“Getting roll-ups right boils down to finding the right industry dynamics and market opportunity; developing, testing and perfecting the right operating plan; and finally, bringing a disciplined and focused approach to finding, evaluating and integrating targets. Please let me know if you have a different take or if you’d like to talk about your specific plans.”
“One of the ways financiers make money is doing a “roll-up”: a series of horizontal acquisitions in a fragmented industry. Typically these are industrial sectors that are obscure, unloved and overlooked.
I first saw this technique in action among various listed companies I researched as a stockbroking analyst in the 1980s. For example, a series of companies sprang up that consolidated funeral homes, including Kenyon Securities, Hodgson Holdings and Great Southern Group. They rationalised the use of hearses and crematoria, saved money on administration and marketing, and arbitraged the different earnings multiples between private and public companies.”
“Take a highly fragmented industry, like used-car sales, funeral homes, office supplies, air-conditioning services, veterinary care, or laboratory diagnostics. Buy up dozens, maybe hundreds, of owner-operated businesses. Create an entity that can reap economies of scale, build regional or national brands, leverage best practices across all aspects of marketing and operations, and hire more potent managers than the small businesses could previously afford.
It’s called a “strategic rollup.” The formula has seemed like an attractive business proposition—and Wall Street has embraced it enthusiastically. But for each successful rollup like Sysco Corporation, the food-distribution giant, or Quest Diagnostics Inc., which operates medical-testing laboratories, dozens of failures litter the landscape.”
Tuesday Reads with commentary
I view the drone industry as ripe for a lot of money to be made and value to be created. There are hundreds of startups trying to fill the commercial space and a fraction of that in behemoths like General Atomics, Lockheed Martin, and Northrup Grumman, behind the veil of the DoD latching on to huge primary contracts while subcontracting smaller at risk ventures.
Goldman sees drones as a $100Bn market opportunity between now and 2020. This falls into one of my primary strategies going forward along with a specific industry rollup and very specific/concentrated capital markets investing.
I view specific names in the Biotech and Healthcare industry as a good buy right now. I’ll share the buys after I finish getting long in them.
I also view US Treasury Bonds as a candidate for trade of the year. I said the same thing commodities at the beginning of 2016. However, Trump policy is the wildcard and that view could quickly go the other way.
“The Fed is projecting core PCE inflation will increase to 1.8% to 1.9% by Q4 2017. However there are risks for higher inflation. The labor market is approaching full employment, and the new administration is proposing some fiscal stimulus (tax cuts, possible infrastructure spending), so it is possible – as a result – that inflation will increase more than expected in 2017 and 2018.
Currently I think PCE core inflation (year-over-year) will increase further and be close to 2% in 2017, but too much inflation will still not be a serious concern in 2017.”
“The number of hikes depends on the economic outlook and inflation. There are significant uncertainities concerning fiscal policy, and some of the proposals could boost economic growth (as an example, if there is a real infrastructure spending program), and some could impede growth (like a significant trade dispute).
My current guess is the Fed will hike twice in 2017.”