ShmoopTube

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Finance a la shmoop... what does it mean to roll up? well if you're not thinking

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Tootsie now then something clearly went wrong in your childhood but we do not [Person with tootsie rolls in their palm]

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judge sorta...well a roll up refers to the practice of a given player

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in a given market buying up all of her competitors like let's say you inherited

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a nice old-age home teeth optional homes smiling gums are our business [Man appears outside of teethsopital homes building]

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yeah that's the name of it it has ten million dollars of revenue each year and

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five million of profits and 25 million in cash in its bank account and no debt

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nice life well one day the competitive old-age home knocks on your door tells [Old competitor knocks on the door and woman answers]

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you they are tired of the grind and the chatter and would like to sell you their

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home for ten million dollars well there's is smaller than yours but you

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look at the numbers and it appears to be valued at about the same multiple of

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profits or earnings as yours is you have the cash and 25 million bucks there you

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write the check and blammo now you own two old-age homes so one day you're [Old age home with sold sign outside]

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telling the floss salesman who keeps coming by never seeming to get the

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message as you point at the business sign yeah and he complains that it's [Man carrying briefcase of cash outside home]

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less of a schlep now to get kicked out of both places because you own the

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southeastern part of town for old-age homes and then a little light bulb goes [Light bulb appears on inside of brain]

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off in your brain there are only seven old-age homes in your entire city if you

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owned all of them well you could probably raise prices 10% and get volume

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discounts on things like bedpans and denture cleanser and industrial-strength [Old age home items dumped on floor by truck]

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prune juice you know trust me I've been there and that prune juice it's powerful

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stuff you want to go easy on it there people well your existing business flows

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a lot of cash you have still a stockpile of 15 million dollars in the bank and [Money stashed inside a bank vault]

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you're generating more of it every day and the two places you have now together

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flow about 7 million bucks a year so you started knocking one by one you roll up

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all of the competitors in the old age home biz in your city until you have [Snowball falling from a hill]

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essentially a local monopoly of old age homes in your little city there yeah you

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have rolled up your little industry and our queen of the old age homes hopefully

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someday there will be a place for you and well wherever that is let's just

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hope it has an ample supply of toothpaste [Toothpaste boxes on a store shelf]

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