Bergman & Beving, Lagercrantz, Robotic Surgery, Mainfreight, Markel, Old Dominion

Content Published Last Week

1. Bergman & Beving: Lagercrantz 2.0? (ENTERPRISE)

2. Robotic Surgery, Hugo vs Da Vinci & The Role of Simulation

3. Mainfreight's History & Operational Strategy

4. Idexx Laboratories: In-house vs Reference Labs for Independent Practices

5. Markel Food Group

6. Old Dominion Freight Line: National Account Management & Expedite Services

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Visible Alpha built a platform to analyze consensus data for financial and operating metrics on over 6,400 publicly traded companies. Rather than digging through models one by one, Visible Alpha creates consensus data for every line item included in sell-side models so institutional investors can better understand expectations on metrics beyond just revenue and earnings. Try Visible Alpha for free here.

Bergman & Beving: Lagercrantz 2.0?

We’re obsessed with finding capital allocators with a deep understanding of how to execute accretive M&A over long periods of time. This led us to explore Bergman & Beving (B&B), the 5bn SEK listed acquirer and B2B distributor.

B&B is the mothership of ~5 listed entities, including Lagercrantz and Addtech that have both compounded FCF per share ~20% for over two decades.

Anyone who takes a cursory look at B&B asks one question: why has the B&B mothership lagged the performance of its spincos?

B&B’s ROIC and cumulative EBITA, a simple measure of earning power given the little capex and leverage required, is significantly lower than comps:

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We’ve been studying B&B’s legacy for a few years and the mothership more deeply for ~6 months to answer this question.

In March 2023, we visited Sweden and met with the management team and Former executives of B&B, Lagercrantz, Lifco, and many other Swedish serial acquirers. We’ve also interviewed the current CEO, and many Former CEO’s and executives of the spincos privately and publicly.

The company piqued our interest because of the new board and CEO. Management has a proven track record of creating shareholder value for decades at Lagercrantz. B&B finds itself in a similar situation as Lagercrantz in the early 2000’s and the same management team is looking to replicate Lagercrantz’s performance at the mothership.

In the last 3 years since the new management team took control, the improvement in ROIIC is evident:

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This Enterprise Company Profile untangles B&B’s historic underperformance and provides a framework to analyse and value the business today.

Robotic Surgery, Hugo vs Da Vinci & The Role of Simulation

Multiple large companies are entering the robotic surgery market aiming to capture share from Intuitive Surgical. Medtronic's Hugo platform, J&J's Ottava and MONARCH platforms and CMR Surgical's Versius platform are the most prominent names and all are customers of Surgical Science's simulation software.

This former Medtronic Sales Executive responsible for the Hugo platform launch in Europe discusses the role of training and simulation:

What is most prone to failure? There are several failure points that can happen. I think education and training is absolutely key and is a failure point. It's an issue if you have people who are not trained well to use a robot, and I say people because it's not just the surgeon, it's also the scrub nurse, the running nurse in the theater, and it could involve the anesthetist. Everyone in that environment needs to be well trained in the use of the robot and all the potential issues should be thought through. - Former Sales Director, Medtronic, Hugo

A robust training program is essential to the successful commercial launch of such a complex platform. Quality education leads to better clinical outcomes and greater efficiencies in the OR, both key drivers for platform adoption. Simulation is an increasingly important part of the robotic surgery value chain where Surgical Science is the sole provider.

Intuitive has also started producing their own simulation content. The executive pointed to a future where data to improve simulation training could be a differentiator:

For example, football players, back in the eighties, used to receive subjective feedback based on someone's observations, but now they wear sensors that provide objective data on their performance. Applying this model to surgery allows for objective feedback on a surgeon's performance over time and in comparison to their peers. This data can then be turned into learning and used in future simulators…It could be a competitive advantage for a robotic OEM to offer their customers valuable information on their performance and how they compare to their peers. - Former Sales Director, Medtronic, Hugo

ISRG, despite its software expertise and exclusive focus on robotic surgery, started this initiative several years ago but still relies on Surgical Science's content.

The interview further explores how Medtronic and other new entrants may approach simulation and the potential opportunity and challenges for Surgical Science.

Mainfreight's History & Operational Strategy

Mainfreight (MFT.NZ) is a listed 3PL provider in New Zealand that has a compounded shareholder return of ~20% since 2002.

The company is owned-operated with a unique culture. The values and vision are well communicated in the book “Ready, Fire, Aim”.

We’re exploring Mainfreight’s history, why it dominates AUS/NZ with superior economics vs comps, and its international opportunity after expanding into EMEA / US.

