Mastering the Acquisition Game
Serial Acquirers
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Serial acquirers are very popular on the stock market.
And rightfully so as they have proven to be excellent investments.
But which factors should you take into account? And what are the best serial acquires right now? Let’s find out.
What are Serial Acquirers?
Serial acquirers systematically acquire other companies. It’s a core part of their growth strategy.
But wait.
More than 70% of all acquisitions destroy shareholder value…
Isn’t this a bad thing?!
It isn’t! Serial Acquirers often use a decentralized business model and are excellent capital allocators.
A study from REQ Capital proves this point. The historical performance of serial acquirers over the past 20 years looks like this:
MSCI World: 5.9%
S&P 500: 7.6%
Berkshire Hathaway: 9.7%
Serial Acquirers: 17.5%
What makes Serial Acquirers interesting?
Serial Acquirers are characterized by a great company culture.
They often use a decentralized system giving a lot of autonomy to their employees.
Employees are actively involved in the business and think and act like owners.
Employees that think and act like owners are happier and more productive. This results in a higher share price over time.
“The key is always to hire the right people first, train them well, push decisions down the organization, and then resist the temptation to be involved with details. Putting this trust and power in the hands of workers is critical to success.” - Warren Buffett
Another crucial aspect?
Great serial acquirers relentlessly focus on capital allocation.
When a company has a high ROIC with plenty of reinvestment opportunities, you’ve found the golden goose as an investor.
“The high ROIC achieved over the last decade suggests that we have very good businesses.” - Mark Leonard
Here are the characteristics of a great serial acquirer according to REQ Capital:
Constellation Software
Constellation Software is one of the best examples of an excellent Serial Acquirer.
Since the company IPO’ed in 2006, Constellation Software has acquired more than 500 companies, turning $25 million into almost $100 billion.
Mark Leonard is the founder and CEO of the company.
After working in Venture Capital for 11 years, Mark came up with the idea to create a conglomerate to acquire and hold Vertical Market Software (VMS) companies.
The idea of Constellation Software was very simple: acquire niche software companies with the following characteristics:
A loyal customer base
Strong market position
Active in Vertical Market Software (VMS)
But what is Vertical Market Software? VMS software is developed for niche applications or a specific clientele.
Think about a software system for an amusement park to show the waiting lines of different roller coasters or applications for certain medical requirements.
Constellation Software became so successful based on a few key principles:
Buy-and-build: acquire companies to own them forever
Capital Allocation is the most important thing
Use a decentralized structure and give your employees a lot of autonomy
A good corporate culture is everything
You can read more about Mark Leonard’s story here.
A list of Serial Acquirers
Constellation Software isn’t the only great Acquisition Machine.
Let’s dive into a list of potentially interesting Serial Acquirers.
I will also highlight my favorite ones: