We add Vitec Software to the Partnership Investing portfolio. This serial acquirer reminds us of a smaller Constellation Software with lots of room to grow.
Vitec spends around 10% of their revenue on maintain capex, which could be good to know.
i think it might be hard to keep the growth rate over time since its just a number of these busnisses that will be up for sale each year. 1-5 historically as you mention. Maybe need to go into Europe to increase aquicition frequency?
Another similar company is CSAM Health in Norway, they specialice in e-health though and are at an even earlier stage ~350mNOK in rev. Higher organic growth and margins though, and also cheaper. Maybe thats the way you disrups CSU and Vitec, by consentrating on one nische to become the prefered buyer?
Could also recommend looking into Protector Forsikring, like Geico they grow from being the most efficient insurer with huge cost benefits over peers. Long runway and great leaders. Last but not least, a bargin due to some bad luck last years and damage inflation that they underestimated at first but have sorted out now with huge price increases.
Thank you for your comment! 5 acquisitions a year seems attainable, still a decent number of companies that can be acquired. Continental Europe is a possibility, the company told us they look at it opportunistically, but not a focus right now. Maybe in a few years.
CSAM Health sounds interesting, also heard of Carasent in Norway. We will definitely be looking more into that market, the niche concentration aspect sounds interesting for sure.
Protector is on our radar, actually quite high on the list. Will bump it up a few spots! Feel free to DM or e-mail us if you wish to talk about the company.
If they continue to make 5 investments per year wouldn’t that increase the size per transaction to deploy incremental capital. In the long run they would then compete with P/E firms. Possibly effecting future returns.
At some point it will. This has been the discussion for Constellation Software for years, so I think Vitec should be okay for at least a few years. Topicus and CSU still manage 20-25% ROIC on much larger acquisitions than Vitec.
Lower margins due to higher personnel costs. Changes a lot considering the valuation. Will write about it in quarterly update. There is some news to discuss.
Probably within a week or two on Substack. SUS only reports at the end of August, so will mainly be about Vitec Software and Naked Wines + some general comments.
Thank you for the good write-up! Do you know what multiples they typically pay pre-synergies and where the biggest synergies/value creation is realized? E.g. do they typically raise prices of targets?
1-2x revenue seems the norm. The EBIT multiple is somewhat trickier, but 4-8x seems a reasonable range pre-synergies. Synergies are not a big part though, as most business stay autonomous. Organic growth history indicates they do. SMB managements have less experience recognizing the value of their software, so increases within 1-2 years are likely.
Excellent write up. Any idea why they issued equity in late 2022?
Vitec spends around 10% of their revenue on maintain capex, which could be good to know.
i think it might be hard to keep the growth rate over time since its just a number of these busnisses that will be up for sale each year. 1-5 historically as you mention. Maybe need to go into Europe to increase aquicition frequency?
Another similar company is CSAM Health in Norway, they specialice in e-health though and are at an even earlier stage ~350mNOK in rev. Higher organic growth and margins though, and also cheaper. Maybe thats the way you disrups CSU and Vitec, by consentrating on one nische to become the prefered buyer?
Could also recommend looking into Protector Forsikring, like Geico they grow from being the most efficient insurer with huge cost benefits over peers. Long runway and great leaders. Last but not least, a bargin due to some bad luck last years and damage inflation that they underestimated at first but have sorted out now with huge price increases.
/S&U
Thank you for your comment! 5 acquisitions a year seems attainable, still a decent number of companies that can be acquired. Continental Europe is a possibility, the company told us they look at it opportunistically, but not a focus right now. Maybe in a few years.
CSAM Health sounds interesting, also heard of Carasent in Norway. We will definitely be looking more into that market, the niche concentration aspect sounds interesting for sure.
Protector is on our radar, actually quite high on the list. Will bump it up a few spots! Feel free to DM or e-mail us if you wish to talk about the company.
If they continue to make 5 investments per year wouldn’t that increase the size per transaction to deploy incremental capital. In the long run they would then compete with P/E firms. Possibly effecting future returns.
At some point it will. This has been the discussion for Constellation Software for years, so I think Vitec should be okay for at least a few years. Topicus and CSU still manage 20-25% ROIC on much larger acquisitions than Vitec.
Any idea what was not that good? Why did it tank today after report?
Lower margins due to higher personnel costs. Changes a lot considering the valuation. Will write about it in quarterly update. There is some news to discuss.
Thank you! When will this be? Here on substack right? So I wont miss it as I follow you :)
Probably within a week or two on Substack. SUS only reports at the end of August, so will mainly be about Vitec Software and Naked Wines + some general comments.
Great. i own shares of SUS and CHEMM (before I found your substack)
Thank you for the good write-up! Do you know what multiples they typically pay pre-synergies and where the biggest synergies/value creation is realized? E.g. do they typically raise prices of targets?
1-2x revenue seems the norm. The EBIT multiple is somewhat trickier, but 4-8x seems a reasonable range pre-synergies. Synergies are not a big part though, as most business stay autonomous. Organic growth history indicates they do. SMB managements have less experience recognizing the value of their software, so increases within 1-2 years are likely.