While utilising a "roll-up" strategy or acting as an industry "consolidator" is far from a new concept, it is arguably the flavour of the month with certain businesses creating enormous shareholder wealth recently thanks to their acquisitive business models.
Shareholder value has certainly been created for investors in Greencross Limited (ASX: GXL) with the share price rising 1,820% in the past five years. Since its establishment in 1994 Greencross has set about acquiring veterinary practices and to date the firm has acquired around 100 clinics including general practices, specialty and emergency centres, pathology labs and pet crematoria. Most recently Greencross has diversified its business into specialty pet retailing via the acquisition of City Farmers and merger with Petbarn; together this has formed a leading retailer with over 130 pet stores.
According to data provided by Morningstar, Greencross is set to increase earnings per share from 8.5 cents per share (cps) in FY 2013 to 24.6 cps in FY 2014 to 34 cps in FY2015 – this highlights the speed of growth that Greencross is achieving and the reason for its share price trajectory.
Not a sure thing!
Other examples such as the ever popular child care centre roll-up G8 Education Ltd (ASX: GEM) show how successful roll-ups can be. However, they are not without risk, the implosion of ABC Learning Centres is the obvious red flag when it comes to child care consolidation. Also, in the GP space Primary Health Care Limited (ASX: PRY) has provided negative share price returns to shareholders over the last decade, compared with a 55% return from the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO).
