A Rollup is a technique used by investors (commonly private equity

Private equity

Private equity, in finance, is an asset class consisting of equity securities in operating companies that are not publicly traded on a stock exchange....

 firms) where multiple small companies in the same market are acquired and merged. The principal aim of a rollup is to reduce costs through economies of scale

Economies of scale

Economies of scale, in microeconomics, refers to the cost advantages that an enterprise obtains due to expansion. There are factors that cause a producer’s average cost per unit to fall as the scale of output is increased. "Economies of scale" is a long run concept and refers to reductions in unit...

. Rollups also have the effect of increasing the valuation multiples

Valuation using multiples

Valuation using multiples is a method for determining the current value of a company by examining and comparing the financial ratios of relevant peer groups, also often described as comparable company analysis . The most widely used multiple is the price-earnings ratio of stocks in a similar...

 the business can command as it acquires greater scale. Rollups may also have the effect of rationalizing competition in crowded and fragmented markets, where there are often many small participants but room for only a few to succeed.

An investor faced with an opportunity to invest in two competing companies may reduce risk by simply investing in both and merging them. Rollups are often part of the shakeout

Shakeout

Shakeout is a term used in business and economics to describe the consolidation of an industry or sector, in which businesses are eliminated or acquired through competition...

 and consolidation

Consolidation (business)

Consolidation or amalgamation is the act of merging many things into one. In business, it often refers to the mergers and acquisitions of many smaller companies into much larger ones. In the context of financial accounting, consolidation refers to the aggregation of financial statements of a group...

 process during an economic downturn or as new market sectors begin to mature.

Rollups of complementary or unrelated companies are also done to:

• Build a full-capability company, when it would be too costly or time consuming to develop the missing pieces through internal expansion.
• Blending companies have different financial metrics, often to make the combined company attractive for investment
  Investment
  Investment has different meanings in finance and economics. Finance investment is putting money into something with the expectation of gain, that upon thorough analysis, has a high degree of security for the principal amount, as well as security of return, within an expected period of time...
  
  , mergers and acquisitions
  Mergers and acquisitions
  Mergers and acquisitions refers to the aspect of corporate strategy, corporate finance and management dealing with the buying, selling, dividing and combining of different companies and similar entities that can help an enterprise grow rapidly in its sector or location of origin, or a new field or...
  
  , or an initial public offering
  Initial public offering
  An initial public offering or stock market launch, is the first sale of stock by a private company to the public. It can be used by either small or large companies to raise expansion capital and become publicly traded enterprises...
  
  .

External links

• Roll Up on Investopedia
• The Rollup by Valleywag