Rolling Up Trouble: The Hidden Risks of Merging Distressed Businesses

Damian McCarthy | Boardroom Bench

Research consistently shows that 70–90% of M&A deals fail to deliver on their promised synergies—most often because of integration failures, cultural clashes, and over-optimistic projections (Harvard Business Review, Boston Consulting Group, Pacifica Advisors).

💥 Now imagine doing a roll-up of distressed businesses. The stakes—and the odds—are even worse.

“Merging two distressed businesses doesn’t halve the risk—it doubles it.”

It’s a painful lesson that many in private equity, family offices and corporate Australia have learned the hard way.

When a business is in trouble—cashflow tight, leadership stretched, operations faltering—the instinct is often to reach for a structural fix. Enter the roll-up: bundling two or more underperforming companies into a single group, hoping that scale will create stability.

On paper, roll-ups promise cost savings, synergy, and market strength. In reality, they often deliver cultural dysfunction, leadership conflict, operational chaos, and compounded financial risk. Rolling up problems isn’t a strategy—it’s a gamble that rarely pays off.

🚧 Five Lessons from Failed Australian Roll-Ups

The Australian market has seen this play out repeatedly. Here are five real-world examples where the "bigger is better" mindset collided with operational reality:

1️⃣ Fusion Retail / Marcs & David Lawrence

In the early 2010s, multiple Australian apparel and footwear brands were bundled together by Gresham Private Equity under the Fusion Retail Brands umbrella. The group included: Marcs, David Lawrence, JAG, Colorado, Williams Shoes and Mathers.

What went wrong?

• Legacy systems couldn’t integrate.

• Overlapping store footprints cannibalised sales.

• Leadership teams competed rather than collaborated.

In 2013, the footwear brands (Williams, Mathers, Colorado) were sold to Munro Footwear Group. In 2014, Marcs and David Lawrence were sold to an entity owned by Malcolm Webster. However, continued market shifts, rising costs and strategic missteps led to Websters' brands entering Voluntary Administration in 2017. Rodgers Reidy were appointed Administrators, and the brands were subsequently sold to Myer for integration into their private label portfolio. I assisted Rodgers Reidy with that Administration, working as an Interim Manager within the retail operations group.

The result: formal insolvencies, carve outs, store closures and job losses. Bigger wasn’t better. It was just bigger.

2️⃣ Slater & Gordon’s $1.3B Quindell Bet

Slater & Gordon’s $1.3 billion acquisition of Quindell’s legal services arm in the UK was billed as a market-defining consolidation.

But both businesses had operational challenges and governance risks before the deal. Merging two troubled operations didn’t fix anything—it magnified the risks.

• Financial irregularities came to light.

• Shareholder value collapsed.

• Australia’s most famous listed law firm was nearly wiped out.

In the aftermath, Slater & Gordon was forced to restructure its debt and divest assets. In 2020, private equity firm Allegro Funds acquired Slater & Gordon for a nominal value of just $1, taking the once high-flying public company private. Allegro assumed control of the firm’s significant debt load and launched a turnaround effort focused on simplifying operations and restoring profitability.

Lesson: Consolidating risk doesn't remove it—it concentrates it. And in Slater & Gordon’s case, it ended with a fire sale.

3️⃣ Spotless Group: 30 Acquisitions, No Integration

Spotless Group aggressively acquired over 30 smaller service providers during its expansion under private equity and again after relisting in 2014. But as debt rose and contracts underperformed, the business faltered.

A 2016 profit downgrade saw shares plunge 40%, and Downer EDI acquired Spotless in 2017 for ~$1.3B.

Instead of a turnaround, Downer inherited fragmented systems, contract blowouts, and operational drag.

Lesson: Even in recurring-revenue industries, integration discipline matters. Rolling up dozens of service lines without harmonised systems or cost control just creates a larger, more fragile problem.

4️⃣ Godfreys: Trying to Vacuum Up Market Share

Godfreys, Australia’s iconic vacuum retailer, attempted a roll-up strategy by acquiring multiple small cleaning appliance businesses and expanding rapidly in the 2000s and 2010s.

What went wrong?

• The core business was already facing market disruption from online retail and direct-to-consumer brands.

• Acquisitions added complexity without addressing the real issue: declining consumer relevance.

• Operational inefficiencies worsened post-roll-up.

• Debt pressures increased, forcing refinancing and ultimately leading to receivership in 2024.

Following receivership, Godfreys subsequently closed over 60 stores across Australia and New Zealand, marking the collapse of one of the country's most recognised retail brands. A significant portion of the business was sold to buyers seeking to salvage parts of the operation, but the bulk of the retail footprint was shuttered. The process resulted in redundancies, asset sales, and the effective wind-down of the Godfreys retail model as it was previously known.

