ift.tt/1uoSVuO
http://ift.tt/1DY1rjy
1. Company lists with some core asset in a "cottage" industry.
2. Company acquires private businesses in the same industry, by issuing shares or cash/debt.
3. Acquisitions are made at a lower multiple than the listed copmany itself.
4. As scale grows, comapny can potentially enjoy better operational leverage and hence higher margins.
5. This leads to EPS growth.
6. Rising EPS attracts higher earnings multiple for the acquirer, and hence more capital (again, shares or cash/debt) available to make further acquisitions.
This model is found in quite a few industries, some more obvious than others.
Childcare: ABC, GEM, AFJ
Education: VET
IT: PGA (now EGG), RXP
Healthcare: RHC?, SHL, CAJ
Financials: IFL, CUP, AUB, SDF
Others: IVC (undertaker), GXL (pet care/vet clinics), ONT (dental surgeries), SGH (legal services)
Some of these businesses failed, some of these businesses thrived. So let's this thread be the discussion point for these business. It can be company-specific discussions, discussions about the various industries, companies to add to the list, and investment approaches/opportunities etc.
If you have such companies in your portfolio, share your thoughts on them.
cheers
P.S. Two other articles on this topic.
http://ift.tt/1uoSVuO
http://ift.tt/1DY1rjy
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