It is a generally understood rule in investing that we need to be careful when companies are pursuing an M&A strategy. It is often just the acquired company and the bankers and lawyers that gain during an M&A transaction. This article makes the case that when something is so ingrained in the market’s psyche, there may be opportunity in finding the exceptions to the rule.
As a starting point, there is plenty of academic research to support this investing rule – serial acquirers, the ‘rollup’ plays, generally see diminishing returns the more they acquire. However, there are some notable exceptions.
One is Canadian software player, Constellation Software. Despite making over 700 acquisitions since 2015, the company is still achieving >30% return on invested capital and is still looking for more. Another example this article discusses is Lifco, a Swedish insurer that has acquired more than 180 companies.
This article takes a look at some of these companies and explores the opportunities and perils for investors that want to jump in the sidecar and get carried along by the management teams focused on serial acquisitions.
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