Replies to post #64163 on Koil Energy Solutions Inc. (KLNG)

[Fred Kadiddlehopper]

Interesting article about roll-up strategies.

Brikk's comment "that's what makes a roll-up strategy so successful. those who get in early make out very well. and yes, that means us, too. :)" prompted me to educate myself on the topic.

Here's a succinct article on the topic:

http://reverseshellmerger.com/2007/05/08/roll-up-strategy/

A few salient points from the article:

"Indeed, fortunes have been made in the roll-up game. US Filter Corp. had $17 million in sales in 1990. Nine years, 260 acquisitions and a big share-price run-up later, the company sold for $6.2 billion or $31.50 a share."

Indeed, Mr. Butler wasn't talking through his hat regarding his comments on the potential for a billion dollar capitalisation.

Cashing Out
If you are a mom and pop business owner considering being acquired by a public company with a roll-up strategy you need to examine your options. If you are in an industry that has few options for selling your business you will receive far more from the public company than from a private sale. Many would advise you to “take the cash” but the smart bet is to take a combination of both cash and stock, especially if you are one of the first acquisitions in the roll-up strategy. I would rather take stock in company that has just initiated its roll-up strategy than one that has been doing it for 10 years. There is greater risk on the front end but it more than justifies the reward on the back end.

This explains the motivations of the sellers of a successful family business like Flotation Tech. If DPDW comes a calling with cash and stock, it's really an offer you can't refuse.

"Don’t Ignore the Business
Public companies that have a roll-up strategy can get caught up in the frenzy of deal making. It is easy to postpone the basics of instituting back office efficiencies, cutting costs and marketing when you on “on a roll” of consolidating an industry. Companies must remember the reasons they embarked on this type of a strategy in the first place. To create a large company that would be more profitable than a bunch of little ones.
Integration always posses a problem for the acquirer. Trying to centralize certain functions such as purchasing and inventory can be a daunting task. Acquirers are best served when they have management running the company on a daily basis and a separate team that is strictly focused on analyzing and integrating new acquisitions into the system."

This is a most important point and one which DPDW seems to have addressed right at the outset. We have one team working the day to day business and another dedicated strictly to acquisitions.
Textbook, my friends!

Good luck!
-Fritz

[vtbound]

"that's what makes a roll-up strategy so successful. those who get in early make out very well. and yes, that means us, too."

The beauty of this for those who are still not in or for those who want to add is that this is still in the early stages.

A few years from now when you tell others that "yea, I got into DPDW at a buck" they will be like "no way, are you kidding me. Get out of here. Man, I am so jealous. You must have made a fortune."

Then I will be able to say, yea I did make a fortune :)