Hey Beautiful Businesspeople!
Today we’re getting nerdy about HoldCos:
- The 4 different HoldCo structures, and when to use them
Let’s get into it!
(By the way: want to get your company, service, or offer in front of 30,000 business people? Sponsor an issue of this newsletter! Email ty@girdley.com for more information.)
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A lot of people think all HoldCos are Berkshire Hathaway.
And I get it. Warren Buffett is the highest-profile holdco guy in the world.
But depending on the kind of business you’re doing, there are four different categories we can put these companies in.
The main difference between each type of HoldCo is: How alike are the businesses you’re holding?
The more similar they are, the more you can centralize services, resources, or activities. If your businesses can consolidate, you gain efficiencies and cost savings.
But try to consolidate too much or in the wrong places, and you can trip yourself up.
Let’s take a look at the first kind of HoldCo.
High integration: the Roll-up
A roll-up is a holding company of companies that are the same or very similar. You've got a roll-up if you’re buying a bunch of Doggie Daycares.
It lets you do a ton of centralizing: HR, branding, equipment, marketing — all your assets need the same thing.
That means you’ll often end up with a big HQ staff. And the owner sits at the top, likely making operating and strategy decisions about running the company.
Medium-high integration: the Platform
A platform holding company takes assets in multiple categories that complement one another.
A great example is Assa Abloy, which holds different but related “access” companies: locks, doors, keycards, gates, and identity verification systems. (Mission: Impossible villains love them!)
There’s some consolidation possible here, but less than a roll-up. You’re more likely to acquire another company to provide services to others than to centralize.
Medium-low integration: the Accumulator
One of my companies, Dura Software, is an accumulator. They acquire niche B2B software companies and have best practices on how to run them, but the companies are still distinct.
You might centralize stuff like sales, but otherwise, they’re pretty independent.
Low to no integration: the “Pure” HoldCo
Say you want to own a fireworks company, a media company, a staffing agency, a CEO peer group company, do some PE deals, and incubate new companies. (Weird, right? Who’d do that?)
Centralization and integration do not play well here.
These businesses are so different from one another that trying to run a single sales or HR department would be a bad time for everybody. Each company needs a CEO, and you interact with the company as a board chair or member.
So it “costs” more because you have a bunch of teams. But it’s by far the most flexible and scalable model.
This is Berkshire Hathaway, Xavier Helgesen’s Enduring Ventures, and me.
These structures are flexible
Of course, these structures can nest. My “pure” Holdco, Girdley Enterprises, has equity in my accumulator Holdco, Dura Software.
For each company I hold, I set up an independent corporation under the main holdco entity. It’s a way to limit liability and has some tax implications too.
Setting yourself up with the right structure matters a ton. Getting it right will set you up for growth and resiliency, giving you an advantage over other acquirers.
But do it wrong, and you can tie yourself up in red tape.
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Are you a business owner looking to acquire another? Or a multiple business owner already?
I can offer you a world of best practices, playbooks, and tactical advice in my Complete HoldCo Course.
You get everything I know about starting, scaling, operating, and exiting a HoldCo.
PLUS you get lifetime access to an exclusive Slack community where I answer your questions and you can swap strategies, ideas, and recommendations with other HoldCo owners.
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3 things from this week
- Appetizer: A fantastic insight from Eric Pacifici, a super smart Twitter friend: When a small business acquisition target is not 'bankable,' it becomes the seller's problem, not yours!
Want to know why? Read the whole thing to learn the rest.
- Main: People talk a lot more about their wins than their losses. But a lot of the most important lessons come from when things go wrong. So I made this video:
- Dessert: That feeling when all your hard work pays off.
Have a great week!
Michael
P.S. You asked for interactive, I’ll give you interactive! :-)
I just launched a monthly Q&A mailbag for my course How to Find a Great Business to Buy — if you’ve got burning questions about business buying, come on in!
