Phone
+1(949)289-9623
Mailing Address
POBox 74462
San Clemente, CA 92673
Work Hours
MO - FR: 7AM - 7PM
Private equity is leaving value on the table by keeping “old and proven” and “breakthrough new” in separate silos. On one side sit the classic roll‑up platforms: traditional brick‑and‑mortar businesses with 20‑plus years of operating history, recurring customers, and predictable cash flows. On the other side sit early‑stage AI and software companies capable of layering intelligence, automation, and entirely new revenue streams on top of those same operations. What is still surprisingly rare is a deliberate strategy that combines the two into a single, hybrid thesis—one that treats data, software, and AI as core to the value‑creation engine of a roll‑up, not as a bolt‑on afterthought.
Traditional buy‑and‑build strategies are well understood. A sponsor acquires a platform company in a fragmented market, then adds smaller “tuck‑in” acquisitions to gain scale, bargaining power, and operating leverage. The underwriting focuses on familiar levers: centralizing back‑office functions, optimizing procurement, rationalizing overlapping sites, and driving cross‑sell. The result can be powerful: higher EBITDA, improved margins, a cleaner story for strategics, and often multiple expansion at exit. Yet in most cases, the technology play is conservative: upgrade the ERP, standardize a CRM, add some RPA and reporting, and call the job done.
Meanwhile, AI and software companies are racing ahead, often with little attachment to any one legacy operator. AI can now sit on top of existing systems and logs, pulling signals from email, tickets, machines, and workflows to automate tasks, guide decisions, and uncover patterns that humans miss. Enterprises that have leaned into AI report substantial productivity gains, and a meaningful subset say it is reshaping their business models rather than just trimming costs at the margin. At a macro level, analysts suggest generative and applied AI could add trillions of dollars in incremental value to the global economy each year, lifting labor‑productivity growth by several tenths of a percentage point annually over the next decade or more.
The missed opportunity lies in the gap between these worlds. A truly hybrid strategy—sometimes described as a hybrid PE–VC model, a tech‑enabled roll‑up, or an AI‑augmented roll‑up—starts from a different question. Instead of asking, “How do we bolt intelligent software onto this platform?” or “How do we leverage traditional industries to maximize the value of breakthrough, vertical technologies?”, enabling it asks, “If we own both the operating companies and the AI or software layer that sits across them, how much more value can we create?” In this model, the sponsor is not only a consolidator of physical assets but also the architect of a proprietary digital infrastructure: data models, AI agents, workflow tools, and analytics products built expressly for the operational realities of the roll‑up.
There are compelling reasons to believe this hybrid approach could outperform classic playbooks. AI‑enabled efficiency programs are already delivering double‑digit improvements in cost or productivity when properly implemented, especially in process‑heavy environments such as logistics, construction, manufacturing, and healthcare services. When a sponsor controls both the data‑generating assets (the acquired businesses) and the AI that learns from that data, every additional acquisition deepens the dataset, improves the models, and strengthens the competitive moat. That feedback loop can translate into better pricing power, differentiated customer experience, and, critically, a software‑like layer of recurring, high‑margin revenue on top of the legacy business.
The question, then, is not whether old and proven can be combined with breakthrough new—they clearly can—but which PE firms will reconfigure themselves to do it at scale.
Yet this kind of hybrid remains the exception, not the rule, for understandable reasons. Traditional PE funds are structured and staffed for control deals in mature companies: they prioritize stable cashflow, debt capacity, and a clear path to exit within a 3–7-year horizon. Early‑stage AI or SaaS investments do not always fit easily inside this box; they can be binary, capital‑hungry, and slower to commercialize, with return profiles that look more like venture capital than buyout. Even when funds add growth or venture sleeves, they often treat them as separate pools rather than embedding them into the core roll‑up strategy.
There is also a deep capability and culture gap. Operating partners and deal teams are skilled at integrating finance functions, standardizing KPIs, and optimizing pricing—but leading data‑science teams, shipping production‑grade AI tools, and wiring those tools into heterogeneous legacy systems is a different craft. On the other side, AI and software founders tend to optimize for scalable platforms and broad markets, not the messy, idiosyncratic integration work required to be the intelligence layer for one sponsor’s portfolio. Without a shared language and incentive structure, both sides default back to what they know.
Risk perception further reinforces the status quo. Serial acquisitions and roll‑ups already attract scrutiny from regulators and policymakers in certain sectors, including healthcare and local services. Adding an ambitious AI build‑out on top of a complex integration program can sound like compounding risk: more moving parts, more potential for delays, more scope for overruns. Boards and LPs often prefer clean, separated ‘boxes’ —“specialty services roll‑up” or “AI platform company”—over hybrid stories that straddle both. As a result, sponsors tend to underwrite to conventional synergy cases and underplay or outsource the technology dimension.
Despite these frictions, the prize is large enough to warrant intentional experimentation. Consider that roll‑up strategies are ubiquitous in fragmented, operationally intensive sectors that collectively account for trillions of dollars in annual spending—multi‑site healthcare, construction and trades, logistics and warehousing, specialty manufacturing, regional retail, and more. If hybrid, AI‑enabled roll‑ups captured and monetized even a modest share of the realistic productivity and revenue‑uplift potential in those sectors, the incremental enterprise value creation over the coming decade could run to the tens or even hundreds of billions of dollars. At the fund level, early evidence from hybrid PE–VC and mixed‑mandate vehicles suggests that combining growth‑oriented tech with PE discipline has delivered low‑to‑mid‑teens net returns in recent years, outpacing many traditional single‑style funds in volatile markets.
That suggests a path forward. Sponsors willing to evolve mandates, add genuine technology and AI talent to their operating benches, and design incentives that align legacy managers with tech innovators can begin to close the gap between old and new. Instead of viewing AI tools as generic overlays purchased from third parties, they can own the core software and analytics that make their portfolios smarter over time. Instead of treating roll‑ups as purely financial engineering exercises, they can frame them as engines for building proprietary data assets and vertical AI platforms rooted in real‑world operations.
The question, then, is not whether old and proven can be combined with breakthrough new—they clearly can—but which PE firms will reconfigure themselves to do it at scale? Those that move first stand to build platforms in which every acquisition is not just more EBITDA, but more intelligence: more data, better models, and a deeper moat that competitors, whether traditional aggregators or pure‑play AI startups, will struggle to cross.
We currently have several vertical AI M&A mandates in fintech, energy, healthtech, hospitality, process industries, cloud enablement, cloud/edge, cyber-security, and smart home. If interested, please E-Mail me at serge.jonnaert@the.merger.company or call me at +1(949)289-9623 Ext. 111.
THE.MERGER.COMPANY® is a California-based boutique M&A advisory firm with a successful track record in facilitating global transactions in the software and technology sectors across diverse industries. We leverage cutting-edge artificial intelligence and robotic process automation to streamline and enhance the efficiency of our engagements, ensuring top-tier service delivery at a significantly reduced cost. Our commitment to transparency, reliability, and exceptional results has earned us the confidence of clients worldwide, as we consistently prioritize their goals and trust above all else.