Your Guide to Roll-Ups: Multiple Arbitrage in Action
Breaking down the most trusted playbook in PE

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The core idea behind a roll-up strategy is straightforward: buy smaller companies at lower EBITDA multiples, integrate them into a larger platform, and increase the enterprise value by applying a higher multiple to the combined business.
This isn’t theoretical. It’s a math exercise, supported by real operational leverage.
And private equity companies love it because it typically has less technical risk than a venture capital investment, where you’re betting on what something can hopefully become if you can actually build it.
Roll ups are great for proven businesses, especially for fragmented, regional service businesses (think: dentists, plumbers, HVAC, auto garages, funeral homes).
It’s easier to build a car wash than a flashy new cyber security product. And the demand for dentists is more predictable than an AI chatbot. You can take advantage of these characteristics if you can find enough of these businesses to buy at the right price, and if you can effectively combine the operations.
In short, execution risk is much more knowable. And therefore the model is much more deterministic (which is great for excel spreadsheets).
The logic goes like this:
Smaller businesses typically trade at 4–6x EBITDA.
A scaled platform might trade at 8–12x.
If you can bolt on EBITDA at the low end, and eventually exit at the high end, the spread between those multiples becomes your return engine.
But to make that spread real, not just modeled, you need three things to break in your favor:
Cost efficiencies that expand margin
Increased debt capacity that reduces your equity basis
A better exit multiple that rewards scale
We’ll break each of those down below, and then highlight what happens when any of them move against you.
1. Cost Savings
This is the most visible, and often most immediate, source of value.
When you integrate smaller companies into a platform, you can eliminate redundant overhead and spread fixed costs across a larger base of revenue. If you combine 5 car washes, you no longer need 5 owners all collecting a salary, or 5 billing clerks sending invoices from 5 rented offices on 5 sets of software.
Examples:
Shared services (billing, collections, HR)
Consolidated procurement (office supplies, uniforms, software)
Centralized marketing, finance, and call centers
However, the best roll-ups aren’t just chopping G&A; they’re building a corporate infrastructure that can scale without adding headcount 1:1. Many companies don’t have the operational cadence to bill and collect on time. And they most likely have tons of revenue leakage.
Revenue leakage is the gap between what you should be earning and what you actually collect. It’s…
Missed invoices,
Unintended discounts,
Zombie accounts still getting service, and
Pilot pricing that never sunsets.
This is where the real operational leverage shows up - not just cutting costs, but doing a better job at executing the back office (and honestly, just getting paid on time).
You can also buy stuff at better rates. Bigger companies get better deals on everything from printing paper to software. When you order uniforms, you no longer are negotiating as a company spending $10K, but $100K. That permeates throughout your cost structure.
Finally, you can leverage your bigger brand to unlock partnerships. If you manufacture garage doors, Home Depot and Lowes might not pick up your call when you are only doing $5M in business a year. But at $50M you become a much more interesting partner to work with, one who can keep up with regional order flow.
2. Debt Capacity
This is where capital structure becomes part of the value creation plan.
Smaller companies can’t borrow much… banks underwrite them based on limited EBITDA, customer concentration, or thin margins. But once you roll them into a larger platform, that changes.
Why?
Because lenders underwrite the consolidated entity. You’re no longer financing a $3M EBITDA landscaping business; you’re financing a $28M platform with more diversified revenue, a predictable customer base, multiple locations, and a CFO.
More EBITDA = more debt capacity.
And here’s the kicker: you’re often financing new acquisitions at the platform’s multiple, not the add-on’s.
So if the platform trades at 10x and you’re buying an add-on at 5x, and you can finance 50% of that acquisition with debt, you’re effectively doubling the equity value of that EBITDA overnight.
To make that real:
Original business was doing $5M in EBITDA and able to get debt at 40% of an enterprise value on 5x EBITDA
That’s a total debt capacity of $10M
The platform business is doing $50M in EBITDA and able to get debt at 50% of an enterprise value on 8x EBITDA
That’s a total debt capacity of $200M
And to drill down, the same $5M of EBITDA from the add on has a debt capacity of $20M ($5M x 8 x 50%), or twice as much
That’s multiple arbitrage in action.
3. Exit Multiple Expansion
This is the lever most people assume will work, but it only delivers if you earn it.
Larger companies tend to command higher EBITDA multiples because:
They have better data
They have stronger teams
They have a more stable revenue base
They’ve proven integration works
But size alone isn’t a strategy. Buyers still underwrite growth, retention, and operational maturity.
You can’t just stack messy, low quality EBITDA and expect someone to pay more for it.
That said, going from a $5M EBITDA fragmented service provider to a $30M+ platform with professionalized ops, repeatable go-to-market, and clean financials? That does change the exit narrative, and often the multiple.
