TIP713: Why Serial Acquirers Outperform w/ Niklas Sävås
Apr 11, 2025
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Niklas Sävås, a senior equity analyst at Redeye AB, dives into the intriguing world of serial acquirers—companies that thrive by strategically purchasing others. He discusses why these businesses can outperform market norms, emphasizing best practices that lead to successful acquisitions. Sävås highlights the crucial factors of cash flow and competitive advantage while explaining the unique dynamics of acquisitions in both Nordic and US markets. He also touches on the challenges these acquirers face and the significance of organic growth.
Serial acquirers, like Constellation Software, effectively challenge the notion that acquisitions typically fail to create value through strategic niche market focus.
The balanced approach between organic growth and acquisition-led growth is crucial for serial acquirers, often resulting in consistent annual growth around 10%.
Success in serial acquisition heavily relies on strategies like being the buyer of choice and fostering strong relationships with potential sellers.
Deep dives
Understanding Serial Acquirers
A serial acquirer refers to a company that primarily grows its business through the acquisition of other firms. This model has gained traction in the Nordics, where companies like Berkshire Hathaway and Constellation Software have successfully implemented it to achieve consistent growth. The attractiveness of such a model lies in the ability to reinvest generated cash flows into acquiring smaller firms at favorable multiples, typically in the range of 7 to 9 times EBITDA. This strategic focus allows serial acquirers to maintain steady annual growth, often benchmarked at around 10%, through targeted acquisitions rather than relying solely on organic growth.
Defying Conventional Acquisition Wisdom
Serial acquirers challenge the conventional belief that most acquisitions do not create value due to mismanagement and over-reliance on synergies. They achieve this by focusing on acquiring smaller companies in niche markets that are often priced lower than their larger competitors in public markets. The structured acquisition strategy enables these firms to consistently identify and acquire high-quality businesses at reasonable valuations, allowing the serial acquirers to realize sustainable cash flows. This approach minimizes the risks associated with larger acquisitions and helps them navigate fluctuations in market conditions effectively.
The Role of Organic Growth
Organic growth plays a crucial role for serial acquirers, serving as a measure of business health alongside acquisition-led growth. Despite the fluctuations typical in many industries, solid organic growth is often viewed as a prerequisite for maintaining the ability to make further acquisitions. Many successful serial acquirers demonstrate an organic growth rate averaging around 5% to 8%, which underscores their operational efficiency. Maintaining this balance between organic and acquisition-based growth becomes vital, particularly during market downturns when acquiring profitable businesses becomes more challenging.
Challenges and Best Practices
Serial acquirers face common challenges such as ensuring successful integration of acquired companies, maintaining a consistent growth trajectory, and effectively managing cash flows. Best practices identified among successful firms include having a robust cash flow focus, minimizing capital expenditures, and fostering a decentralized management structure. This decentralization empowers area managers to make acquisition decisions while ensuring alignment with overall corporate strategy. Maintaining a clear view on performance indicators and fostering a strong corporate culture contribute significantly to navigating the pitfalls associated with this business model.
The Importance of Being a Buyer of Choice
Being the buyer of choice is essential in the competitive landscape of serial acquisitions, especially when dealing with family-owned businesses. Successful acquirers build strong relationships with potential sellers that extend beyond just negotiating prices; they address concerns regarding employee welfare and the business's future. This approach ensures that sellers are more inclined to choose them over other bidders, including private equity firms. Additionally, well-established serial acquirers often leverage their track records of successful acquisitions and positive relationships to reinforce that they will provide a stable and secure home for the businesses they acquire.
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.
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