Lesson: You can’t sweep up a declining business model by rolling it up with more of the same. The market moved, but Godfreys didn’t.

5️⃣ Retail Food Group (RFG): The Franchise Fallout

Retail Food Group is an ASX-listed public company (ASX: RFG), owning and franchising multiple well-known Australian food and beverage brands, including Gloria Jean’s Coffees, Donut King, Brumby’s Bakery, Michel’s Patisserie, Crust Pizza, and Pizza Capers.

RFG tried to dominate Australia’s food franchise sector by rolling up these brands.

What went wrong?

• RFG focused on acquisition-led growth, but underinvested in franchisee support.

• Financial stress was pushed down to franchisees—many of whom failed, triggering public backlash.

• The ACCC and ASIC investigated RFG for alleged misconduct.

• Share price collapsed, reputational damage was severe.

RFG avoided formal insolvency during its 2017–2019 crisis by executing a major restructure—selling non-core assets, refinancing debt, overhauling leadership, restructuring franchise models and significantly reducing store numbers.

Lesson: Roll-ups that prioritise financial engineering over operational health often implode. In RFG’s case, the failure damaged not just shareholders but hundreds of small business operators, but the public company survived through restructuring—not insolvency.

💥 Why Roll-Ups Fail in Distress

Key risks include:

💣 Integration Chaos – Systems don’t talk to each other. Processes collide. Leadership teams become political.

💣 Culture Clashes – People problems multiply. In distress, this isn’t just bad for morale—it’s catastrophic for execution.

💣 Compounded Financial Stress – Working capital squeezes harder (particularly in retail). Debt loads combine. Cashflow worsens.

💣 Diluted Accountability – Who’s really in charge? In a roll-up, lines of responsibility blur, and turnaround efforts lose focus.

💣 Overestimated Synergies – Cost savings rarely materialise. Complexity eats the forecast.

💣 Misaligned Incentives – Legacy leadership protect turf rather than fix the core.

💣 Customer Confusion – Merged brands with clashing experiences erode trust and loyalty.

💣 Delayed Decision-Making – Urgency disappears when no one’s clearly accountable.

🧩 When Simplification Wins: The Retail Apparel Group (RAG) Success Story

Not all stories of consolidation end in failure—but success requires a different mindset. RAG is a case study in how to pivot from complexity to operational discipline. While Fusion attempted to consolidate a group of heritage fashion and footwear brands, RAG remained independent, focusing on value-based menswear and activewear.

RAG includes:

• Tarocash – Smart casual and formalwear for men.

• Connor – Everyday menswear with a mix of business and casual styles.

• Johnny Bigg – plus-size menswear (big and tall sizing).

• yd. – Youthful, fashion-forward menswear for going out and casual occasions.

• Rockwear – Women’s performance activewear and athleisure.

After observing the fallout from Fusion Retail, RAG took a smarter path.

Why RAG’s turnaround worked:

✨ Clarity over Complexity – Rather than managing 8–10 fragmented brands, RAG focused on a handful with clear, well-defined audiences.

🛠️ Operational Discipline – They invested in supply chain, systems, and digital infrastructure before pursuing growth.

🎯 Customer Focus – RAG built brand equity by refining propositions (e.g., Johnny Bigg for plus-size men, Rockwear for women’s activewear) instead of propping up legacy brands.

🤝 Cultural Alignment – With fewer internal brand cultures to reconcile, they avoided the politics and people issues that cripple most roll-ups.

Today, under the ownership of The Foschini Group, RAG operates over 500 stores across Australia and New Zealand and contributes more than AUD $600M in annual sales. Its success underscores a critical point: turnaround isn’t about stacking problems—it’s about simplifying and stabilising before scaling.

So, when a business is in trouble, the solution isn’t stacking it on top of another troubled business. Best turnaround practice is to:

✅ Stabilise the core – Get liquidity under control. Clarify leadership. Focus on one P&L at a time.

✅ Bring in independent operators – Interim CFOs, CROs, CMOs and NEDs who aren’t emotionally attached to old narratives.

✅ Fix before you grow – Only when a business is stable should you consider M&A, and even then, tread carefully.

📣 Advising a Distressed Business or Planning a Recovery?

Boardroom Bench provides Interim CFOs, CROs, and NEDs who specialise in stabilising chaos, leading restructures and building trust with stakeholders.

📩 Email damian@boardroombench.com or visit 🌐 www.boardroombench.com

“You don’t need a full-time CFO—just the right one at the right time.”