# Case Files - When Compounders Break ## Three natural experiments where the strategy diverged ### Addtech vs Bergman & Beving, 2001–2009 Both spun out of the same 100-year-old sphere in 2001. Between 2001 and mid-2007 **the market rewarded Bergman & Beving** — the one deploying more capital in M&A than it generated in cash flow, growing faster, on *lower* returns on capital (ROE and ROCE). The CEO's 2002/03 annual report line: "all industries will in due time be consolidated." Over 100 acquisitions followed by 2009, alongside a shift from full decentralisation to a centralised tool-chain-store strategy (REQ, Jul 2025, p.164). Then leverage met the downturn. B&B hit **4.2× net debt/EBITDA in 2009** and drew down **−76%**. Addtech, disciplined on both M&A and the balance sheet, compounded through it. Over the following stretch Addtech grew sales at 18% CAGR and adjusted EBIT at 23%; Bergman & Beving's were **−1% and −3%** (p.161). > [!important] The lesson, stated plainly > In the short term, the market favours acquirers who are more aggressive — it looks mainly at the P&L. Over a full cycle it prices the balance sheet and the returns on capital. ### Assa Abloy, 1994–2022 — the ten-year flat spot Three phases from a capital allocation perspective (p.165–169): | Phase | Strategy | Sales CAGR | TSR | | --- | --- | --- | --- | | 1995–2002 | Aggressive M&A, ~60 deals, >SEK 20bn, funded by debt and ~SEK 5.6bn of equity | **28%** | 1,900% (peaked ~3,600%) | | 2003–2010 | Consolidation, repairing the balance sheet | 5% | 100% — but **flat for seven years** | | 2011–2022 | Growth resumed at 50–60% of operating cash flow into M&A | 10% | 380% | Net debt/EBITDA went from 1.5× to 3.9× between 1995 and 2001, capped by the GBP 675m acquisition of Williams' lock division (bringing Yale) — adding 45% to group revenue and partly paid in shares. The Yale deal was a long-term success. **The share price still took until 2012 to exceed its end-2000 level.** Total since 1994: **TSR 25,000%, 21% CAGR.** The journey was not smooth. > [!warning] For an investor, this is the shape to fear > Not a permanent loss — a *decade* of nothing while the balance sheet is repaired. Large transformative acquisitions are how you buy that decade. ### Instalco vs Bravida, 2017–2023 Two Nordic installation businesses, opposite capital allocation (p.246–255): | | Instalco | Bravida | | --- | --- | --- | | Positioning | "united corporate group with strong local units", acquired companies keep their names | "ONE company" — the Bravida Way, shared culture and methods | | M&A as % of funds from operations | **141%** | 30% | | Dividends as % of FFO | — | 36% | | EPS growth 2017→2023 Q3 | **+213%** | +57% | | Net debt / EBITDA (2023 Q3) | 2.6× | 1.3× | | Drawdown from all-time high | **−60%** | −45% | Instalco grew EPS far faster — driven by equity issues, more leverage and strong cash flow — and the market rewarded it with a valuation premium in 2020/21. **The premium had fully closed by 2023.** Instalco's historically higher ROIC converged to Bravida's; margins peaked in 2019 and organic EBITA growth turned negative. > [!tip] REQ's conclusion > "While high growth initially was valued higher, our experience is that over time, the stock market will put more emphasis on **durable** growth." ## Why it matters All three cases fail the same way: **spending more on M&A than the business generates, funded by leverage or paper, and rewarded for it in the short run.** That combination is the single highest-value thing to screen for. ## Related - [[Acquisition-Driven Compounders MOC]] - [[Self-Financed Growth and the Balance Sheet]] - [[Red Flags in Serial Acquirers]] - [[Why Rollups Deflate]] - [[Investing Learnings]]