How to Build a Roll-Up Machine

[00:01:08] Introduction & The Importance of M&A Reporting Automation

Kison: Hello, M&A scientists. Welcome to the M&A Science Podcast, where we learn from the best in M&A to uncover proven techniques for enterprise value creation. If you're interested in learning more about how to optimize your M&A practice or want to get involved with our community of forward-thinking M&A practitioners, visit mascience.com and subscribe to our free weekly newsletter. If you want to keep up with us on the go, head over to LinkedIn and follow M&A Science.

I'm your host, Kison Patel, founder and CEO of DealRoom and Chief Scientist at M&A Science. Joining me today is John Cerasuolo, CEO of Leap Partners.

Leap Partners specializes in the acquisition and improvement of businesses in the home services industry, including HVAC, plumbing, and electrical services. The company focuses on partnering with business owners to enhance operations and maintain high levels of owner satisfaction and employee retention.

Today, we're going to talk about how to build a roll-up machine. John, how are you doing today?

John: I'm doing great. It's nice to be with you. Thank you.

Kison: Hey, thanks for taking a break from running a business and doing deals to have a conversation with me.

John: It's nice to have a chance sometime to step back and talk with someone who's done a whole lot of this and anxious to learn. And you and your platform certainly have a lot of great stuff to share.

Kison: Likewise, looking to learn a lot from you. Can we kick off a little bit about your background?

[00:03:08] Guest Introduction: John Cerasuolo's Background & Key Lessons from the Navy

John: An engineer by education. I actually spent the first part of my career in the Navy. Great beginning for building a career, a great opportunity to learn a lot at a young age. And I was an engineer in the Navy. A little bit of time working in manufacturing after that and then quickly transitioned to running field service businesses.

So I've been involved in three different field service businesses. All three were roll-ups. The first one was in telecom services. That was working for a big Japanese company. The second one was in home security. That one was private equity-backed. And then my current roll-up, Leap Partners, as you mentioned, is in HVAC and plumbing.

I've been living in Nashville for 20-plus years and most of the deal activity that I've had over the last 15 years has been concentrated in the Southeast, and that's what we're building at Leap: a Southeast-focused HVAC and plumbing platform.

Kison: Very interesting. A lot of different platforms you've been involved with, but the Navy and engineering background. What are the big learnings from those experiences that you use in M&A today?

John: So I was actually a nuclear engineer in the Navy.

Kison: It's a real deal.

John: Real deal, yeah. I was on a big cruiser, surface ship—not a submarine, which a lot of folks think when you mention nuclear engineering. What mostly translated from that experience was really the foundation of understanding what it means to be a good leader, and that really translates across every and just about any kind of career, particularly in the work that we've been doing at Leap and in my previous efforts.

If there's one lesson I learned, it's the importance of developing your team and your people, hiring the best, and surrounding yourself with the best people. That really came through in my military experience. And that's something I think has paid big dividends over the course of my career.

Kison: It's all about the people. I feel like when we talk about M&A, it's taking that step further, where it's a lot of changes that you have to drive through leadership.

[00:08:08] The Role of Private Equity in Roll-ups

John: Yeah. A lot of people think of M&A or private equity companies and roll-ups as financial engineering—buying assets, combining them, and mixing them up in certain ways to make a lot of money. That really is the wrong way to think about what we do. It is so much about the team that you build, the people leading the organization, and how they treat and deal with others throughout the organization.

There’s inevitably a lot of change and challenges for folks in all the businesses as you go through a roll-up and build a bigger company from smaller ones. If you're missing that element of leadership and understanding what drives people and how to help them fulfill their dreams and aspirations through their work, you can do all the great deals you want.

But if you miss that piece—leadership, people, and building talent from within—you’re just not going to be successful in the long run.

Kison: Fair point. It sounds like your operational roles before taking leadership and M&A strategy prepared you for this.

[00:11:38] Building a Roll-up Machine: Step-by-Step Guide

John: Once I had that foundational opportunity to understand the importance of leadership, I was very fortunate to have the chance to be involved in businesses that I identified. The first one was a little different—it was a telecom roll-up. We did cell tower construction, maintenance, and phone infrastructure buildout for carriers.

That was a national platform working for a big multinational Japanese company. There were a lot of great lessons I learned there. But it was really in the last two opportunities—the one in home security and now the one in HVAC and plumbing—that I had the opportunity to work closely with private equity companies.

That’s a whole different kind of twist on building and creating value. Thankfully, again, I had the opportunity to be surrounded by some really fabulous partners that made that just a great experience.

