I Stay Away from Roll-Up Strategies

I received a call from an executive of a company who is trying to raise money for a roll up strategy. He explained to me that he could role up companies in the trucking industry and build to $100,000 million in revenues.

I replied that roll up strategies don't work and here's why. You are most likely using your stock as capital. Therefore, if a good deal is presented to you and your stock price is depressed, it can't be a good deal. In other words, a good deal is not only dependent on the purchase price, it's dependent on your stock price because your stock is your currency.

Finally, you are buying the company because someone is looking to cash out. Therefore, that will place a constant pressure on the stock price because as soon as they can sell, they will. In other words, it will be difficult to maintain a fair valuation for your stock.

I would stay away from roll-up strategies. Roll the other way.