In the 2010s, rollups acted like a shortcut for private equity. Target a scattered market; acquire a base company. Merge with many small players, then cut shared expenses. Increase pricing while using debt to boost returns. Exit by selling the enlarged business at better valuation terms. The method succeeded so frequently – it shifted from tool to standard approach.
Today’s rollups are growing older. And, developed systems behave differently from their early versions.
The issue isn’t consolidation halting. It’s the growth force behind rollups: simple integrations, clear benefits, low-cost borrowing, ready acquirers, and the fact that they can’t keep multiplying indefinitely. With rates rising and exits slowing, the sector now faces weakening fundamentals: delayed sell-offs, increased debt pressure, low net returns, and broader investor risk.
This is where it gets tricky: the main threat to private equity in the coming years might not involve buying companies. Instead, it could come from how past consolidations turn into most of their holdings.
Why Rollups Worked So Well in the First Place
Rollups gained traction – not due to sudden corporate wisdom on efficiency – rather, their rise matched favorable economic conditions that amplified results.
Bain’s 2024 report on private equity calls 2023 a slowdown year, as higher interest rates and mismatched valuations cut deal volumes sharply. Value dropped by 37%, while exits sank 44%. This dip follows a ten-year stretch when funding flowed easily and selling stakes was quick. One era faded; another began.
In that older regime, rollups produced returns through a stack of compounding effects:
- Multiple arbitrage: buy smaller assets cheaply, sell the consolidated platform at a higher multiple.
- Synergies: shared services, purchasing, centralized finance/HR, standardized pricing.
- Pricing power: consolidation often reduces competition in local or niche markets.
- Leverage: low rates made debt cheap and refinancing forgiving.
None of these tools vanish as things mature. Yet their impact usually diminishes as the rollup expands, while conditions shift.
The Core Aging Problem: You Can Only Consolidate a Market Once
A rollup trades cohesion for expansion. It depends on a consistent flow of opportunities priced favorably, yet timing matters as much. Each move must align with market shifts rather than rigid plans.
As the rollup matures, the target universe changes:
- Fewer remaining targets. The best assets get bought early.
- Higher prices. Sellers learn that the “rollup premium” exists and demand more.
- Harder integration. Later-stage acquisitions are often messier or more idiosyncratic.
- Lower synergy yield. Early synergies are obvious; late synergies are incremental.
Eventually, growth through buying things no longer helps, it just keeps you busy: purchases continue out of necessity to sustain momentum, rather than delivering lasting value one after another.
This is when rollups usually shift from growth to value extraction, since extraction reveals aging issues to clients, staff, and, later, financiers.
Slower Exits: When the Exit Door Narrows, IRR Suffers
Rollups are aging in a sector where departures have remained rare lately.
Bain notes global buyout-backed exits reached $345B in 2023, 44% lower than the previous year, with deal volume dropping by nearly a quarter. More revealing: there’s now a notable backlog of businesses still on sale, along with a rising portion kept for at least four years.
PitchBook puts numbers to the inventory issue; private equity deals now outpace exits by 3.14 times, hitting a ten-year peak through mid-2025.
Although 2025 shows hints of economic improvement in the U.S., Reuters describes it as a recovery from a low starting point, rather than going back to how things were before
Mature rollups matter because they’re frequently oversized for most strategic purchasers; meanwhile, selling from one private equity player to another demands fresh financing just as borrowing costs rise and expansion slows. Alternatively, going public remains possible, yet listed markets show little patience for debt-laden firms built through constant deals.
Extended holding periods slow cash returns. Yet they also reduce IRR, despite identical multiples. A 2.0x in four years differs from one over eight, seen clearly by limited partners.
Higher Leverage: The Old Booster Becomes the New Constraint
Rollups emerged when borrowing amplified growth. At high rates, debt becomes a stress test.
Media reports in 2024 highlighted a growing strain on highly indebted, private equity-backed businesses. According to the Financial Times, a surge in insolvencies hit firms backed by PE and venture capital, as large borrowings, frequently taken on during buyouts, became more complicated to manage amid elevated interest rates.
S&P Global Market Intelligence provided clear figures: in 2024, U.S. firms backed by private equity or venture capital saw bankruptcy counts rise to 110, the highest yearly figure ever recorded in their data.
