Popularity of the so-called "roll-up" strategy has skyrocketed in the past three to five years as cash-rich buyout shops have sought new investments.
Roll-up companies buy and merge businesses, typically in fragmented industries. Many roll-ups are owned by leveraged buyout shops, but some are small publicly held businesses.
The evolution of information systems has made it possible to run small but far-flung businesses, said Jeff Evans, an equity analyst who follows roll-ups for Credit Lyonnais Securities Inc., the U.S. investment banking subsidiary of the Paris bank.
Mr. Evans said companies were consolidating with similar businesses in other regions to better serve customers, many of which are nationwide companies.
But critics of this approach often say roll-up operators lack the expertise to run the companies they cobble together.
In a yet-to-be released study, Mr. Evans seems to refute that accusation.
"Our research indicates that many roll-up companies are led by seasoned executive teams from other publicly held companies or from within their own industry," he said.
Of those companies that reported being publicly held for less than three years, half were led by executives with more than seven years of experience running a public company, Mr. Evans said.
The survey included more than 45 publicly held companies whose executives have said their goal is industry consolidation. Most have been public for less than five years.
Roll-ups tend to focus on highly dispersed industries such as construction equipment rental and business services, both of which are included in the survey. About 75% of the respondents reported holding national market share in their industries of 5% or less.
Many companies began taking this approach only in recent years.
More than 50% of the respondents had been in a roll-up phase for less than five years.
"Although the industry consolidation strategy is newly popular, it is not new," Mr. Evans said. He said the strategy dates from at least 1971, with the founding of Waste Management Inc.
The survey will be released in New York at a Nov. 19-20 conference on roll-ups. Credit Lyonnais and the New York Society of Security Analysts are cosponsoring the event.
