Public roll-up vs private roll-up: how does the math compare?

How does the math work in a private roll-up?

A private roll-up buys small companies at small-company multiples. Over time, the combined company is large enough to be valued at a higher one. The difference is the value created, before any growth.

GF Data's 2024 median EBITDA multiples by deal size show the steps:

• $1–10M enterprise value: 4.5x.
• $10–100M: 6.5x.
• $100–500M: 9.0x.

The private owner sees this value on paper only. It becomes cash when the company is sold, recapitalized or refinanced. Until then, acquisitions are funded with SBA or bank debt, seller notes and investor equity. Each new deal needs new cash.

How does the math work in a public roll-up?

A public company has a market price every day. If that price reflects a higher multiple than the targets cost, the company can use its shares as currency. It can pay a seller partly in stock, or sell stock to raise cash for the next deal.

An academic study of more than 6,000 IPO registrations from 1990 to 2024 found that completing an IPO raises a firm's annual probability of making an acquisition by about 12 percentage points. About three-quarters of the extra deals were at least partly paid in stock. So being public changes how much a company buys and how it pays.

The same study found that, among newly public firms, stock-paid deals underperform cash deals by 20–30 percentage points over 3–5 years and are about 50% more likely to end in delisting. The currency is real. So is the risk of spending it badly.

Worked comparison: one acquisition, three cases

Inputs are illustrative. The purchase multiple uses GF Data's 4.5x median for $1–10M deals. The 10x platform multiple is the site's illustrative figure, not a forecast.

Case 1: private, paid with cash and debt

1. Buy $1M of EBITDA at 4.5x: $4.5M, funded with debt, seller notes and investor equity.
2. If the combined company later sells in the $10–100M band at 6.5x, that $1M of EBITDA is worth $6.5M.
3. Value created at exit: $6.5M – $4.5M = $2.0M, before debt costs and growth.

Case 2: public, stock valued at 10x

1. The public holding company earns $5M of EBITDA, is valued at 10x ($50M) and has 50M shares at $1.00.
2. It pays the seller $4.5M in stock: 4.5M new shares.
3. After the deal: $6M of EBITDA and 54.5M shares.
4. EBITDA per share rises from $5M / 50M = $0.100 to $6M / 54.5M = $0.110, about 10% higher.
5. If the market keeps the 10x multiple, value per share is $60M / 54.5M = about $1.10.

Case 3: public, stock valued at 5x

1. Same company, but the market values it at 5x: $25M, or $0.50 a share.
2. Paying $4.5M in stock now takes 9M new shares.
3. After the deal: $6M of EBITDA and 59M shares, or about $0.102 per share.
4. The gain per share is about 2%, not 10%. If the stock traded below the 4.5x purchase multiple, the deal would reduce earnings per share.

The lesson is the spread. Stock is a good currency only when your multiple is well above what you pay. Before comparing, subtract the ongoing cost of being public from EBITDA. Every recurring dollar of cost is multiplied by your valuation multiple.

What does dilution look like in practice?

Castellum, listed on NYSE American, paid more than 80% of a roughly $6.6M acquisition in restricted stock. Its share count rose from about 53M to about 94.6M between March 2024 and March 2026. That is 94.6 / 53 = about 1.78 times as many shares. An investor who owned 1% in March 2024 and bought no more would own about 0.56% two years later.

Dilution is not wrong in itself. It is wrong when the earnings bought per new share are lower than the earnings each existing share already had.

Which fits your holding company?

• Private fits when you have one or two businesses, rely on SBA or bank debt, have no plan to pay sellers in stock, or your earnings would not carry public-company costs.
• Public fits when you have real earnings or a clear path to them, books an auditor can work with, an acquisition program with more targets than cash, and the discipline to issue stock only when the math works.

My view is that most buyers should stay private. For the costs of listing and staying listed, see PublicFinancial on ongoing public-company costs.

Where these numbers come from: Multiples by deal size are GF Data 2024 medians reported by Carry and Conquer. Acquisition rates and stock-paid deal performance are from the study reported on the CLS Blue Sky Blog. Castellum figures are from this case review. The 10x platform multiple and share counts in the worked comparison are illustrative.

Related questions

Can a private roll-up pay sellers in stock?

Yes, but private stock is harder for a seller to value and to sell. Sellers usually want more cash or better terms to accept it. Securities rules apply either way, so involve counsel.

Does a public company always get a higher multiple?

No. Small public companies can trade at low multiples, especially with thin trading or weak earnings. If your stock trades near or below what you pay for businesses, stock deals destroy value.

How do I compare the two before deciding?

Model both with your real numbers: purchase multiples, debt cost, the cost of being public and a range of trading multiples, including a low one. If the public case only wins at a high multiple, stay private.

What comes next

The math assumes being public helps you buy. The evidence on that is mixed: does being public actually help a company make acquisitions?

Related articles

• Can a holding company with $1 million to $5 million in revenue go public?
• Does being public actually help a company make acquisitions?
• How do you avoid dilution in a public roll-up?
• What is multiple arbitrage and how do roll-ups create value?
• Should a holding company go public, and at what size?

• How does a roll-up go public through a reverse takeover or shell?
• The 1990s roll-up IPOs

Meraki Dealmakers is a service of Meraki Partners, LLC, an advisory firm. It is not a broker-dealer, investment adviser, business broker, law firm or accounting firm. This article is general information, not legal, tax or investment advice.