Trip report: Europe

Trip report: Europe

On a recent trip to Europe, Hanna Ranstrand visited various companies who are building their businesses through acquisitions. Here, Hanna discusses these companies in more detail.

Download PDF version

For many companies, acquisitions are an attractive way to grow. They can provide access to new markets, technologies and people. They also come with potential risks, including acquiring the wrong business or overpaying. There is a breed of listed companies, however, that consistently get acquisitions right and overcome the challenges of acquisitive growth. Some have even made acquisitions their raison d’être.

Call them serial acquirers, portfolio builders, roll-up companies or accumulators, the best ones have been able to create tremendous shareholder value over time. Sweden happens to be a very fertile hunting ground for these types of companies, and they share a number of common characteristics.

Many serial acquirers have a well-defined and consistent approach to acquisitions, which tends to change very little over time. They typically buy owner-led companies with structural growth drivers, a strong track record of profitability, and a dominant position in a niche market.

For example, Stockholm-based Indutrade* recently acquired German company Tecno Plast*, which sells single-tubing sets and silicone hoses to biopharma, medtech, pharma and chemical industry customers.1 The work these customers undertake requires constant replenishment of equipment. As a result, Tecno Plast enjoys a high proportion of recurring sales and cash flow predictability. By targeting resilient franchises and well-run businesses, serial acquirers side-step many potential problems and can instead focus on building on an already stable foundation.

The consistency of their approach not only helps serial acquirers avoid poor acquisitions, but it also helps establish their reputation as an attractive home for private companies. Serial acquirers often nurture relationships with potential targets for longer than, say, private equity competitors. Trust takes time to build. It involves frequent conversations and, in Sweden, many rounds of coffee.

For instance, Addtech* took a decade to finally acquire Fey Elektronik*, a leading German player in industrial battery solutions, in 2021.

I first met the owners ten years ago. After a decade of trusting relationship building, the owners were finally ready to sell their life’s work to Addtech. In the process, we got to know each other well, and we now know what we can expect from one another. 2
- Addtech’s CEO Niklas Stenberg.

Long-term relationships often make serial acquirers the first port of call when a founder-owner is ready to sell their business. Relationships also enable a deep understanding of the business, which speeds up the due diligence process for the serial acquirer and increases the likelihood of a business owner staying on to steward their acquired business through its next phase of development.

Another hallmark of the most successful portfolio builders is a decentralised business model and operating structure. Most serial acquirers take a hands-off approach to subsidiary companies’ day-to-day operations, and exert well-judged influence through company Boards. Occasionally, however, they might step in to help steer a company in the right direction, such as by encouraging the management to step away from markets in which pricing power might be compromised.

A decentralised structure is often also attractive for founder-owners who are contemplating selling their companies. Lifco*, a serial acquirer based 80 km north-west of Stockholm in a place called Enköping, believes its decentralised business model, which allows subsidiaries a high degree of autonomy, “is a key factor when we negotiate with potential acquisition candidates…to sell their life’s work to Lifco.”3 Decentralised decision-making and responsibility helps maintain an entrepreneurial spirit within operating companies, while the parent provides stable, long-term ownership, along with capital for expansion and growth.

Subsidiary companies are also able to draw on the experience and expertise of fellow subsidiary companies, and of the holding company, in areas such as digitalisation, governance, expansion into new markets, supply chain development, and improved sustainability. This can be useful for unlocking organic growth opportunities.

Listed serial acquirers enable investors to back successful entrepreneurs and gain exposure to leading private companies with proven approaches. They also offer the stability that a diversified portfolio of competitively positioned companies brings.

Long-term competitive advantage in a stable industry is what we seek in a business. If that comes with rapid organic growth, great. But even without organic growth, such a business is rewarding. We will simply take the lush earnings of the business and use them to buy similar businesses elsewhere. 4
- Warren Buffett

We view the highest-quality serial acquirers as having a valuable contribution to make to our portfolios because of their capacity to generate stable returns for shareholders over the long term.

Hanna Ranstrand
September 2022

* For illustrative purposes only. Reference to the names of each company mentioned in this communication is merely for explaining the investment strategy and should not be construed as investment advice or investment recommendation of those companies. Companies mentioned herein may or may not form part of the holdings of Stewart Investors.

Subscribe to our updates

To get regular updates and content from Stewart Investors, please register here.

Investment terms

View our list of investment terms to help you understand the terminology within this document.

Important Information

This material is for general information purposes only. It does not constitute investment or financial advice and does not take into account any specific investment objectives, financial situation or needs. This is not an offer to provide asset management services, is not a recommendation or an offer or solicitation to buy, hold or sell any security or to execute any agreement for portfolio management or investment advisory services and this material has not been prepared in connection with any such offer. Before making any investment decision you should consider, with the assistance of a financial advisor, your individual investment needs, objectives and financial situation.