Kison: So highly different stages—sometimes you're operating an already-running platform, other times you’re building from the ground up. What was it like for you?

John: The telecom roll-up was kind of a startup within a big multinational company. We acquired several companies and built a national platform. That experience was very different from working with private equity firms.

In both the home security and now Leap Partners, I’ve had the opportunity to work with two exceptional private equity partners. That opened my eyes to the opportunities to create something special. It’s a little harder to do that in a big company compared to partnering with a private equity firm that’s fully aligned on the vision and is willing to be aggressive.

As everybody knows, private equity companies tend to be aggressive in pursuing their goals on a short timeline. That’s very different from a big public company that can be slower and more risk-averse.

[00:14:53] Sourcing Deals & Choosing the Right Industry

Kison: So private equity firms have a higher risk profile?

John: Yeah, definitely a higher risk profile and a willingness to take on challenges. There’s always time pressure to deliver value to investors. In a big public company, the goal is to drive up stock price, but they’re much less willing to take risks to do that. They’re very concerned about mistakes.

Aggressive investors and business leaders are more willing to take on those challenges—thoughtfully, of course—but with more urgency. I really enjoy working with investors who are aggressive and have high expectations.

Kison: What about economics? How do they incentivize management and the overall program for success?

John: I’m glad you brought that up. That’s something very different from a corporate environment. In a big multinational company, compensation is much less incentive-focused. In a private equity-backed company, there’s a lot more enthusiasm and energy around variable compensation and rewards for achieving challenging objectives.

You’ll also see much more opportunity for employees to own stock, which isn’t common in big multinationals. Motivating a team with aggressive compensation and equity ownership helps achieve those objectives much faster.

Kison: How do private equity firms pitch that to you? Do they say, “Here’s X percent of options,” or do they paint a picture of how much value you’ll create over time?

John: That’s generally how it goes. In our case, we put together a business plan and pitched it to private equity firms. We didn’t have a deal at the time, just a business plan and an idea. We knew what we wanted to do, but it was challenging to get investors on board because we were starting from scratch.

We probably met with a dozen investors. We eventually found an incredible partner in Concentric Equity Partners, a family investment office. They were aligned with our vision and supported us in building what became Leap Partners.

[00:22:28] Securing the Right Investment Partner & Negotiating Terms

Kison: So this was from scratch. You put a plan together, identified a market, and started pitching investors. Teach me how to do that!

John: It started with me and my COO, Patrick. After we sold the security company, neither of us were happy with what we were doing, so we said, “Let’s do it again.”

We knew we wanted to focus on home services but had to figure out which niche to target. We spent a couple of months talking to people and researching different industries—roofing, landscaping, pest control, HVAC, and plumbing. We talked to investment bankers and investors familiar with those spaces.

Ultimately, we chose HVAC and plumbing because it’s a service that’s not discretionary. It’s something people always need. It was also similar to our experience in home security, and we knew we could build a strong business in that space.

Kison: What were the key factors in choosing the industry? Was it fragmentation? Growth potential?

John: Several factors. First, we had a leadership team that understood field service businesses—technicians in trucks going to people’s homes, primarily residential.

Second, fragmentation was crucial. HVAC and plumbing are highly fragmented industries, just like pest control and landscaping. That fragmentation creates acquisition opportunities.

Finally, we needed an industry that was in favor with investors. HVAC and plumbing definitely passed that test.

Kison: So leadership experience, industry fragmentation, and investor interest. Those were your main criteria?

John: Exactly. We knew we had the right leadership team, and the industry was attractive to investors. From there, it was about putting together a credible business plan that investors would buy into.

[00:31:38] First Deal & Launching Leap Partners

Kison: What goes into that business plan?

John: First, you have to demonstrate that the leadership team has credibility. Our success in home security helped us build that credibility.

Second, you need a strong financial model. You have to show how you’ll grow the business fast enough to support the costs of acquisition and integration. Our model included a five-year plan that was realistic and credible.

Kison: How many investors did you pitch before securing one?

John: We talked to around a dozen. We knew Concentric Equity Partners would be a great fit if we could get them interested. I had a relationship with them from previous work, which helped.

[00:34:08] Building a Strong Pitch to Business Owners & Characteristics of Leadership

Kison: So, you finally secure the right partner. What happens next? You find the first deal, and then you’re off to the races?

John: Well, the check isn’t written until you get that first deal. Even though we had Concentric’s backing, we were still operating on our own dime until we got that first acquisition.

We found two early on—one we closed in March 2022 and another in April 2022. Once we closed those deals, the company was funded, and we were off to the races.

Kison: What’s the pitch when you’re hunting for that first deal? How do you convince the founder to sell?

John: Great question. The pitch is critical, and it starts with understanding the kind of owner we’re looking for. Our perfect profile is an owner who’s been running the business for a long time, maybe a generational business that’s been passed down from father to son.

They’re typically in their 50s, starting to think about an exit plan, but not quite ready yet. They’ve been running the business for 20 years, haven’t had a vacation in a while, and are looking for a change in lifestyle. That’s the ideal candidate for us.

Our pitch to them is:

• Recognize value: We give them a chance to diversify their net worth and recognize the value they’ve created.
• Continue running the business: They keep running their business with their same brand and in a similar way but with our support.
• Join a bigger team: They become part of Leap Partners and work with other sharp, interesting people to build a regional business together.
• Infrastructure support: We take over back-office functions like payroll, taxes, benefits, marketing, fleet management, and recruiting so they can focus on the parts of the business they enjoy.
• Second bite at the apple: They maintain equity in Leap Partners and participate in the upside when we eventually sell.

Kison: So it’s not just about buying their business. It’s about selling a new lifestyle and partnership.

John: Exactly. We want them to feel like they’re gaining something, not losing control. Many of these owners care deeply about their teams. We show them how we’ll help grow and develop their team, so when the time comes for them to fully exit, they’ll have a strong team ready to step up.

[00:41:08] Integration Strategy & Operational Efficiency

Kison: What about integration? How do you approach that?

John: Integration is key. We’ve learned that you have to be aggressive and get it done quickly. We average 43 days from signing an offer letter to closing a deal.

We’ve done so many deals that we’ve gotten really good at the process. Our team is experienced, and we have great partners—our CPA firm, legal advisors—they know our process and keep up with our pace.

Once we close, we immediately start integration. Some companies put it off, but that’s a mistake. Integration is painful, but it’s necessary. We want to get everyone on the same financial system, HR benefits platform, and field software as soon as possible.

If you delay integration, you’ll end up with multiple businesses in different stages of integration, and it will take you a year to catch up. We’ve learned that getting it done quickly sets us up for success.

[00:46:08] Partnership with Business Owners & Culture Building Post-Close

Kison: How do you keep business owners engaged after the deal closes?

John: We have a great relationship with our owners. They’re phenomenal leaders—motivated, enthusiastic, and committed to growing the business.

We do three face-to-face meetings a year where we get all our business owners together to share best practices. We also do monthly Zoom sessions to review financial results and discuss what’s working and what’s not.

We have regional leaders who manage groups of branches and actively support our general managers. They help with everything from vehicle planning to recruiting, making sure the branches have what they need to grow.

The most powerful part is putting the owners in a room together and letting them share ideas and experiences. That peer support is invaluable.

[00:49:38] Craziest Thing Seen in M&A & Final Thoughts

Kison: What’s the craziest thing you’ve seen in M&A?

John: Well, I don’t know if I have anything that’s super intriguing, but every transaction is unique. It’s always a series of problems that need to be solved in order to get to signing and closing. One thing that’s been consistent is the personalities you deal with—everyone prioritizes things differently.

We’ve had business owners who wanted to accelerate the process where it just wasn’t possible because, in their view, they’d answered all the questions we asked. But the reality is, yes, they’ve answered the initial set of questions, but then we have follow-ups and clarifications.

That’s why we try to articulate exactly what the process will look like from start to finish. It’s an iterative process. We’ll make it manageable, but there will always be follow-up questions.

Kison: You really do need to make sure everything is covered. It’s not just checking boxes. It’s about confirming and testing the investment thesis, right?

John: Exactly. It’s not just checking boxes. We need to understand what we’re buying and ensure that we can sustain it going forward.

I’ll say this—we’ve been very fortunate. The businesses we’ve acquired have been what the owners said they were. They’ve treated their people well, and we’ve gotten what we expected.

[00:55:08] Future of Leap Partners & Evolving the Role of Corporate Development

Kison: What does the future look like for Leap Partners? Where do you see things evolving?

John: We’re focused on continued growth and building a strong culture. We’ll keep investing in technology and making sure we’re staying efficient.

But at the end of the day, it’s about the people. Technology can help streamline processes and make things more efficient, but it can’t replace the importance of human relationships and culture.

We’re also going to keep expanding our footprint. We’re very Southeast-focused right now, but there are more opportunities as we grow.

Kison: How do you see the role of corporate development evolving?

John: It’s going to be more about relationships and culture fit. M&A isn’t just about financials. It’s about finding the right partners and building something sustainable together.