Content Published Last Week

1. IP SURVEYS: Credit Acceptance: Dealer Survey

2. Nemetschek, Autodesk, & Media & Entertainment Software

3. HEICO / Wencor: PMA & Alternative Bill of Materials (ABOM)

4. Cogent Communications: Architecting A Cable Network

5. Mainfreight: Understanding the Air & Ocean's Division

6. Alteryx: Selling to EU Enterprise Accounts

7. Essentra Business Model, Product Mix, & Pricing Power

IP SURVEYS & Credit Acceptance Dealer Survey

This is our first experiment of IP Surveys, a new content format of written survey responses by qualified senior executives. Typically, most survey providers either cover consumer businesses or offer traffic data helpful for calling the quarter. Most surveys on public companies don’t focus on what matters in the long-run. Most surveys also don’t provide sufficient information on the respondents which can erode trust in the quality of the data. 

Our surveys focus on the long-term drivers of intrinsic value, not shorter-term traffic or flows. We only recruit senior executives and pay full rates for the detailed responses and follow-ups we expect. Although this increases the cost of producing the survey, we believe it improves the signal. 

There is bias in all samples and ours will be no different. Our samples are smaller but more focused and qualified. We aim to provide a selection of key decision makers across each potential sample. Ultimately, we hope to aggregate thoughtful responses from qualified executives to provide a data point for you to make decisions. 

We will be very selective in when and how we produce surveys to ensure we can source enough quality executives to test the relevant hypotheses that drive equity value. Given this is our first experiment, we’d appreciate all feedback and any suggestions of surveys you’d like to see us complete.

This survey covers Credit Acceptance. CACC’s intrinsic value depends on the economic profit per loan and the volume of loans. This survey focuses more on the latter: loan volume growth and its drivers. We've sourced and surveyed 11 auto dealers that source loans through CACC to explore two broad questions:

1. How can CACC originate more loans per dealer and improve loan volume growth? 

2. How does CAPS perform relative to competitor systems in the origination process?

This survey shares the responses and a brief summary analysis of key takeaways.

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Screenshot 2023-08-08 at 20.04.59.png

Nemetschek, Autodesk, & Media & Entertainment Software

Nemetschek's Media & Entertainment segment, which consists solely of Maxon, has been a source of growth through bolt-on acquisitions. Maxon's flagship Cinema 4D product is dominant in motion graphics but faces potential limits to growth as viewing habits change. A sales executive with 20 years at Autodesk and Foundry describes Maxon's potential growth path:

The broadcasting sector, in my opinion, won't experience growth because its usage is shrinking. Younger generations don't consume TV the way older generations do. They prefer streaming. Broadcasters will still be around, but over time, it won't be a large market. There will be a market in sports, like ESPN, due to its niche. However, even that might change because people can stream games. - Former Sales Executive at Autodesk & The Foundry

Tapping into newer content creator segments will be crucial as traditional broadcasting declines. Targeting Visual Effects studios is an option but would require significant investment to take share from incumbent Autodesk.

Now, could you break into this market? Yes, you could, but it would be an uphill battle because Autodesk has a strong hold on it. They have a significant presence in big studios. Everyone who uses heavy 3D in movies uses Autodesk. Not everyone uses Autodesk 100% of the time. There are lower budget movies that might use other tools. For instance, a low budget movie might use Blender instead of Maya. But these cases are rare. Mostly, they use Maya. - Former Sales Executive at Autodesk & The Foundry

The executive suggests targeting lower budget productions like YouTubers could be a promising avenue.

From my perspective, the only path to growth for Maxon is enhancing YouTube productions. This market is currently dominated by Adobe because their tools are simple and easy to implement. It's a bit more complex with motion graphics and a little 3D, which Adobe also offers. But Cinema 4D started strong in this area and is preferred by those wanting to do more complex work. - Former Sales Executive at Autodesk & The Foundry

The remainder of the interview focuses on the relative strengths and weaknesses of Maxon in its various end-markets.

HEICO / Wencor: PMA & Alternative Bill of Materials (ABOM)

This interview is one of the best we’ve published on aerospace in a while. We explore the history of Honeywell’s approach to the aftermarket and how HEICO / Wencor can scale its alternative bill of materials strategy.