The first interview in our coverage of MFT explores its history and how it scaled in NZ:

Bruce quickly realized that domestic operators only discussed domestic freight, and he knew that discussing something else would create market stimulation. Bruce Plested understood that value introduces margin, and margin is relative to your value proposition. This led to Mainfreight's value proposition to outvalue competitors, allowing them to command a different margin. As businesses and competitors offered similar products or capabilities, Mainfreight adopted a defensive/offensive strategy. Additionally, Australia was New Zealand's biggest market, only 2,500 kilometers away. To compete against the big Australian cartels that Bruce was familiar with, he needed to take the fight to them. He knew that international capability would eventually be the beachhead to challenge them on their island and set the tone for what Mainfreight would become. This simple philosophy led to their global footprint. - Former Country Manager, Mainfreight

Don, MFT’s founder, set clear principles for the business:

The cultural belief is deeply ingrained in the organization, and it's a bottom-up culture that empowers people to eliminate bureaucracy and make decisions at the coalface with customers. All the stuff that is in their brochures is real. This approach is very powerful and fosters entrepreneurship, success, and succession. It also leads to long tenures and a low turnover rate of about 12%. - Former Country Manager, Mainfreight

We will be exploring the durability of MFT’s competitive advantage and its international opportunity in weeks to come.

Idexx Laboratories: In-house vs Reference Labs for Independent Practices

IDEXX Laboratories is the market leader in animal diagnostics. The company has seen consolidation in its customer base with Mars buying independent veterinary practices and larger IDEXX competitor Heska for $1.3B.

This independent veterinary hospital owner describes how fiercely they compete on pricing to convert users and the role GPO membership plays.

We are evaluating our options because our existing agreement with IDEXX expires next month, and we had a four-year agreement with them. Historically, we've switched providers, going from IDEXX to Antech and back to IDEXX. We might switch back to Antech this time because they tend to be very competitive. If I were to renew with IDEXX, they might give me good rates, but if I'm willing to switch, I can get more incentives from the competitor. Another significant factor is our membership of VMG, that group purchasing organization I mentioned, which has selected one lab as their preferred provider. We get competitive pricing because of that, and we've used it as a negotiating tactic. Even though IDEXX isn't the preferred provider for my group, we've been able to get compelling pricing from Antech, which IDEXX was willing to match and negotiate beyond. - Current Managing Director at an Independent Vet Hospital

Markel Food Group

This interview with a Former MKL Food Group VP explores how Markel approaches acquisitions in the subsidiary and its broader philosophy as a permanent owner of SME’s. MKL isn’t the only one focused on this industry segment:

Companies like AMF Markel try to be a one-stop shop, but there are others like Middleby and the GEA Group, from Europe, doing the same thing, leading to industry consolidation. There are only a limited number of industrial lines bought each year, so it's difficult to leverage that power. There are about 20 industrial lines bought each year, with seven groups plus individual companies competing for them - Former VP, MKL Food Group

MKL learning from BRK…

From what I know about Markel Ventures, they were quite hands-off. They purchased the company for two main reasons. One, because they are a well-run established company that has proven itself over the years and, secondly, they have good management in place. They don't put their own people in charge; they leave the existing management team in place. - Former VP, MKL Food Group

Old Dominion Freight Line: National Account Management & Expedite Services

This interview explores how ODFL compete for large national accounts:

Old Dominion has excelled in taking on difficult freight and challenges, like delivering to Amazon, Walmart, or grocery stores. It takes extra coordination and it's time consuming but they've invested in getting the operation right and delivering on their promises, expecting to be paid for their services. If you use a cheap carrier and are going to spend $100 on that shipment, you don't know when it is going to arrive. If you want something to arrive on time and be ready for the sales floor, you need to use Old Dominion. - Former Manager at ODFL

And more broadly the essence of its competitive advantage:

There are three pillars that set Old Dominion apart from other companies. The sales organization is very highly focused, highly driven, highly incentivized. The operations side is very organized, task-oriented, has SOPs in place, and has alerts. It is very well-defined, very built out. Then you have the leadership where these guys are saying, we're going to keep pushing and we're going to make this thing happen. They empower the operations, the sales team. I think they were worth three billion when I was there and now it's $35 billion and it keeps on growing. The OR keeps on dropping every year and they really empower people and want their drivers to be happy. Their operations are strict, and they have a disciplined approach to pricing, sticking to their rates even if it means walking away from a large account. We're not going to bend at the knees. If we walk away from a $5 million dollar account, even if it makes you sick, as a sales rep, and you are losing that commission, that is what we are going to do. Nine times out of 10, clients come back because other carriers can't provide the same level of service. - Former Manager at ODFL