This marks a shift in the leverage narrative. As interest rates go up, refinancing gets tougher; established rollups confront three challenges simultaneously.
- Cash flow compression: more cash goes to interest instead of reinvestment.
- Refinancing cliffs: debt maturities become real deadlines, not routine rollovers.
- Operational brittleness: when a rollup is integrated just enough to share debt but not enough to share resilience, shocks propagate.
Mature rollups usually carry higher debt, since only those that are functioning well receive multiple recapitalizations. Here, aging isn’t merely about years. It reflects how financial layers build up over time.
Declining Net IRRs: The LP Version of the Same Story
Even if gross returns seem fine, LPs focus on what’s left: net IRR, net multiple, or payouts.
A key starting point is the NBER study by Harris, Jenkinson, and Kaplan on private equity performance, titled “Private Equity Performance: What Do We Know?” This isn’t a claim that PE will fail. Instead, it examines fund inflows and outflows, and how returns are measured, offering a useful lens for limited partners when market conditions change.
In a maturing roll-up world, the mechanism that pressures net IRRs isn’t unknown:
- Slower exits reduce IRR mechanically.
- More competition for add-ons reduces multiple arbitrage.
- Higher interest expense reduces distributable cash.
More continuation structures can keep NAV elevated while delaying DPI.
LP Exposure: Where the Risk Actually Lands
When rollups mature and exits slow, LP exposure can rise in ways that are easy to miss.
1) Liquidity gets worse, quietly
Bain highlights a “liquidity imperative,” noting that frozen exits block returns to investors while fund managers hold onto large portfolios yet to be sold.
This is significant because numerous LPs (such as pensions, endowments, or insurers) base their planning on payout timing; a prolonged payout gap can lead to difficult asset reallocations in other areas.
2) Continuation vehicles become more tempting
If an asset performs well yet buyers aren’t willing to meet the GP’s target price, continuation funds allow a transfer that feels like a sale, though no real exit happens. This approach may make sense in certain cases; still, it ties more capital to one aging consolidator. It also brings up concerns about valuation fairness and misaligned interests.
Even if we skip particular agreements, having such a setup signals something – it shows up when escape routes shrink.
3) Valuations matter more when sales are scarce
In a gradual exit setting, valuations matter more. This raises limited partners’ dependence on general partners’ pricing methods, particularly for established consolidations where internal expansion is easing while deal-driven boosts fade.
What Mature Rollups Tend to Look Like Operationally
As rollups age, the value creation story usually shifts:
- From “we’re consolidating and improving.”
- To “we’re optimizing and extracting”
This is where you see:
- more aggressive price increases,
- tighter contract terms,
- reduced service levels,
- delayed product investment,
- higher employee churn,
- and “efficiency” which feels like austerity.
These aren’t about right or wrong, they’re about motivation. As buying new customers gets tougher while borrowing money becomes more expensive, companies face stronger pressure to extract returns from existing relationships: clients, employees, even vendors.
In short, the rollup becomes a steady income source, so the focus shifts to safeguarding returns rather than expanding operations.
The Forward-Looking Question: What Replaces the Rollup Engine?
Private equity is not going away. But the next decade may force a strategic pivot:
- If consolidation is “done,” returns must come from true organic growth.
- If leverage is costly, funds need more operational durability and less balance-sheet fragility.
- If exits are slower, LPs will care more about DPI and cash realization, not just marked NAV.
PitchBook’s widest investment-to-exit gap in ten years points to mounting inventory strain, though a rebound in 2025 could ease it slightly. Meanwhile, the surge in PE-linked bankruptcies in 2024 serves as a signal: frameworks once solid under low rates now falter as borrowing costs rise.
The rollups won’t ever collapse. Yet some will struggle to last, however.
Conclusion: Rollups Don’t Die
Private equity’s maturity challenge isn’t one sudden moment. Rather, it reflects slow changes in how the approach operates. Over time, underlying forces have quietly reshaped its core mechanics.
As rollups develop, the benefits of simple integration fade. Exits become less frequent. Debt no longer boosts returns. Net IRR faces downward pressure. Limited partners face greater risk due to slower exits and more dependence on valuations. Over time, the focus typically moves from growth toward extracting value.
For LPs, the message is clear, though uneasy: past roll-up gains won’t predict future results. Moving forward, success will favor those who build lasting internal growth over those chasing endless acquisitions.
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