We have taken reasonable care to ensure that this material is accurate, current, and complete and fit for its intended purpose and audience as at the date of publication. To the extent this material contains any measurements or data related to environmental, social and governance (ESG) factors, these measurements or data are estimates based on information sourced by the relevant investment team from third parties including portfolio companies and such information may ultimately prove to be inaccurate. No assurance is given or liability accepted regarding the accuracy, validity or completeness of this material and we do not undertake to update it in future if circumstances change.

To the extent this material contains any expression of opinion or forward-looking statements, such opinions and statements are based on assumptions, matters and sources believed to be true and reliable at the time of publication only. This material reflects the views of the individual writers only. Those views may change, may not prove to be valid and may not reflect the views of everyone at First Sentier Investors.

To the extent this material contains any ESG related commitments or targets, such commitments or targets are current as at the date of publication and have been formulated by the relevant investment team in accordance with either internally developed proprietary frameworks or are otherwise based on the Institutional Investors Group on Climate Change (IIGCC) Paris Aligned Investment Initiative framework. The commitments and targets are based on information and representations made to the relevant investment teams by portfolio companies (which may ultimately prove not be accurate), together with assumptions made by the relevant investment team in relation to future matters such as government policy implementation in ESG and other climate-related areas, enhanced future technology and the actions of portfolio companies (all of which are subject to change over time). As such, achievement of these commitments and targets depend on the ongoing accuracy of such information and representations as well as the realisation of such future matters. Any commitments and targets set out in this material are continuously reviewed by the relevant investment teams and subject to change without notice.

About First Sentier Investors

References to ‘we’, ‘us’ or ‘our’ are references to First Sentier Investors, a global asset management business which is ultimately owned by Mitsubishi UFJ Financial Group. Certain of our investment teams operate under the trading names FSSA Investment Managers, Stewart Investors, RQI Investors and Igneo Infrastructure Partners, all of which are part of the First Sentier Investors group.

We communicate and conduct business through different legal entities in different locations. This material is communicated in:

  • Australia and New Zealand by First Sentier Investors (Australia) IM Ltd, authorised and regulated in Australia by the Australian Securities and Investments Commission (AFSL 289017; ABN 89 114 194311)
  • European Economic Area by First Sentier Investors (Ireland) Limited, authorised and regulated in Ireland by the Central Bank of Ireland (CBI reg no. C182306; reg office 70 Sir John Rogerson’s Quay, Dublin 2, Ireland; reg company no. 629188)
  • Hong Kong by First Sentier Investors (Hong Kong) Limited and has not been reviewed by the Securities & Futures Commission in Hong Kong. First Sentier Investors, FSSA Investment Managers, Stewart Investors, RQI Investors and Igneo Infrastructure Partners are the business names of First Sentier Investors (Hong Kong) Limited.
  • Singapore by First Sentier Investors (Singapore) (reg company no. 196900420D) and this advertisement or material has not been reviewed by the Monetary Authority of Singapore. First Sentier Investors (registration number 53236800B), FSSA Investment Managers (registration number 53314080C), Stewart Investors (registration number 53310114W), RQI Investors (registration number 53472532E) and Igneo Infrastructure Partners (registration number 53447928J) are the business divisions of First Sentier Investors (Singapore).
  • Japan by First Sentier Investors (Japan) Limited, authorised and regulated by the Financial Service Agency (Director of Kanto Local Finance Bureau (Registered Financial Institutions) No.2611)
  • United Kingdom by First Sentier Investors (UK) Funds Limited, authorised and regulated by the Financial Conduct Authority (reg. no. 2294743; reg office Finsbury Circus House, 15 Finsbury Circus, London EC2M 7EB)
  • United States by First Sentier Investors (US) LLC, authorised and regulated by the Securities Exchange Commission (RIA 801-93167)
  • other jurisdictions, where this document may lawfully be issued, by First Sentier Investors International IM Limited, authorised and regulated in the UK by the Financial Conduct Authority (FCA ref no. 122512; Registered office: 23 St. Andrew Square, Edinburgh, EH2 1BB; Company no. SC079063).

To the extent permitted by law, MUFG and its subsidiaries are not liable for any loss or damage as a result of reliance on any statement or information contained in this document. Neither MUFG nor any of its subsidiaries guarantee the performance of any investment products referred to in this document or the repayment of capital. Any investments referred to are not deposits or other liabilities of MUFG or its subsidiaries, and are subject to investment risk, including loss of income and capital invested.

© First Sentier Investors Group