20%+ ROE, 15% Annual Growth, Huge Multibagger Potential
A potential 100-bagger hiding in plain sight
I've spent a lot of time thinking about what makes a 100-bagger.
Not the high-flying tech companies that go parabolic then crash back to earth.
I'm talking about the real compounders – businesses that steadily turn $1 into $100 over decades.
These wealth generators share a few key traits:
They have twin engines – growing earnings AND expanding multiples
They earn high returns on invested capital
Management has significant skin in the game
They have a long runway with a competitive advantage
They grow through equity-efficient acquisitions
Today I want to tell you about a company that checks each of these boxes.
It's a serial acquirer that's outperformed the market by a wide margin since its public debut.
Before I dive in, let's talk about serial acquirers for a minute.
Most serial acquirers fail.
They blow up spectacularly when the acquisition well runs dry, or the debt comes due, or they're exposed for some accounting shenanigans.
But the ones that succeed?
They create generational wealth.
Think Constellation Software. Berkshire Hathaway. Danaher. TransDigm.
A lot of ink has been spilled about what makes these compounders different.
I think it comes down to five things:
1. The Right Management Philosophy
Great serial acquirers have leadership teams that understand capital allocation is their most important job.
They know they have five ways to deploy capital:
Invest in existing businesses
Acquire other companies
Pay dividends
Buy back stock
Pay down debt
And the truly elite ones know that creating equity value is all that matters.
Not growth for growth's sake. Not empire building. Just maximising per-share value.
2. Discipline Around Price
The best acquirers never overpay.
They have strict valuation criteria and refuse to participate in bidding wars.
While everyone else is chasing the latest hot sector, they're buying unsexy businesses at reasonable multiples.
They understand that the price you pay determines your returns.
3. The Right Target Profile
Exceptional acquirers develop expertise in specific types of acquisitions.
They look for:
High returns on capital
Low capital intensity
Defensible market positions
Owner-operators who've built something durable
Businesses with pricing power
They're not interested in turnarounds or fixer-uppers.
They want quality operations they can own forever.
4. Decentralised Model
The most successful serial acquirers maintain a decentralised structure.
They know that entrepreneurs who built great businesses don't want corporate overlords destroying what they created.
By preserving autonomy at the subsidiary level, they attract better acquisition candidates and retain the entrepreneurial culture that made these businesses successful in the first place.
5. Financial Stability
They maintain conservative balance sheets and never stretch too far on any single deal.
This gives them the flexibility to pounce on opportunities during downturns when everyone else is running for cover.
The company I'm analysing today has nearly all these attributes and more.
15% EPS CAGR since inception.
Management owns a significant chunk of the business - the CEO's stake is worth over 100 times his annual salary.
It acquires "boring" businesses that dominate niche markets at 4-5x EBITA.
It's not chasing fads.
It's buying companies with proven business models, strong market positions, and consistent cash flows.
And here's the kicker - it has fairly recently added one of the sharpest capital allocators in the business to its board.
So what's the catch?
It's not obviously super cheap.
But quality rarely comes at a discount.
And for a company that's aiming to double EPS every five years, its valuation seems reasonable.
The recent 40% pullback in the stock therefore presents an opportunity.
Some of the company's segments face headwinds, but these are temporary issues in an otherwise stellar business.
If this company maintains its 15% EPS growth rate for the next decade, earnings will grow by 4x.
At the same multiple, that's a 4x return.
If the market eventually recognises the quality of this model and expands the multiple to 25x (still reasonable for a high-quality compounder), that's a 6-7x return.
And if they can maintain this growth rate for 15-20 years? That's how 100-baggers are born.
So what's the company?