Consolidating fragmented markets remains a proven and widely used strategy for private equity (PE) firms seeking to create long-term value. In industries populated by a large number of small, regional or small-scale players—with no dominant leader—PE sponsors often build value by acquiring and integrating these entities into a unified, more efficient platform. The result is often greater scale, improved margins and stronger market positioning that supports a lucrative exit.
But successful consolidation demands more than simply rolling up businesses. It requires strategic foresight, disciplined execution and operational sophistication. Here are six key factors for executing a value-creating consolidation strategy.
Target the Right Market
The first and most strategic decision is market selection. The ideal market is not only highly fragmented, but also growing, resilient and underserved. Successful PE firms utilizing this strategy typically look for sectors with:
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- High levels of fragmentation and no clear market leader
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- Recurring revenue or long customer lifecycles
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- Limited capital intensity or regulatory burden
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- Opportunities for operational synergies and pricing power
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Examples
Examples include industries like residential services (e.g., plumbing, HVAC), healthcare services (e.g., dermatology, physical therapy) and B2B services (e.g., logistics, IT consulting). A deep understanding of the competitive landscape—including the number of players, how differentiated their offerings are, and how easy or difficult it is for customers to switch providers—is essential.
Identify and Acquire the Right Companies
Once a target market is selected, the next step is sourcing high-potential acquisition targets. Attractive platform acquisitions typically have the following characteristics:
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- A strong management team
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- Consistent profitability and healthy margins
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- Scalable infrastructure
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- Cultural compatibility
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Follow-on (or “add-on”) acquisitions can be smaller but should offer clear value. Thoughtful add-on acquisitions allow PE firms to:
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- Expand their geographic footprint
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- Broaden service offerings
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- Mitigate risk
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- Achieve economies of scale or operational synergies
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- Create a compelling platform for both strategic and PE buyers
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The effect of consolidation
When executed well, consolidation allows firms to fuel growth and exit at a higher multiple.
Drive Integration and Operational Excellence
Acquisitions alone do not create value—integrating them does. A dedicated integration team or operating partner often plays a central role in managing change and reducing disruption across the new entity. Effective integration brings synergies, cultural alignment and standardized operations. Key focus areas include:
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- Unifying back-office functions (e.g., HR, finance, IT)
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- Aligning pricing models and sales approaches
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- Consolidating supply chains and vendor relationships
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- Implementing shared technology platforms
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Invest for Growth, Not Just Efficiency
While cost-cutting and efficiency gains are important, long-term value is typically driven by top-line growth. A successful consolidation strategy includes proactive investment in:
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- New products or service lines
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- Geographic expansion into underserved regions
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- Strategic partnerships or acquisitions that accelerate scale
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The effect of focusing on growth
This growth orientation positions the platform as more than a collection of assets—it becomes a category leader with a compelling market story.
Keep Customer Value at the Center
As fragmented players consolidate into a market-leading brand, customer expectations shift. Delivering consistent, high-quality customer experiences is key to both retention and reputation. Because strong customer relationships can be a key value driver at exit, PE firms should work with management to:
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- Measure customer satisfaction and Net Promoter Score (NPS)
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- Standardize service delivery models
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- Invest in marketing to elevate the brand and raise awareness
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- Leverage data to personalize offerings and build loyalty
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Plan the Exit from Day One
PE firms typically plan to exit investments within three to seven years. Consolidated platforms offer multiple exit paths:
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- Sale to a strategic buyer seeking scale or geographic reach
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- Secondary buyout to a larger PE firm
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- An initial public offering (IPO) if the platform has reached sufficient scale and visibility
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The effect of planning
Buyers will pay a premium for well-integrated, growth-ready platforms with professional management, strong performance measures and limited post-acquisition complexity.
A Transformative Exercise
Consolidating fragmented markets is not merely a financial maneuver—it’s an exercise in transformation. With the right strategic vision, operational discipline and a customer-centric focus, PE firms can turn a collection of smaller businesses into a cohesive, high-performing enterprise. The result? A more valuable asset for exit—and a more resilient, innovative business for the long term.
Looking to develop a consolidation strategy? Let’s discuss how we can support your vision with tailored M&A, integration and growth planning expertise. You can also learn more about how we help lower-middle market PE sponsors accelerate value creation.
Read more about how we worked with a PE-owned company to manage the complex M&A lifecycle and ultimately position the business for a high-value exit.
Corporate Development Buildout Powers M&A Roll‑Up and High‑Value PE Exit
About the Author
Partner, Private Equity Services
Matt is a seasoned finance and transaction executive known for his ability to synthesize strategy, operations and finance to lead private equity-backed businesses through complex situations. With more than 15 years as an advisor, operator and investor of middle market and private equity-backed companies, Matt excels at connecting strategic thinking with tactical execution.
