Class Act

research report

Hello,

In this month’s research report, I want to shed light on a company that has most of the qualities I look for in a service-based serial acquirer: an essential and non-cyclical end market, an M&A culture driven by returns rather than growth for growth’s sake, proprietary deal sourcing through long-standing relationships rather than auctions, and a clear playbook for improving the economics of acquired businesses after integration without alienating the people who made those businesses worth acquiring in the first place.

This combination has produced exceptional results. Over the last five years, the company has generated an average ROE of roughly 42%, more than doubled EPS, while maintaining a conservative balance sheet. At the same time, shareholders have been rewarded through ordinary dividends, special dividends, and a recent opportunistic buyback.

Even though capital allocation has been excellent so far and the market remains large and fragmented enough to support consolidation for years to come, the business is currently valued at only 5.0x EV/EBITA and 5.8x P/E.

The discount is mostly explained by political / regulatory risk. I think that risk is real and worth taking seriously, but after digging into the details, my interpretation is that it is not thesis-breaking. In fact, regulation may accelerate consolidation in the industry and lower the multiples the company needs to pay for acquisitions.

At the same time, the current accounting treatment runs goodwill amortization through the income statement, depressing reported earnings and making the stock screen much more expensive than the underlying cash earnings suggest. This “optical issue” should start to fade as the company transitions to IFRS and moves toward a main-market listing.

That is the thesis in simple terms. Below is the research supporting these claims, along with a deeper look at the business, the founder behind the M&A strategy, and the regulatory nuances that shape the risk-reward.