DEFINITION of 'Roll-Up Merger'

A roll-up (also known as a "roll up" or a "rollup") merger occurs when investors (often private equity firms) buy up companies in the same market and merge them together. Roll-ups combine multiple small companies into something bigger and better to be able to enjoy economies of scale. Private equity firms use roll-ups to rationalize competition in crowded and/or fragmented markets and to combine companies with complementary capabilities into a full-service business, for instance, an oil exploration company can be combined with a drilling company and a refiner.

BREAKING DOWN 'Roll-Up Merger'

Roll-ups are a part of the consolidation process that occurs as new market sectors mature. Combined companies can provide more products and/or services than a smaller, independent player. Combined companies can also expand their geographic coverage and enjoy the economies of scale and greater name recognition that size confers. Larger companies are usually valued at a higher multiple of earnings than are smaller companies, so a private equity firm that has bought and integrated smaller businesses can sell the rolled-up firm at a profit.

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RELATED FAQS
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