Rollup Farming... What's that?

These lower mid market PEs are making a killing in software. What playbooks do they follow?

I live in Switzerland: a beautiful country with some of the world’s most expensive real estate. And yet, there is farmland everywhere. The hills above Zurich suburbs are dotted with vegetable fields abutting multimillion villas. 

But look closer, and you will notice a different type of farm. Lower mid-market focused PE firms that “farm” platforms for bigger funds - or for their own continuation vehicles.

If you are intrigued by the value proposition of investing into small software / technology companies, but don’t have the bandwidth or the patience for an industry agnostic VMS HoldCo - then this strategy might be for you!

Take Ufenau Capital Partners, a Swiss-based industrial buy-and-build investor. In 2023, Ufenau closed 63 acquisitions, including 5 platforms. That’s across $2B AuM. 

Ufenau’s business model is far from unique. Firms like Parker Gale (US), Shore Capital (US), FLEX Capital (Germany) and LEA Partners (Germany) have each scooped up dozens of tech companies, with a few notable exits. 

We took a close look at FLEX in this article.

Out of Parker Gale’s 14 platform exits, 10 have been to a larger PE or, a PE-backed acquirer. They specialize in niche vertical SaaS, such as Biscom, a fax software vendor they recently sold to Concord. Parker Gale is mid market ($10-30M revenue per platform), hands-on investor that invests a lot into thought leadership:

And then you have Shore Capital in the US. According to Justin Ishbia, Shore’s founder, in the last 3 years they have acquired nearly 600 (!) companies with an average EV of just $12M. Investing domestically and across a small number of industries (most notably healthcare) has allowed Shore to develop deep expertise in niches. 

Want to learn more?

  • If you don’t mind a factually dense, machine gun style delivery, tune in (or read the transcript) into the Invest Like the Best podcast with Patrick O'Shaughnessy

  • If, on the other hand, you prefer Harry Stebbings’ more relaxed approach, check out his interview with Justin Ishbia:

This strategy makes A TON of sense:

  • There’s limited competition for <$10M revenue assets

  • Higher personal liquidity vs. a VMS HoldCo

  • PE funds keep getting bigger - while large cap deal flow remains weak. They need supply