Now, the elephant in the room is who will be at the bidding table. You need to be of a certain size to get some of the big dogs to put a bid in. Many roll ups trade from one PE sponsor to an even larger one (sometimes many times over). And some won’t get out of bed if they can’t deploy [$250M] or more into an investment. So being big also gets you the attention of larger bidders who are able to stroke that check.
When Roll-Ups Break Down
Roll-ups look great in Excel. But three forces can unwind the multiple arbitrage thesis.
1. Debt Environment Shifts
Roll-ups depend heavily on leverage. If the cost of capital spikes (see: 2022–2024), the math starts to unravel fast. Higher interest rates shrink the spread between acquisition yield and borrowing cost. If that happens, PE funds, which used to juice returns with cheap debt, now have to hold back.
And no shocker: you can’t buy your way to scale if your cost of capital eats your equity returns.
What happens:
You modeled 6x leverage at 7% cost of debt.
Now you can only get 4.5x at 12–13% all-in.
Your cash interest burden doubles, and your covenants start yelling.
Example math:
$5M EBITDA add-on @ 5x = $25M
Old model: $15M debt @ 7% = $1.05M annual interest
New model: $12M debt @ 13% = $1.56M annual interest
You now have less debt capacity, and a higher interest burden.
Ouch.
That delta eats your arbitrage.
You can still do some smaller add on deals at lower EBITDA multiples in this environment, but it’s increasingly harder to find initial platform deals to get the process rolling, as they trade at a higher multiple due to their scale and operational superiority. Costly debt makes financing platform pieces harder.
2. Exit Environment Weakens
You underwrote the whole roll-up to exit at 10x. But if market comps reset to 7x, your whole stack just got compressed.
Exit arbitrage is not guaranteed. Public market multiples drive private market outcomes, especially in sectors like healthcare, IT services, and fintech. So if growth stalls or margin declines, the premium valuation vanishes.
And if you stacked mediocre add-ons without integration discipline? Good luck convincing the next buyer to pay up.
What happens:
You built the stack assuming you could exit the combined entity at 10x.
Your lenders and investors were aligned to that case.
But market comps reset—trading at 6.8–7.2x—and buyers are haircutting your EBITDA for “pro forma” adjustments and poor integration.
Your cash conversion cycle isn’t as rock solid as you’d hoped
Your management team has turned over in key areas
Your add on’s aren’t as geographically diversified as you’d aimed for
Impact:
You’re stuck holding the asset longer than planned.
Secondary recap options get uglier, and GP-leds or continuation funds start to look like a lifeline.
Talent retention gets harder, especially if management was counting on a liquidity event. And every operator knows this talent exodus can snowball.
In short, it only works if exit multiple > blended entry multiple.
If you paid 10x for the platform and 6x for 5 add-ons, your blended multiple might be ~7.5x. Exiting at 7x? Not much spread.
3. Competitive Consolidation
This is the one most operators miss.
Even if you’re executing well, a competitor can ruin your play.
There’s always the exogenous risk that someone else does a better-funded roll-up and starts pricing irrationally. Or a new platform with a bigger war chest pulls forward all the good deals.
In short: the window for roll-up success doesn’t stay open forever. When either side of the market consolidates, supply or demand, it’s harder to get your turn.
If you thought this was an attractive market, you’re probably not the only one.
Impact:
You’re forced to do sub-par acquisitions to hit growth targets.
You overpay for mediocre assets
Multiples creep up despite no improvement in quality.
Summary: Roll-Ups Are a Math Problem (Until They’re Not)
Roll-ups work when three things align:
You buy EBITDA at a discount
You finance it with scalable, affordable debt
You exit at a multiple that reflects the platform’s maturity
If any of these shift—financing dries up, exit multiples fall, or the market consolidates out from under you, the spread disappears.
This playbook works best in fragmented, cash-generative industries with operational slack and integration upside.
But it’s not a passive strategy. You need:
Precision on cost structure
Discipline in capital structure
Clarity on exit path and buyer universe
As rates stay elevated and platform targets get bid up, expect more funds to focus on accretive add-ons, and fewer to launch fresh platforms from scratch.
And keep in mind - while Roll Ups make a ton of sense on paper, they require you to roll your sleeves up and make sure the company continues to operate, in addition to the spreadsheet wizardry. While you probably won’t be the one with a plunger or hammer in your hand, choose your industry and competitive landscape wisely.
Brilliantly explained! Waiting more articles like this! thank you!
I am running a dental platform going through this transition now, would say one differentiating factor is PE (i have a lev fin background and worked in mid market pe 20 years ago) has a short time frame so they go for the quick fix ie headcount, procurement…there are bigger opps in developers, rpa etc where u can standout. some areas that are perceived cost only like rcm can become strategic differentiators but pe is too short term. roll up story is also challenged by shallow talent pool in the industries too, not many systems thinkers.