TIP713: Why Serial Acquirers Outperform w/ Niklas Sävås

Key takeaways

Serial acquirers leverage their cash flow for strategic acquisitions, often in smaller niche markets, to achieve significant growth.
Understanding the metrics behind acquisition pricing and return profiles is crucial for assessing the viability of serial acquirers.
Organic growth cannot be overlooked, as it is a critical aspect of sustaining long-term success alongside acquisition strategies.
Being the buyer of choice is essential; it involves strong relationships and trust with potential sellers, which can significantly impact acquisition success.
Despite the attractiveness of the model, many new entrants overlook the complexities involved, leading to high failure rates in serial acquisitions.

Summary

Introduction to Serial Acquirers

In this episode, host Clay Fink is joined by Nicholas Sävås, a senior equity analyst at Red Eye AB, who shares insights into the business model of serial acquirers—companies that grow through repeated mergers and acquisitions. The podcast highlights how successful serial acquirers challenge the conventional wisdom around acquiring businesses, often proving to be profitable investments over the long run. Notable serial acquirers mentioned include Berkshire Hathaway, Constellation Software, and Lifco.

What Defines a Serial Acquirer?

Nicholas provides a comprehensive breakdown of what makes a serial acquirer successful. He explains that these companies typically invest generated cash flows into purchasing smaller private companies, often aiming for a growth benchmark of around 10%. Unlike traditional acquirers that may struggle with synergies, serial acquirers focus on programmatic acquisitions of companies available at lower multiples, allowing them to maintain a profitable growth trajectory.

Return Profiles and Investment Strategies

The return profiles for serial acquirers are notably robust, especially in Nordic markets. Nicholas explains that serial acquirers often achieve higher returns by strategically managing acquisitions at lower multiples. The conversation delves into various valuation metrics used by these companies, like enterprise value to EBITDA multiples, which hover around 7 to 9 times. Additionally, the podcast discusses the importance of maintaining a diversified portfolio of businesses and the potential risks involved.

Challenges Facing Serial Acquirers

The discussion doesn’t shy away from the challenges serial acquirers face in their quest for growth. Nicholas identifies that many new entrants in this space fail to recognize the complexities of integrating acquired companies and managing an ever-evolving competitive landscape. He notes that excessive acquisitions without proper due diligence can lead to investments misaligning with shareholder value, highlighting the importance of careful capital allocation.

The Importance of Organic Growth

Organic growth is emphasized as a vital component of a serial acquirer's success. Nicholas explains that while many acquisitions are focused on growth through buyouts, maintaining a healthy rate of organic growth is crucial for long-term sustainability. Fluctuations in organic growth are common, especially in cyclical industries, which necessitate a delicate balance between acquisitions and nurturing existing business units.

Insights on Rocco IPO

The episode also touches on the recent IPO of Rocco, led by Frederick Carlson, formerly of Lifco. Nicholas outlines similarities between Rocco and Lifco’s approach, focusing on system solutions and diverse acquisitions. He illustrates how Rocco aims to follow a successful path through disciplined acquisition strategies and maintaining a keen oversight on business performance post-acquisition.

Show notes

On today’s episode, Clay is joined by Niklas Sävås to discuss the business model of serial acquirers.

A serial acquirer is a company that grows primarily by repeatedly acquiring other businesses as a core part of its strategy. Over the past two decades, many serial acquirers have proven to be profitable investments in the stock market including Constellation Software and Lifco AB. In this episode, Clay and Niklas break down the most important factors to understanding the business model as investors.

Niklas Sävås is a senior equity analyst at Redeye AB where he does extensive research on serial acquirers in the Nordics.

IN THIS EPISODE YOU’LL LEARN:
00:00 - Intro
01:55 - What a serial acquirer is and why serial acquirers are able to buck conventional thinking on making acquisitions.
08:54 - What the return profile is for serial acquirers in making private acquisitions.
10:35 - Best practices used by successful serial acquirers.
24:49 - Why it’s important to be the buyer of choice as a serial acquirer.
40:18 - The most common challenges that serial acquirers face.
49:01 - The importance of organic growth for serial acquirers.
54:41 - An overview of the Roko IPO.
And so much more!

Disclaimer: Slight discrepancies in the timestamps may occur due to podcast platform differences.

BOOKS AND RESOURCES

Join Clay and a select group of passionate value investors for a retreat in Big Sky, Montana. Learn more here.

Join the exclusive TIP Mastermind Community to engage in meaningful stock investing discussions with Stig, Clay, Kyle, and the other community members.

Check out Redeye.

Investing by the Books Podcast.

REQ Capital Report.

Follow Niklas on LinkedIn & X.

Follow Clay on LinkedIn & X.

Check out all the books mentioned and discussed in our podcast episodes here.

Enjoy ad-free episodes when you subscribe to our Premium Feed.

NEW TO THE SHOW?

Get smarter about valuing businesses in just a few minutes each week through our newsletter, The Intrinsic Value Newsletter.

Check out our We Study Billionaires Starter Packs.

Follow our official social media accounts: X (Twitter) | LinkedIn | Instagram | Facebook | TikTok.

Browse through all our episodes (complete with transcripts) here.

Try our tool for picking stock winners and managing our portfolios: TIP Finance Tool.

Enjoy exclusive perks from our favorite Apps and Services.

Learn how to better start, manage, and grow your business with the best business podcasts.

SPONSORS
Support our free podcast by supporting our sponsors:

Plus500

Netsuite

Shopify

Vanta

HELP US OUT!
Help us reach new listeners by leaving us a rating and review on Spotify! It takes less than 30 seconds, and really helps our show grow, which allows us to bring on even better guests for you all! Thank you – we really appreciate it!