A DIY HoldCo: which playbook is right for you?

In case you have not noticed, I am in a full-on fundraising mode for my HoldCo! 

The 30 second pitch goes like this:

• Baltic Family Capital is a permanent equity vehicle for high quality SMEs in Estonia, Latvia, Lithuania and (longer term) Poland

• We will acquire €1-10M revenue businesses with sticky, recurring revenues; low asset intensity and deep moats

• 30+ years of capitalism = healthy pipeline business owners seeking exit. But no buyers!

• 5-year plan: 25 acquisitions representing €15-20M in aggregate EBITDA

To that end, I am raising €10-15M equity in a “PE structure”. €2M already committed from Merito Partners, a Baltic private markets investor. Interested? Hit reply me! Minimum ticket size 100K.  

Back to the fundraising process though. While pitching to investors I discovered a surprising variety of playbooks that people use to tap into the HoldCo investable universe. For your convenience, I grouped them into three main categories - when you have:

1. A LOT of money

2. Some money

3. NO money

Let’s dive in!

This week’s newsletter has no sponsor. Rather, we recommend you check out a blog by a fellow HoldCo enthusiast:

You should also check out his podcasts, for example, this interview with Eugen Russ, an Austrian HoldCo builder.

HoldCo investment playbook when you have A LOT of money

From an asset allocation point of view, HoldCos are no different to real estate or venture: a distinct asset class with a risk / return profile that cannot be easily replicated with public market investments. 

It is therefore logical that family offices are among the largest investors into non-PE backed serial acquirers, including Abingdon Software, AscendX, Electrify, Upliift, Balio, Chapters Group… and many others.

The 3 pushbacks I have encountered from FOs are:

1. Most FO are run by agents, not principals. They are risk averse and bifurcate between no-brainer investment strategies  (brand-name PE funds, ETFs) and moonshot bets - knowing they will not be penalised in case of a blowout  

2. “We are already doing it ourselves”

3. “We don’t believe in decentralised because the management will steal from you”

Let’s double click on 2 and 3. 

Fundamentally, HoldCos are a strand of value investing.  

Which attracts people that made money in cash-rich businesses. Examples:

• Natural resource extraction / processing / transportation

• Regulated industries (e.g. utilities, telco)

For this crowd, decentralised HoldCos can be a tough sell. I get it: if you are used to iron ore shipments gone missing, hands-on is paramount. Synergies are paramount. Expensive offices are paramount too, to impress counterparts and governments.  

It really needn't be that way. Here is an example of billionaire HoldCo investment portfolio done right: Mitch Rales.

Mitch Rales is a co-founder of Danaher, a $24B revenue US programmatic acquirer so legendary Harvard Business School wrote a case study about it. Mitch is worth $5B and he is not a micromanager.

Lately he has been allocating money and time towards young aspiring CEOs that he can coach. Including, since 2022, the German “HoldCo Federation“ Chapters Group. We broke down Chapters’ ingenious business model here. To recap:

• Chapters is a federation of highly aggregator platforms, each of which is fully accountable for its own results

• Platform management retains a 20% stake - ensuring alignment of interests - but only after parent company funding is repaid. It comes at a 10% PIK 

Chapters Group does not micromanage its platforms. 

Mitch does not micromanage Chapters. 

Instead, Mitch has transferred IP to Chapters, helping it implement Danaher-style  management systems and approach to planning. Looking at Chapters’ growth trajectory, this approach is evidently working. 

HoldCo investment playbook when you have SOME money

Most of my readers will fall into this category. You dispose of a 5-6 figure amount, which you want to allocate to serial acquirers. Where to start?

I would suggest in the public markets, building up a broad portfolio of compounders drawn from 3 main categories:

• Industry agnostic Swedish HoldCos like Lifco, Sdiptech, Teqnion etc. (we covered their business models here and here)  

• Vertical Market Software serial acquirers like Vitec and Constellation Software. If you are looking at Constellation for the first time and don’t understand why it’s trading so high, here’s a primer 

• Thematic acquirers like Kelly Partners Group (Australia, accounting practices; excellent interview with the CEO) or Judges Scientific (UK, precision instruments; Rollupeurope primer)  

You will learn a ton, including how to spot a quality compounder; what metrics drive sustained outperformance; and most importantly, patience. 

I do not recommend first-time HoldCo investors to jump head-first into newly established serial acquirers. Firstly, the risk of failure is quite high. After all, these are startups. Think Amazon FBA aggregators and the rollups that listed prematurely, like Onfolio, Nuvini or Upland. Secondly, you literally skip years of build and pipeline nurturing. Sure, the track record is priced in. On the other hand, liquidity is not an issue.  

Now, if you are comfortable with the investment horizon, and have 50-100K+ to spend on a single investment, ping me. I’d be happy to pitch you a few ideas right away and will add you to the list for future deals. 

HoldCo investment playbook when you have NO money

This may sound counterintuitive and even clickbaity, but you do not need to have any funds to invest in serial acquirers. You can join one at an early stage and take equity. I did so 2.5 years ago, and it changed my career.

Not ready to make the jump? There are other ways in which you can be helpful, for example:

• Recruitment

• Deal origination and execution

• Due diligence

• Outsourced bookkeeping / Finance function

• And, of course, fundraising

Whenever I pitch adviser services, I always ask for equity as well as cash. I am also transparent on what is and isn’t market, especially when it comes to fundraising. I have encountered countless hustlers masquerading as “multi-family offices”. If someone dangles the carrot of “West Coast” or “Bavarian” money, but refuses to name the UBOs, that’s a red flag to me. One outfit takes a whopping 25% cut for procuring $5M equity and $15M in (high-yield) debt. A good deal for the introducer, but why would any self-respecting HoldCo founder take it?   

Get started today.

Buy an annual subscription and download our database of serial acquirers (now containing 300+ names). Come to RollUpEurope events (the next one will be in October). If you are into search funds, get a ticket to the IESE conference in October and invest in searchers directly.