The 4 different HoldCo structures, and when to use them

Hey Beautiful Businesspeople!

Today we’re getting nerdy about HoldCos:

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A lot of people think all HoldCos are Berkshire Hathaway.

And I get it. Warren Buffett is the highest-profile holdco guy in the world.

But depending on the kind of business you’re doing, there are four different categories we can put these companies in.

The main difference between each type of HoldCo is: How alike are the businesses you’re holding?

The more similar they are, the more you can centralize services, resources, or activities. If your businesses can consolidate, you gain efficiencies and cost savings.

But try to consolidate too much or in the wrong places, and you can trip yourself up.

Let’s take a look at the first kind of HoldCo.

A roll-up is a holding company of companies that are the same or very similar. You've got a roll-up if you’re buying a bunch of Doggie Daycares.

It lets you do a ton of centralizing: HR, branding, equipment, marketing — all your assets need the same thing.

That means you’ll often end up with a big HQ staff. And the owner sits at the top, likely making operating and strategy decisions about running the company.

A platform holding company takes assets in multiple categories that complement one another.

A great example is Assa Abloy, which holds different but related “access” companies: locks, doors, keycards, gates, and identity verification systems. (Mission: Impossible villains love them!)

There’s some consolidation possible here, but less than a roll-up. You’re more likely to acquire another company to provide services to others than to centralize.

One of my companies, Dura Software, is an accumulator. They acquire niche B2B software companies and have best practices on how to run them, but the companies are still distinct.

You might centralize stuff like sales, but otherwise, they’re pretty independent.

Say you want to own a fireworks company, a media company, a staffing agency, a CEO peer group company, do some PE deals, and incubate new companies. (Weird, right? Who’d do that?)

Centralization and integration do not play well here.

These businesses are so different from one another that trying to run a single sales or HR department would be a bad time for everybody. Each company needs a CEO, and you interact with the company as a board chair or member.

So it “costs” more because you have a bunch of teams. But it’s by far the most flexible and scalable model.

This is Berkshire Hathaway, Xavier Helgesen’s Enduring Ventures, and me.

Of course, these structures can nest. My “pure” Holdco, Girdley Enterprises, has equity in my accumulator Holdco, Dura Software.

For each company I hold, I set up an independent corporation under the main holdco entity. It’s a way to limit liability and has some tax implications too.

Setting yourself up with the right structure matters a ton. Getting it right will set you up for growth and resiliency, giving you an advantage over other acquirers.

But do it wrong, and you can tie yourself up in red tape.

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