Finance: What does it mean to "roll up"?

What does it mean to "roll up"? Roll Up refers to when a larger entity gobbles up its smaller competitors via acquisition. A good example is JP Morgan Chase Bank. A look at its history shows its roots as the Bank of Manhattan, founded by Aaron Burr. Manufacturers’ Hanover Trust, Chemical Bank, First Chicago, Great Western Bank, Bank One, Wachovia Bank, Bear Stearns, and Washington Mutual are all smaller banks that were systematically absorbed into the conglomerate that we know today as JP Morgan Chase, and is a prime example of a roll up.

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00:28

yeah that's the name of it it has ten million dollars of revenue each year and

00:32

five million of profits and 25 million in cash in its bank account and no debt

00:38

nice life well one day the competitive old-age home knocks on your door tells [Old competitor knocks on the door and woman answers]

00:42

you they are tired of the grind and the chatter and would like to sell you their

00:47

home for ten million dollars well there's is smaller than yours but you

00:52

look at the numbers and it appears to be valued at about the same multiple of

00:55

profits or earnings as yours is you have the cash and 25 million bucks there you

01:01

write the check and blammo now you own two old-age homes so one day you're [Old age home with sold sign outside]

01:06

telling the floss salesman who keeps coming by never seeming to get the

01:10

message as you point at the business sign yeah and he complains that it's [Man carrying briefcase of cash outside home]

01:14

less of a schlep now to get kicked out of both places because you own the

01:19

southeastern part of town for old-age homes and then a little light bulb goes [Light bulb appears on inside of brain]

01:23

off in your brain there are only seven old-age homes in your entire city if you

01:29

owned all of them well you could probably raise prices 10% and get volume

01:34

discounts on things like bedpans and denture cleanser and industrial-strength [Old age home items dumped on floor by truck]

01:39

prune juice you know trust me I've been there and that prune juice it's powerful

01:43

stuff you want to go easy on it there people well your existing business flows

01:46

a lot of cash you have still a stockpile of 15 million dollars in the bank and [Money stashed inside a bank vault]

01:51

you're generating more of it every day and the two places you have now together

01:55

flow about 7 million bucks a year so you started knocking one by one you roll up

02:02

all of the competitors in the old age home biz in your city until you have [Snowball falling from a hill]

02:07

essentially a local monopoly of old age homes in your little city there yeah you

02:13

have rolled up your little industry and our queen of the old age homes hopefully

02:17

someday there will be a place for you and well wherever that is let's just

02:22

hope it has an ample supply of toothpaste [Toothpaste boxes on a store shelf]