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Bruker: Mass Spectrometry Portfolio Quality

Established in 1960, Bruker is the company that pioneered high-resolution systems for analytical chemistry in the US. It was the company that first realised the power of nuclear magnetic resonance (NMR) spectroscopy, a technique that uses the magnetic properties of atoms to reveal information about molecular structure, identity, and behaviour.

The company has number 1 or 2 market share positions across the majority of products in its portfolio and is trading at <15x FY25 estimated EPS.

Bruker has leading market positions across multiple product lines
Bruker has leading market positions across multiple product lines

This interview with a Former VP at Bruker explores the quality of the company's portfolio:

The TIMS, or trapped ion mobility spectrometry, is an additional separation device placed before a QTOF or OTOF instrument, providing more separation after chromatography. Bruker leapfrogged over Thermo, capturing a large market share. Thermo, not to be outdone, invested in research and development and introduced a more powerful version of the Orbitrap called the Astral, which is now regaining some of the market share they previously held, taking sales from the TIMS instruments. - Former VP at Bruker

And the risk of product obsolescence such as new protein sequencers replacing mass spectrometry:

The sensitivity of protein sequencers is nowhere near that of mass spectrometry. Historically, proteins were identified first with protein sequencers, then with mass spectrometers using MALDI, which is matrix-assisted laser desorption/ionization. This was before 2000 and had an equal or greater market share than chromatography. However, as ionization technology and chromatography became more sensitive, and as they learned to keep proteins in the gas phase without disintegration, the electrospray versions of mass spectrometers began to dominate. Consequently, the MALDI numbers for Bruker have decreased substantially. - Former VP at Bruker

We plan to cover Bruker in more detail over the coming months. Please reach out if you'd like us to cover other life sciences equipment manufacturers as it's an area of focus this year. If you're interested in Bruker, you may also find the following bioprocessing research interesting:

Vista Equity: Customer Success Value Creation Strategies

This interview is a first in a series to understand how leading PE firms such as Vista and Thoma Bravo acquire and operate vertical market software companies relative to Constellation Software.

Two years ago, we published research explaining the five KPIs Constellation uses to optimize each cost line item in the software opco P&L. Constellation has refined each metric through 1,000+ software transactions and the framework arguably defines best-in-class economics for slow-growing VMS assets. Each metric has been verified and crosschecked across multiple Former CSI executives. Check out the full research piece to see how Constellation optimises maintenance, license, and professional services revenue against each cost line.

CSI Operational KPIs
CSI Operational KPIs

We aim to compare and contrast Constellation's framework with Vista Equity's post-acquisition operational plan. Vista has a Value Creation Group that sits adjacent to the buyout team and aims to partner with subsidiary executives throughout the portfolio. The group has engineering, HR, GTM, and product teams to help portfolio companies solve problems:

On average, we work with four to seven companies, each in different phases of transformation. Most of the work occurs within the first three years of acquisition, ideally within the first two years. During this time, we implement new systems, assess the executive team, and set up the machinery to drive revenue. Our goal is to triple the revenue to achieve at least a 3x multiple on the company. - Operating Partner at Vista Equity

This interview is with a Customer Success Operating Partner who explains the challenges portfolio companies face in managing customers throughout the lifecycle:

One of the biggest things in the go-to-market organization would be the sales to customer success handoff. Let's say you have a six-month sales cycle. During this time, you're learning new things about the customer, what they've tried before, what didn't work, how they're currently trying to solve their problem, and how what they're doing maps up to the board. Sales takes all of that information, and nothing gets passed through to customer success. - Operating Partner at Vista Equity

An interesting point on the nuances of measuring gross retention and renewal rates:

gross renewal rate, gross retention rate, and net revenue retention. The difference is that net retention rate is your gross retention plus any expansion. Your gross retention rate includes everyone on a recurring term contract. If I have a three-year term and a third of my customers are in year two, those who automatically renew from the second to third term are counted in my gross retention rate. Your gross renewal rate measures how effectively we renew customers up for renewal. That's the subtle nuance between gross retention rate and gross renewal rate. Understanding this nuance is crucial for an organization. If my gross retention rate is 93%, I'm doing well on multi-year contracts. But if my gross renewal rate is 88%, my business is less healthy than I think because I'm only renewing 8.8 out of 10 customers. - Operating Partner at Vista Equity

Over the next quarter, we plan to explore each line item in the software P&L and compare and contrast Vista vs Constellation Software operating techniques.

A TSMC Customer Perspective: Selecting a Foundry Partner

A TSMC customer explores how TSMC is levels ahead of competition:

The conversion to EUV has created a significant differentiation between foundries. TSMC has been the most capable of transitioning to EUV and achieving relatively good yields. Both Samsung and Intel are facing challenges in this area. I don't believe GlobalFoundries has attempted to convert to EUV, but I'm not certain about their latest roadmaps. Intel has been challenged with this for over a decade and is now considering collaboration with TSMC to help make the transition. It can take a long time. It's not just EUV; it's also the additional process changes needed to meet density and performance requirements. TSMC's advancements from one generation to another, along with the transition to EUV, have created a challenge that the other two largest foundries are struggling to keep up with. - TSMC Customer

This dates back to Apple setting a race between TSMC and Samsung:

