A roll-up can mean many things in home construction. 


One of the biggest is a kind of corporate merger that takes place when a private equity firm buys up many small home builders and then fuses them together into one whole. The logic behind a roll up is that the new, larger entity will enjoy greater economies of scale and operate more efficiently than a bunch of small companies. The reality is in the home building market large public companies tend to dominate and are usually valued at a higher multiples, so the private equity firm can sell the new rolled-up builder at a higher multiple for the same amount of revenue and is some cases even hold an initial public offering (IPO) . Hint: It all sounds good on paper.

But roll-up mergers are difficult to pull off in an efficient and speedy way. Combining several builders with different cultures, systems, and processes together is a complicated job. If not done properly, the roll-up may not achieve greater efficiency, in fact quite the opposite.

Let me tell you a little story,

Before the great recession there were a couple of guys full of piss and vinegar who ran a public builder and acquired a number of regional builders. They insisted each company implement the same software system as the rest of the company was running as part of the integration. No effort was made to understand the content behind the systems.

The regional builder, who I will call “Charley” to protect the innocent was a risk taking Citadel graduate. Charley was a very savvy businessman. He had started from the ground up and learned the business the old fashion way, he spend long hours working and learning. In his spare time he loved to turkey hunt, the turkeys always lost. With the the results from years of hard work he grew his company to a size to be an attractive acquisition target. 

But back office work was just not Charley's thing. He did not really have the right temperament for it. Still with my help Charley built an operation that positively hummed with efficiency. At least it did until one day when I paid him a visit after being acquired.

“Hi Charley!” I said. “How’s it going?”

“I am going to slit my wrists, Noelle” he said venting . “These new owners are just driving me plain loco crazy. They make all these demands, and waste my time, distract my people. I am under more pressure because I don’t feel I can run my company as well as could in the past.”

“You are great at building homes and making money,” I said. “What could be the problem?”

“That’s just it,” he replied. “I am good at building homes, but they tell me my metrics are terrible compared with the rest of the company. According to the numbers I might not make my earn out. Can you help?”

“Wow, that sucks,” I said.” Are you sure they are measuring the same things the same way?”

“We are all using the same software,” he replied. “We must be measuring the same thing.”

“That is not necessarily the case,” I said. “If your cost buckets are not aligned with the other companies your report may be an apples while the others are oranges. This can make you look bad, when indeed your are operating better. ”

Eventually, after a big fight with his management, Charley convinced the owners to look at the cost components going into the metrics. Not until the parent company standardized all categories across the entire companies did they find out what was really going on. But by then, Charley had soured on the management of the roll up and they had soured on him which lead to a mutual parting of the ways. To get out of the company Charley forfeited part of his earn out to save his sanity.

It is easy to focus on the wrong things, such as implementing a completely new software system on top of everything else a company needs to adjust in a merger . This early decision can end up distracting a well performing company by making them go through a huge learning curve. The result can be disastrous - software is not typically the real source of the problem. Getting the costing buckets aligned and right in the first place would have avoided the necessity of changing systems and allowed the real problem to be tackled first thus managing the business profitably and start to align systems.

With the money he did get in his earn out, Charley left home building and went into Aviation. He used his payout to buy a little fleet of airplanes and start a charter aviation business. Charley tells me he is happy as hell now flying all over Florida and beyond.

The moral of this is, when it comes to roll ups, you better double check the bathwater for the baby or else you will throw them both out. If you can relate...give me a call before.. you are thrown overboard. That is my story and I am sticking to it.

Home builders and developers are the backbone of this country. They work hard, take risks, and create more wealth for society than any other sector of the economy. If you are a home builder and concerned about your results - you can do better! If you want to find out more, call me at 303.525.4944 or email me at noellet@buildertools.com and LinkedIn is a great place to find out more about my credentials, background, and references.

My first three questions when you call are usually:

1) How many units do you sell per year?

2) What is your average sale price range?

3) What is your projected net income for the current year?

https://www.linkedin.com/in/noelle-tarabulski/