Peter Waleczek: Hey, Alex, great to see you.
Alex Prokofjev: Hey, Peter. Good to be here.
Alex Prokofjev: The way we look at the serial acquirer space, especially in our community, is that if M&A is a key driver of value creation, then you are a Serial Acquirer. We distinguish two main categories: HoldCos, which are buy-and-hold without a specific industry thesis or exit horizon, and traditional private equity style buy-and-builds within a specific ecosystem or vertical.
For example, my previous company, Threecolts, was a hybrid. We focused on buying businesses within the Amazon SaaS ecosystem, aiming to scale as a permanent equity vehicle. Anyone who acquires businesses at scale and tries to unlock value from M&A would be considered a Serial Acquirer in my opinion.
Alex Prokofjev: Initially, I had the same question when I was the CFO of my previous company. Why focus on small companies when larger deals can add significant revenue quickly? In private equity, you start with a market idea and dominate it. Integrating these businesses is crucial to realize synergies.
For HoldCos or buy-and-hold, the rationale is different. Smaller businesses below $10 million, especially under $5 million, tend to trade at a discount. You can typically buy them for 4 to 8 times EBITDA. If you can scale an origination and execution machine to buy these at scale with good ROIC and some organic growth, it becomes valuable. This is almost an asset class on its own, challenging for institutional investors to access. It requires a lean, efficient team, heavily incentivized through carry, and a disciplined approach to screening and executing deals, often closing only a small percentage of opportunities.
Alex Prokofjev: Success in scaling and consistently delivering returns involves having a clear industry thesis and being very thoughtful about centralization. There are three main functions of the corporate HQ in such HoldCos: capital allocation, flawless execution of add-ons, and culture building and hiring standards. Centralization depends on the specific market and product. For example, Visma doesn’t integrate acquisitions but has deep expertise in European payroll, while Constellation Software sets standards for working capital and values.
Alex Prokofjev: It varies by the maturity of each HoldCo. Common mechanisms include Carry and multiple classes of shares. HoldCos often replace management of acquired companies, so incentives might be more short-term and cash-heavy, linked to specific KPIs of the portfolio company rather than equity in the HoldCo.
Alex Prokofjev: I saw the potential during my time as a CFO of a platform play. Ecosystems like SAP, Salesforce, or Shopify have mature marketplaces with numerous small companies that big vendors won’t focus on. It’s easy to find companies in these ecosystems, there are clear synergies, and the risk of experimentation is lower when spread across multiple businesses. Successful strategies include partnerships between app aggregators and reseller aggregators, such as the Adaptavist-Appfire partnership, where 80% of Appfire’s sales come through reseller aggregators like Adaptavist.
Can you provide examples of successful roll-ups and common pitfalls?
Peter Waleczek: Can you provide examples of successful roll-ups and common pitfalls?
Alex Prokofjev: The Atlassian ecosystem is a good example. Atlassian itself grew through acquisitions and has built a robust marketplace. Successful strategies include partnerships between app aggregators and reseller aggregators. On the other hand, ecosystems with high churn, like Shopify or WordPress, pose risks. If you buy a high-churn business, replacing the founder’s efforts can be challenging, and some ecosystems use app stores to identify and replicate top-performing apps, which can be a threat.
Alex Prokofjev: Absolutely. Entrepreneurship through acquisition is a great path, especially in Europe with its many digital small champion businesses. It’s exciting and offers a combination of operating exposure and the thrill of acquisitions. I recommend young professionals in investment banking, consultancies, or large corporates to consider joining buy-and-build firms or HoldCos to gain this unique experience.
If people want to reach out to you, what’s the best way?
Peter Waleczek: Alex, great. If people want to reach out to you, what’s the best way?
Alex Prokofjev: The best way is to sign up for our newsletter at rollupeurope.com and connect with me on LinkedIn. We try to speak to every new subscriber and welcome conversations with those interested.
Peter Waleczek: Great. That was very interesting, with a lot of good insights on roll-ups in Europe and the opportunities here. Thank you so much.
