b'Roofing Contractor \'\'Roll-Ups\'\' Bill Goode NRCA Executive Vice President .~~~_,_l~ Reprinted with permission fromT rationaleal-up iswhich typica includes an evalua~hebehindrol lly the National Roofing Contractorsto realize e m of scale bytion offounding company. ,:;;, u}cono ieseach Association.centralizing such functions as pur The new companyrmaliz its fo es The most popular topiccon chasing, accounting, insurance,operations, and most likely ofbegins versation at meetings of roofingandhumanresources,andbydiscussions with in tment firms ~vesucontractors these days ismove applying b industry practices inregarding an initial public stock theest 00ment toward consolidation of thethe new, consolidated company.offering. 0-00contractor segment of the industryTypically, the businesses that arePurch ments arease agree pre0-0- through what are commonly calledbought maintaincalntp a formal valuations are lo manageme ared,nd q-ompany 00"roll-ups,"alsoknownaswhilethenewparentc conducted for the founding compa0 I"build-ups" or "buy-and-builds"focuses on the centralized opera nies, or others who intend to be By whatever n the drivingtions, andlooks for regionaloracquired by the new company. Tame,forcehe is the same:investment groupnationalopportunities.p will likely be consumanmarketurchase purchases aof indepen T financialincentiveforamated through athe numberhepurchase by dent businesses in the same marketroll-up is the value created for then company of the founding comew any\'sriclass very quickly, and consoli new company in the stock market.p stock; the purchase p ce dates themunder anewTheconsolidatedcompanyism t likely will include asingle,os combinacorporate umbrella.almost always offered to investorstion ofand stock in cashthe new Because we have been ask sothrou initial publiccompany. T lly, edgh anofferingypica the purchase many questions aboutroll-ups(IPO) of its stock; stock inagreement will include aio[ thethe newprovisoccurring in the roofing industry,company istofrequiring theof the founding almos always partowner intendedsideration foremployed this white paper isto offerthe purchase con thecompany to remainfor a some back information onfounding companies.p iodtime, usually aimum grounder ofminroland how they work, reportAs alethumb,ing con ofor three years. I-upsru ofroof two ondevelopmentsin theroofingtra ing firms that are good candi Plans are finalized for an initial ctindustry, and offer some sugges dates forroll-ups are those thatp stock offering of the new ublic tions for contractors who have beenhave annual sales of at least $8-1c lidated company. 0onsosteady approached by roll-up firms.million, have had ahistory of good earnings (ten percent orRoofmg tontractor roll-ups Batkgroundmore,pre-t andhave experi We areawareof fourcurrent ax) Thecontracting industryenced andionalners andefforts toestablish consolidated roofingprofess owfits the description - almost per managers.luating aroll-up companiesfromamoWhen eva firmng fectly - of whatida as atial roll-up c e,roofing contr firms. Tmost consol poten andidat actinghese tion exper look for: ated,experts typically look atlastinclude: tsfragmen thefive dustryfinancialn,newGenmature in with at least $5 bil years ofinformatio theAcompany cal lederal lion in total annual sales.type of work the firmdoes, a R ing Services, based inth ndoof souNRCAtimates the total U.S.adjustments tosuch asF rida, that includes a total of 18 es earnings,loroofing market, basedinstallednon-operating items, nonrecurringfoundingcompanieswithcomon cost, to be in excess ofbillionitems, and owner\'s c nsationbined 1 revenues of about $20ompe 997$196 annually, with at least $13 billion ofin excess ofnorms.m .company expects industryillion The new that in the commercial/institutionalto have operations in 20 cities in 12 sector. The industry is more thanHow roll-ups usually worksta following its initial public tes 100 years old in its current form,Aof interested firms isoffering. group and there is only one contractingformed,andcreates a founder\'sThis group is the furthest along firm we are aware of thatcommittee, or steering committee.inits development;a fi Ihas.appearsing to have more than apercentT new p is cre been completedthe Securities onehearent companywith duendxchange share of the market.ated, and begins itsdiligence,a E Commission,and 4'