# Scaling M&A and the Runway ## "When do they run out of companies to buy?" The most common objection to the model, and REQ's answer is that the market **underestimates the duration** of these businesses because the pool of future targets is enormous (REQ, Jul 2025, p.60, p.63). > [!info] The European SME pool > **99.8%** of all companies in Europe are SMEs with fewer than 250 employees — **23.5 million** companies. **94%** are independent, owned by families and founders. Roughly **15,000 European companies are sold each year**. > > By country, in millions: Italy 3.7 · France 2.9 · Spain 2.5 · Germany 2.4 · UK 1.9 · Poland 1.6 · Scandinavia 1.5 · Netherlands 1.1 · Czech Republic 1.0 · others 4.9 (p.63). For scale: Lifco, Indutrade, Addtech and Lagercrantz together made roughly **175 acquisitions outside the Nordics over ten years** — a drop in the ocean (p.60). Germany alone has 2.4m SMEs of which ~95% are family-owned; Italy's family businesses from the 1950s–60s boom are now cycling through succession, which is why Lifco made five of its 20 acquisitions there in 2021. The sequencing matters: establish a stable foundation in the home market, then expand geographically while keeping the discipline. Trial-and-error abroad needs closer monitoring by shareholders. ## The organisational ceiling **The 7-7-7 structure.** Kristina Willgård (ex-CFO Addtech, ex-CEO Addlife) and Johan Sjö once calculated how big Addtech could get: a management team of seven, seven business areas, seven business units each, seven companies each → **343 companies** (p.56). > [!quote] Kristina Willgård > When you buy companies on an ongoing basis, as we do, it's incredibly important to have the capacity to take care of everyone. You can't just buy companies and let them go... It is important to have both human and financial capacity. **Constellation Software's version.** In 2012 Mark Leonard reported ~125 business units in ~50 verticals, adding 10–15 units and 3–5 verticals a year, and asked each operating group GM to walk the board through a decade of evolution. His two worries were symmetrical: operating group managers overwhelmed by constrained resources at one extreme, and hiring too much staff at group level and absorbing the business units' activities at the other (p.59). **Lifco today:** 200+ businesses across 30 countries (p.65). **Roper:** 27 businesses, all leaders in very small markets, run on a high-trust autonomy structure (p.78). ## The real constraint Acquisition capacity is grown, not bought. Per Waldemarsson of Lifco: "we are slowly and gradually developing our acquisition capacity... this is a continuous development of organically developing our own resources" — and equal emphasis on being able to *take care of* what has been acquired. > [!warning] Where scaling goes wrong > As the cash pool grows, a company must either do **more** deals or **larger** ones. Larger deals mean higher multiples, longer diligence, more integration risk — the exact profile REQ screens against. Watch which way a maturing compounder resolves this. It is the fork in the road. ## Why it matters Runway is a *duration* argument, and duration is what the market misprices — see [[Valuing a Compounder]]. But runway in the market is not the same as runway in the organisation. The binding constraint is usually the second one. ## Related - [[Acquisition-Driven Compounders MOC]] - [[Decentralization Is the Constraint]] - [[Valuing a Compounder]] - [[Acquisition Multiples and Deal Structure]]