Over the last 18 months, the SDR Ventures Team has taken a page out of the Private Equity playbook and successfully deployed a unique sell-side strategy to generate premium valuations for its clients. The strategy, which SDR labels the Pre-investment Roll Up (PIRU), creates value through consolidation by marketing two or more companies as a single investment.
By leveraging its long-standing relationship with Axial, SDR was able to complete its most recent Pre-investment Roll Up with a highly qualified and like-minded buyer identified through Axial's platform. Following the success of the transaction, Scott Mitchell, Managing Director at SDR Ventures sat down with Axial to discuss the events leading up to the transaction and how the same strategy could be optimized for business owners in a similar position.
To read Axial's full coverage of the Pre-investment Roll Up strategy, click here.
SDR has identified five elements that make PIRU deals work.
The advisor will need to reach out to many potential participants to find a group of complementary companies that can be sold together.
Once the sellers come together, they need to agree on a “straw man” organization chart for the combined company.
While the operating plan doesn’t need a formal agreement, the sellers need to commit in writing to how they will divide any sale proceeds.
There’s no way to force a prospective seller to go through with a deal if the owners change their minds.
The sellers must appoint one law firm as lead counsel for the group, for example. And since sellers have agreed in advance on how to split the proceeds, buyers only need to offer a single purchase price.
Have you been considering a sale, recapitalization, or financing to grow your business? If you are interested in exploring your options, our team of M&A professionals is here to help. Please contact Scott Mitchell at firstname.lastname@example.org or call our offices at 720.221.9220.