Are ‘roll ups’ candy bars?

Are ‘roll ups’ candy bars?

Title Agency Mergers and Acquisitions

By Howard Turk

A title agency mergers and acquisitions ‘roll up’ can mean many things.

It could be a candy bar (you’re better off eating an apple) or it could refer to a phrase commonly used in the context of Mergers & Acquisitions.

There are two basic kinds of ‘roll up’ strategies in the M&A world. Both involve a consolidation strategy.

Financial buyers (i.e. investors) know that all else being equal a larger firm typically sells at a higher EBITDA multiple than smaller firms. The tier which takes one to a higher multiple starts at around $9M EBITDA (blended) for title businesses. The idea then is to buy a bunch of smaller firms at a lower multiple, aggregate them together somehow, and then sell the whole thing for the higher multiple. Ideally, the initial acquisition would be a ‘platform’ company. A ‘platform’ company is one which runs like a well-oiled machine, namely one with good technology, a strong culture, ideally with a multi-state footprint and skilled operators capable of scaling. If you start there, then the strategy will also employ an element of economies of scale as you centralize some common back-office functionalities.

Caveat: the value of a business is much more than just the EBITDA multiple. The value is also tied to what you are applying that multiple against, the terms and more.

More commonly a title agency mergers and acquisitions ‘roll up’ takes place when a larger and more established title agency acquires a smaller title agency (think Goliath buying David) as part of an inorganic growth strategy. These seem to be the name of the game today. Sometimes, the larger agency will want to expand their geographic or product footprint and/or simply better position themselves for the next (and inevitable) upturn. The larger agency will usually want the business or market relationships from the smaller and would plug the smaller agency volumes into their infrastructure. Part of the idea of course is that the larger infrastructure agency operates more efficiently and produces higher margins. It’s an economies of scale play. That’s not always the case though since some smaller agencies run pretty lean.

A successful title agency mergers and acquisitions ‘roll up’ always involves a 1+1=3 environment. The buyer must see the investment as worthwhile, and the seller has to have an upside. Fancy M&A people (not us) call this ‘accretive synergy’.

This all sounds so simple. But -then there is the roadblock wall of due diligence. Make no mistake -successful due diligence is an art form. Deals fall apart as quickly as they come together. The reasons they fall apart usually revolve around greed, FOMO, deal fatigue and emotion (on both sides). Sometimes, some people in the title industry do not tell the truth (I know -shocker!). The due diligence process is designed to verify that the representations made by a seller are true.

Due diligence is predicated on mistrust.

While logic dictates a higher level of due diligence on larger deals, the unfortunate reality is that smaller title agency mergers and acquisitions deals usually involve onerous scrutiny as well. They can be time consuming and have a higher fallout rate.

Thinking in terms of common sense is always a good idea. At the end of the day, buyers need to understand that they are basically buying people. We all know that title is a relationship driven business. The ‘team’ matters -in all aspects of the business (receptionist to CEO).

Anyone can close a cookie cutter deal (although cookie cutter deals are Unicorns). The true test of skill happens when things go sideways, which almost always happens at some point in every deal. That can happen on big deals and small and is why experience closing title agency mergers and acquisitions matters (Turk & Co has closed more title agency and ancillary services business deals than any other Investment Bank in the country).

‘The only source of knowledge is experience’. -Albert Einstein

The skill we at Turk & Co have gained from closing so many larger deals comes into play on small ones too. As a fully licensed FINRA registered and SEC complaint Investment Bank (beware of those who play at M&A and are not registered and are learning title M&A on your dime), we’ve seen and implemented some very creative strategies which also work well with smaller deals. To be clear the way we process a ‘roll up’ is very different than a full process deal. There are ways to streamline due diligence and efficiently close smaller transactions-while also using some of the structures which work well in a full process deal workflow. In other words, although Turk & Co is a large deal shop, we also love to help smaller companies sell to our panel of buyers.

Every business has or should have a ‘Why’. Our ‘Why’ is that we believe in the value small business brings to our country. We believe in enabling small business owners to obtain full and fair value for what they have built. We believe in helping. As an Investment Bank we are structured to process transactions that are large. We often work with public companies and have sold Underwriters, large national title agencies, ancillary service firms such as doc prep and more. Although the larger deals are our bread and butter, my heart is in helping smaller firms (I remember where I came from). For that reason, we have designed a separate workflow focused solely on roll ups that involves portraying the seller to our curated and select panel of proven and active buyers. Sometimes the deal is so small it’s considered an ‘acqui-hire’ whereby the smaller agency leaders (and their book) simply go to work at the larger agency. We do those too using our recruiting arm.

‘Roll ups’ matter. I see their business as a seed. In the right environment they flourish and flower. In the wrong environment they wither away.

One of the things we do with ‘roll ups’ is assess where they ‘best’ fit. Determining what is ‘best’ usually involves comprehensive reasoning based on experience. It is not a mechanistic task. I like to think that we’ve seen it all in our work. We know the good from the bad based on our prior dealings with them. Some title companies are indeed wonderful. Their culture is designed to allow for upward mobility. They embrace integrity and use values as their guide. They are Friendly, Neighborly and Fair. Others are not always like that. The risk is that the bad ones look like the good ones. It can be hard to tell them apart at first blush. Because we deal with just about everyone, we know who will step up and be fair versus those who will lull you into a false sense of security with serpent like hissing all the while planning to ‘re-trade’ once you have deal fatigue and are very far down a path with them. ‘Re-trade’ is a polite way of saying they will make one deal with you and just prior to closing reduce the price based on some fabricated rationale.

Title agency mergers and acquisitions ‘Roll ups’ are very much in demand by our panel of buyers. Done right, a ‘roll up’ can help a smaller agency survive the turbulence of today’s economy and provide a significant upside for the seller. It does not work for everyone, but if you are a smaller agency, we can tell you very quickly whether it will work for you. Call us at 310 294 9199 or email for more information.

-Howard Turk


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