Fantastic piece. As a new investor, and someone currently dedicated to learning in public and expanding my conceptual tool set, I suspect I will be referring to this for some time to come.
I recently published a writeup on AEP.V, a micro roll-up in wooden engineered building materials at an inflection point. Whereas management has finally proven the viability of their model after a rocky start, they're about to receive a significant cash injection to scale even further.
M&A infrastructure is in place, but in terms of post-deal implementation, I worry about their ability to meaningfully integrate a potentially accelerating number of acquisitions into their org.
If this rings any bells, do you have any book recs or case comps for thinking about a scenario like this?
Thank you! I'm not familiar with the company, so can't give any great recommendations. From my experience, best to just ask management to have a call with you and let them walk you through their approach. Biz is small enough that they should be willing to chat with you. Beyond that, it's just about studying a lot more businesses. Pattern recognition will kick in over time.
Canuck, could you just elaborate on: “applies its treasure trove of base-rate data to value them, integrates them (very lightly - letting basic behavioural finance principles do most of the work)” the parenthesis, could you give specifics about what principles you are referring to?
Sure - things such as sending out periodic rankings eg of every subsidiary's EBITDA margin to let subs know who is doing best and who is doing worst. Nobody wants to be at the bottom. Transparency around internal benchmarking is a tool that's really effective by encouraging friendly competition.
Nice Article. Do you know why folks appears to downplay roll-ups as they appear the easiest to execute? I have found quite a few roll-ups that are still generating high teens low 20s ROICs. Some with prices below 10x and most below 20x earnings. These firms also have the option to repurchase stock if there are no acquisition targets. Also a question on valuation. Have you developed a good benchmark valuation for the platform & accumulator types of businesses?
Thank you, and that's a good question. A lot of M&A transactions over time end up being value destructive and many roll-ups have not worked out in the past, so I think some people just want to steer clear of rollups altogether for those reasons. Not dissimilar to people who stay away from all levered companies since leverage has destroyed many companies over time. Of course not many things are binary though, so there are plenty of great rollups and plenty of great levered companies. It does require extra due diligence though to get comfortable with those companies' approaches to M&A. You need to make sure the acquired businesses are not degrading post acquisition, especially if leverage is used to fund the purchases. I'm not sure if this is what you were getting at with benchmark valuation, but you simply need to develop a sense of the degree to which the company can scale M&A (plowback ratio if you will) and at what returns.
Superb read. What matters is RoIIC and Reinvestmate Rate. Growth is a product of these two. Thanks so much Canuck.
By far the best write up I have read on Serial Acquirers..Thank you for sharing!
This was great—I learned a lot here. Thanks for putting it together.
Fantastic piece. As a new investor, and someone currently dedicated to learning in public and expanding my conceptual tool set, I suspect I will be referring to this for some time to come.
I recently published a writeup on AEP.V, a micro roll-up in wooden engineered building materials at an inflection point. Whereas management has finally proven the viability of their model after a rocky start, they're about to receive a significant cash injection to scale even further.
M&A infrastructure is in place, but in terms of post-deal implementation, I worry about their ability to meaningfully integrate a potentially accelerating number of acquisitions into their org.
If this rings any bells, do you have any book recs or case comps for thinking about a scenario like this?
Thank you! I'm not familiar with the company, so can't give any great recommendations. From my experience, best to just ask management to have a call with you and let them walk you through their approach. Biz is small enough that they should be willing to chat with you. Beyond that, it's just about studying a lot more businesses. Pattern recognition will kick in over time.
Amazing read. Just started investing 1 year ago and this thread is gold for me! Thank you!
You should write a bit about the ones that blow up
This piece was amazing. Much appreciated guys!
Canuck, could you just elaborate on: “applies its treasure trove of base-rate data to value them, integrates them (very lightly - letting basic behavioural finance principles do most of the work)” the parenthesis, could you give specifics about what principles you are referring to?
Sure - things such as sending out periodic rankings eg of every subsidiary's EBITDA margin to let subs know who is doing best and who is doing worst. Nobody wants to be at the bottom. Transparency around internal benchmarking is a tool that's really effective by encouraging friendly competition.
Hi, I wonder if I need to pay any captial gain tax if I invest in Sweden stocks as a non resident? I live in Canada. Thank you .
Nice Article. Do you know why folks appears to downplay roll-ups as they appear the easiest to execute? I have found quite a few roll-ups that are still generating high teens low 20s ROICs. Some with prices below 10x and most below 20x earnings. These firms also have the option to repurchase stock if there are no acquisition targets. Also a question on valuation. Have you developed a good benchmark valuation for the platform & accumulator types of businesses?
Thank you, and that's a good question. A lot of M&A transactions over time end up being value destructive and many roll-ups have not worked out in the past, so I think some people just want to steer clear of rollups altogether for those reasons. Not dissimilar to people who stay away from all levered companies since leverage has destroyed many companies over time. Of course not many things are binary though, so there are plenty of great rollups and plenty of great levered companies. It does require extra due diligence though to get comfortable with those companies' approaches to M&A. You need to make sure the acquired businesses are not degrading post acquisition, especially if leverage is used to fund the purchases. I'm not sure if this is what you were getting at with benchmark valuation, but you simply need to develop a sense of the degree to which the company can scale M&A (plowback ratio if you will) and at what returns.