MI310: A SERIAL ACQUIRERS DEEP DIVE

W/ CHRIS MAYER

05 December 2023

Kyle Grieve chats with Chris Mayer about the special qualities of serial acquirers that make them compelling investments, tricks on how to value serial acquirers, the importance of decentralization for successful serial acquirers, the proper dynamics to look for between the acquirer and the acquired, the proper uses of leverage to use in mergers and acquisitions, characteristics to look for in scaling serial acquirers, the proper management traits to look for in highly successful serial acquirers, and a whole lot more!

Chris Mayer is the Portfolio Manager and Co-founder of Woodlock House Family Capital. He’s also a prolific writer, he blogs regularly on Woodlock House’s website. He is the author of one of the most popular investing books in the last decade, “100 Baggers: Stocks That Return 100-to-1 and How to Find Them.” He wrote “How Do You Know”, and many other books.

SUBSCRIBE

IN THIS EPISODE, YOU’LL LEARN:

  • Successful acquisition strategies.
  • What to look for in scaling serial acquirers.
  • The general aspects of great serial acquirers.
  • Key differentiators between exceptional serial acquirers.
  • Chris’s favorite debt ratios to examine for acquisitive businesses.
  • And much, much more!

TRANSCRIPT

Disclaimer: The transcript that follows has been generated using artificial intelligence. We strive to be as accurate as possible, but minor errors and slightly off timestamps may be present due to platform differences.

[00:00:02] Chris Mayer: They’ll see something trading at 26 times earnings or 30 times earnings, and they’ll think that it’s expensive. But you know when you work out what the return on capital is of that business and you, you could just look at something simple, you could look at ROE, and then you can look at how much they’re reinvesting every year.

[00:00:20] Chris Mayer: So if the ROE is, let’s say 20 percent and they’re reinvesting 80 percent of that, paying out 20 percent of dividends, then you’ve got, 16 percent roughly in compounding. And then your question is, question for you is then, is that good enough for you as an investor? Is it, Is it secure enough?

[00:00:39] Chris Mayer: Is it durable enough? Do you feel good enough about it that you’re willing to sit and wait? And there’s some sliding scale. You’re going to find some that, they’re in 30 percent and maybe they’re doing, they’re paying out again, 20%. Now you’re looking at 24 percent kind of as you’re compounding and you have to.

[00:00:55] Chris Mayer: And that makes a big difference. So then when you think about in terms of a decade out, you just sort of forecast what 24 percent compounded is over a 10 year period of time. It’s a big number. And then you put a multiple on that at the end of 10 years and compare it to today and get your IRR. You can see suddenly if you have a company that’s going to increase earnings six, eight times over the next decade, Suddenly, whether you pay 30 times earnings or 35 suddenly doesn’t seem like you know that, that big of a deal.

[00:01:22] Chris Mayer: Right?

[00:01:25] Kyle Grieve: In this episode, I chat with Chris Mayer about the special qualities of serial acquirers that make them compelling investments, tricks on how to value serial acquirers, the importance of decentralization for successful serial acquirers, the proper dynamics to look for between the acquirer and the acquired.

[00:01:43] Kyle Grieve: The proper uses of leverage to use in mergers and acquisitions, characteristics to look for in scaling serial acquirers, the proper management traits to look for in highly successful serial acquirers, and a whole lot more. My first exposure to Chris Mayer was probably the same as most listeners. From reading his book, Hunter Beggars, Stocks that Return 100 to 1, After reading that, I started looking at his portfolio very closely.

[00:02:07] Kyle Grieve: Even though I had my own framework for quality, his strategies were completely aligned with what I was trying to do. I’d send him some ideas, which he hasn’t bid on yet, and ask him for feedback on my own analysis. He graciously helped me with my thinking on all sorts of topics, especially in regard to Topicus, Evolution AB, Teqnion AB, and Dino Polska.

[00:02:27] Kyle Grieve: I started moving in a similar direction to what he was already doing, which was looking at serial acquirers. The simple reason serial acquirers are so interesting is the mixture of high returns on invested capital and high reinvestment opportunities. The mixture of these two metrics can cause massive shareholder value if the high numbers are sustainable over many years.

[00:02:46] Kyle Grieve: Chris recently joined the TIP Mastermind Community for an incredible Q&A where members got to pick his mind on a variety of investing topics. The subject of serial acquirers came up and I thought it would be great to deep dive into the world of serial acquirers with him. So I reached out to Chris with the idea of talking about serial acquirers rather than strictly talking about multibaggers.

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