Why I invested 3% into a Swedish Serial Acquirer that achieved a 31% CAGR since its SECOND IPO in 2014
A small thread about $LIFCO 🧵
Wait who?
Lifco started in 1946 as a medical equipment company, but the real story starts in 1998 when Carl Bennet took a majority stake in the business. He then in 2000 took it private to do restructuring and IPOed again in 2014
What do they do?
Lifco is a serial acquirer and long-term owner of companies in the Dental, Demotion & Tools and System Solutions industry.
Over the years Lifco purchased hundreds of companies and has a widely diversified portfolio
There are many similarities to $CSU.TO to be drawn:
- Both companies never sell companies(some exceptions for Lifco)
- Look for stable, long-term growth
- Let purchased companies continue operating, but offer expertise and their network
Like Constellation Software, Lifco also has a highly decentralized organization where the focus is on driving value creation and cutting down on bureaucracy.
Both aim to own leaders in niche businesses with small TAM, but low churn and pricing power.
CapEx
The first thing that came to my mind when I heard that Lifco is an industrial business was high CapEx. It turns out that Lifco is a fan of lean production models and outsources a lot of basic manufacturing and non-value creating activities, resulting in only 2% capex/rev.
As a result of this asset-light business model, Lifco has been able to steadily grow its revenues and cash flows at mid-double-digit rates. This leaves more cash to acquire businesses, their bread and butter.
There are many opinions about #ESG and I won't dive into that discussion. But it's worth noting that Lifco has several ESG measures in its due diligence when selecting companies to purchase. All subsidiaries must apply the Code of Conduct and a whistleblower system is in place.
The main objective: Increase profits.
Lifco has had a great track record with 13% Sales CAGR and 17.9% EBITA CAGR over the last 16 years. The results speak for themselves.
I put a lot of emphasis on Capital allocation and that's where Lifco excels (otherwise why would they have an acquisitive business model). They consistently achieve returns on capital employed around 20%.
Like $CSU, Lifco has never issued a share since going public. The company returns money to shareholders via a small dividend(30-50% of profits according to the strategy). A big difference to Constellation is the higher debt level. They aim for 2-3 times debt/EBITDA, currently 1.8
An acquisitive business rises or falls with the management. Lifco has a great management team with long tenures and skin in the game.
Another interesting aspect is regional diversification: Lifo has around 80% of revenues coming from Europe, where they are the dominant player in a lot of their segments.
At a 24 times forward earnings and 3% FCF yield, Lifco isn't the greatest bargain in the market, but you're getting a high-quality compounding machine at a fair price. I opened a 3% position today and might increase it in the future if opportunities arise.
A big shoutout to @chriswmayer, listening to a podcast about his great Book "100 baggers", he mentioned Lifco and I started to dig deeper.
I hope you liked this thread, if you did consider liking, retweeting and following me. Do you own $LIFCO? What do you think about Serial Acquirers in general? Let me know.
So many painful mistakes, but so many important lessons learned: 2022 was a very turbulent year where many of my beliefs were shattered and I learned a lot about myself and my investment process.
Let's review my 6 learnings of 2022 🧵👇
First off, if you want to read this in more detail, check out my @SubstackInc post about this
1st I learned that long-term compounders with a long runway are much more suitable for me personally than the fast-growing tech stocks I primarily owned in 2020/21. Companies with good moats and great management are much easier to hold over long timeframes.
Napco Security Technologies is a fast-growing high-quality small-cap flying under the radar of most investors.
They are in essential markets and are growing a recurring revenue stream. Let me show you why I bought $NSSC after it’s already up 1500% in the last decade. A quick🧵
If you prefer to read this in an article format, I did publish a more detailed version in my @SubstackInc 👇
Napco was founded in 1969 in Amityville, New York by Richard Soloway, who to this day is the CEO with 20% of shares outstanding (remaining management team owns another 2%).
The difference good Capital Allocation can make.
How $RICK went from 21 years of dead money to a 10-bagger in 6 years. A small 🧵
In the first 21 years, the company maximized revenue growth and grew at all costs, often by diluting shareholders. Even though revenues increased 33x, FCF went nowhere and the stock was flat
In 2016 @RicksCEO embraced good capital allocation after reading William Thorndikes "Outsider CEOs" and focused on FCF/shares growth instead of revenues.
Sonova is a high-quality Swiss compounder that nobody talks about.
They are the leader in hearing aid solutions 🦻 and here is why I invested 3% of my portfolio into $SOON.
So sit back and hear me out (had to do it) 👇
Sonova was founded in 1947 in Stäfa 🇨🇭and since then has become the global leader in hearing aid solutions, an industry with long secular tailwinds (aging population) and a very underserved market.
Sonova has 4 segments for the different needs for hearing solutions:
- Consumer Hearing: $SOON recently acquired @Sennheiser consumer division for conventional headphones and other consumer goods.
- Hearing Instruments: This part focuses on conventional hearing aid solutions 1/2
Serial acquirer of Strip clubs and a sports bar chain.
Let's get into why I decided to buy them. A quick thread 👇
I found out about RCI Hospitality holdings through one of my recent tweets, asking for companies that follow my ideal capital allocation framework. Thanks to @21stCentValue for suggesting $RICK
$RICK used to be a mediocre company that chased revenue by acquiring mediocre clubs in bad deals and other ways to increase revenue. In 2016 @RicksCEO "saw the light" and changed the whole capital allocation strategy of the company.