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Outliers with Daniel Scrivner: Explore the Greatest Innovators, Founders, and Investors
How They Invest: Buy and Build Compounders Maran Capital Founder and CIO Dan Roller | Episode #179
Jan 6, 2024
01:15:35
Snipd AI
Dan Roller, Founder and CIO of Maran Capital, discusses investing in buy-and-build compounders in public markets. Topics include: formation of Maran Capital, choosing hunting ground and creating structural advantages, researching and choosing companies to invest in, buy-and-build basics and examples, potential risks, value vs. growth debate, investing in SPACs, thesis drift and mental models.
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Quick takeaways
- The buy and build strategy in investing involves organic growth and value-creating acquisitions, requiring careful capital allocation, strong management, and a disciplined approach to leverage.
- Successful buy and build strategies emphasize both organic growth and smart acquisitions, with a stable core business serving as a foundation for growth and diversification.
Deep dives
The Buy and Build Strategy: Creating Value through Organic Growth and Acquisitions
The buy and build strategy involves organic growth and value-creating acquisitions. Companies implementing this approach focus on growing a core business that generates cash flow, which can then be used for both organic growth and strategic acquisitions. A successful buy and build strategy requires careful capital allocation, strong management, and a disciplined approach to leverage. The strategy can lead to compounding returns when executed effectively, as demonstrated by the successes of companies like Armor Holdings and Claris Corporation.
In the case of Claris Corporation, Warren Kanders' next venture after Armor Holdings, the company emphasizes both organic growth and smart bolt-on acquisitions. Claris has a stable core business with low leverage, creating a favorable equity cost of capital for acquisitions. This strategy has allowed Claris to build a diversified portfolio of brands with attractive growth prospects.
Another key example is Turning Point Brands, a company in the other tobacco products and tobacco-related products business. Turning Point Brands pursued a buy and build strategy, leveraging special situations like spin-offs to identify value-creating opportunities. The company's stable core business serves as a foundation for growth and acquisitions.
While the buy and build strategy can be successful, it's important to stay vigilant and assess the effectiveness of each acquisition. Excessive leverage is one common pitfall, and proper capital allocation and alignment with shareholders through shared equity ownership are critical elements for success.
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