I remember well over a decade ago, probably about a decade and a half ago, Apple designed a chip for both Samsung and TSMC. They took the exact same chip and had wafers running in both foundries. The difference in what we call performance per watt, which is the amount of power a chip uses at a given speed, was significant. Since Apple used that chip in a cell phone where power is crucial, the difference between TSMC and Samsung in performance per watt led customers to prefer TSMC-produced chips over Samsung's. Over time, the number of wafers produced at Samsung decreased, while those at TSMC increased. I've never seen it reverse after that. To me, that seemed to be the start. - TSMC Customer

Hemnet: Boneo’s Challenger Model & Pre-Market Listings

In Sweden, 9/10 of properties sold are listed on Hemnet. It's the leading real estate classifieds website with a business model similar to REA in that the home seller pays for the listing. Over the last two years, Booli has entered the market with a free offering threatening to disrupt Hemnet. This interview with the CEO of Booli explores the company's strategy and potential risk to Hemnet:

Booli was started in 2009, and initially, nobody paid much attention to them. Then, in 2016, SBAB, the Swedish government-owned bank, bought Booli, but still, nobody really took action. Booli just kept growing bigger. Almost two years ago, the owners of Boneo, Fastighetsbyrån, and Svensk Fastighetsförmedling, which are the number one and number three companies, sent a letter to Booli. They stated that Booli was not allowed to use or scrape their listings without an agreement. Booli responded by reporting Boneo's owners and other companies to the Swedish Competition Authority, which then decided that this was a case of collusion, where the market players were working together - Current CEO at Booli

The interview explores how pre-market listings have expanded over the past years and why it could cannibalise Hemnet's business:

Then the market turned 180 degrees and became very bad. Everyone, including myself, thought the pre-market concept would be abandoned. However, the opposite happened. It became even more popular because sellers were reluctant to list their properties as 'For Sale' on Hemnet. They feared getting no bids and having to decrease pricing. So, agents would suggest listing it as pre-market without a price, allowing them to control everything. This approach took off and has been growing every month since then. Many brokerage companies now have established listing processes where they first list as pre-market and then as 'For Sale,' with exceptions for properties that need to be sold immediately. The problem for Hemnet is that to list a pre-market property on Hemnet, you need to pay the full price, the same as for normal listings. On Boneo and Booli, it's free of charge. Pre-market is still a tentative stage, so why would someone pay for it immediately? The challenge for Hemnet is they want access to the listings but can't offer something free of charge because that goes against their business model - Current CEO at Booli

We also published another interview with a Franchise Owner at Fastighetsbyrån that explores Booli’s ascent from a different perspective:

Back in 2016, no broker used to get recommendations from Booli or Hittamäklare. I was probably the first broker to use my recommendations on Booli. In 2016, only one client out of 100 mentioned Booli. I told my brokers to start marketing themselves on Booli and Hittamäklare. They needed to write about themselves and verify their sales on Hittamäklare, not just rely on Booli. Everyone was focused on Hemnet, but I saw a market shift and started using Booli extensively in 2016 and 2017. I believe that's why I became the number one broker in 2017. I was probably the only broker using Booli and Hittamäklare extensively. They scraped our website for free, but I added more information on Hittamäklare, created a profile, uploaded a picture, and shared my sales and client recommendations. That's how I gained many sales. Today, nine out of 10 people talk about Booli - Franchise Owner at Fastighetsbyrån

Texas Roadhouse: Store Unit Economics

A former Texas Roadhouse managing partner shares insight about the Roadhouse value proposition:

I would say they're looking at attracting at least 30,000 to 50,000 people. That way, even though there may be competition, Texas Roadhouse still feels there's enough population to support the restaurant. One of the things that sets Roadhouse apart is that once they enter a market, even if there's an Outback or a LongHorn or another steakhouse, they tend to capture market share quickly. This is due to their basic recipe for success. Fresh food. Everything is made from scratch. Nothing is pre-made or frozen, and that's why even as a dinner-only concept, people are there at 9:00 in the morning, cutting meat, making everything fresh, so that when we open, that's today's food. It's not something defrosted and heated in a microwave. I think that makes a big difference to the consumer as well. You can taste the difference when it's fresh and homemade - Former Managing Partner, Texas Roadhouse

Texas Roadhouse store economics look impressive on first glance.

"The company is currently averaging between $5 and $6 million per store. Years ago, it was about $4 million per store. This puts you in the conversation above $100,000 a week, somewhere between $120,000 to $130,000 a week in sales for an average store. Some stores do much more than that. As far as guest counts are concerned, that puts you somewhere between 5,000 and 6,000 a week, about 6,000 a week. The initial investment to build and staff a Texas Roadhouse is around $4 million. Regarding the cash-on-cash return, most stores aim for between 18% and 20%, usually hitting 20% as the bottom line - Former Managing Partner, Texas Roadhouse

It also has a relatively unique comp structure for employees:

Managing partners are compensated with a salary. My salary was $65,000 a year. We also received 10% of the bottom line as a guaranteed monthly bonus. If we brought in $100,000 in profits, I would get a $10,000 bonus check. So, I receive 10% of the bottom line each month as part of my compensation - Former Managing Partner, Texas Roadhouse

And a servant leader unique culture:

The benefits of being part of this culture included not only taking the knowledge you have but also sharing it with others. I think this always stemmed from Kent Taylor being a servant leader. This philosophy trickled down through the executive staff, market partners, managing partners, and even to the hourly staff, to help the new employees. We didn't just leave them on their own; we nurtured them to be as successful as we were. I also had several people who went into management after starting as hourly employees. This culture of servant leadership from top to bottom and back up is why the company is so successful. It was different from any other company I had been involved with - Former Managing Partner, Texas Roadhouse