One prong of Honeywell’s defence against PMAs is to leverage its power over independent MRO shops:

The third strategy would be to use your leverage, not necessarily with a large company like Delta, but with smaller, lesser airlines and MROs. You would make them sign agreements that essentially banned them from using PMAs. You would also reserve audit rights so you could conduct an inventory review. If they had PMAs in their inventory, you had strong clauses in your contract to take action against them. This was the strategy that Honeywell and GE adopted. There are other nuances to it, but those are the main points. - Former EVP at Wencor and Honeywell

HEICO / Wencor combined have a broader portfolio of PMA's and MRO expertise to offer airlines more complete system repairs including PMAs, USM, and OEM parts where necessary.

Only Wencor and Heico, arguably, had the right pieces to do so. They had the MRO for repairs, acquisition capability, distribution, and PMA at the core. Let's take a valve as an example. We would lay it out on the table in all of its pieces at the MRO. We'd ask the used serviceable person which parts they can guarantee long-term coverage for and mark those with a yellow dot. - Former EVP at Wencor and Honeywell

This interview is relevant for anyone curious about the intricacies of the aero aftermarket.

Cogent Communications: Architecting A Cable Network

Cogent Communications recently closed the Sprint wireline acquisition from T-Mobile. In this interview, a network architect at Charter Communications with experience purchasing wavelengths describes how customers make decisions about switching providers.

In most cases, the decision to switch isn't solely based on price due to the considerable effort required to make the transition. It involves a lot of planning and establishing parallel connections. Besides price, other factors usually come into play. For instance, if you have a provider that offers excellent service, good availability, quality of service, and latency, then price alone may not be a compelling reason to switch. - Network Architect at Charter Communications

This suggests that Cogent will need to focus on service quality and network availability rather than just competing on price to gain market share with new customers. The interview describes how companies like Charter design their Internet backbone and build for redundancy.

Mainfreight: Understanding the Air & Ocean's Division

This interview with a Former President Americas, Air & Ocean at Mainfreight shares how all the freight handled by Mainfreight's Air & Ocean division fits within the other two business units (i.e Warehousing and Transport) and the impact on cross-selling opportunities:

The business rule was to always use Mainfreight. However, this wasn't always feasible if Mainfreight was too busy or the pricing wasn't right. For instance, from New Zealand, it might seem like the Long Beach branch is bringing in 100 containers a week and the drayage team is only moving 60 of those. The drayage team might not be making money and questions arise about the remaining 40 containers. The reality is that the drayage team might not be able to handle those containers because of their existing setup. The customer base that the Air & Ocean team is working with might not be in the areas that the drayage team services. Therefore, it doesn't make economic sense for the drayage team to adjust their business to handle those containers. - Former President Americas, Air & Ocean at Mainfreight

Contrary to its competitors, Mainfreight stopped paying commissions to its sales representatives. This can lead to lower levels of motivation, ultimately limiting the company's growth prospects.

Mainfreight has this vision that the customer falls in love with the company, and they're buying from Mainfreight, not necessarily the salesperson. While I don't necessarily disagree with that, it's not how the US market works. If sales reps are rewarded with commission, they're going to push harder and keep our name in front of the customer more. They're going to be more reactive. I believe Mainfreight is missing out by not having commission-based salespeople. These salespeople become really successful and proud of their success, which is reflected in their sales process. They're more professional. Mainfreight had a commission system when I first started, but they removed it around 2015 or 2016. I still think that was a mistake. - Former President Americas, Air & Ocean at Mainfreight

Alteryx: Selling to EU Enterprise Accounts

Over the past weeks, we have published a series of interviews about Alteryx. In this interview, a former Account Executive describes the pain points in the sales process and where Alteryx failed to get engagement at the C-suite level.

The challenge Alteryx faces is that it requires a significant enablement phase. Before you see any results, you need to invest about 10 to 15 hours into enablement. That's a considerable investment. If I don't see metrics and numbers from other companies and only have a vague understanding of the solution, it's hard to convince my employees to invest, say, 20 hours into a solution, even if it's a free trial. - Former Account Executive at Alteryx

Essentra Business Model, Product Mix, & Pricing Power

Moss Plastics, a core Essentra operating company, was previously owned by Bunzl. After a couple of spins and demergers, the industrial components business is finally a standalone entity. We interviewed a Former Managing Director of Essentra to understand more about the quality of the assets.

Essentra claims it sells mission critical items. When we think of mission critical, we think of TransDigm’s sole source aero parts or CSI’s VMS assets. Essentra isn’t quite as mission critical, but the switching and respecification for ~70% of the products is high:

When they talk about critical components, they're referring to the fact that the customer needs it immediately. If they don't have it straight away, it could cause the line to fail. Therefore, they could charge a premium because of the product's necessity. The reality is, if the customer took the time and effort, they could specify it to someone else. The reason they don't do that is because we're talking about penny parts. It's not in the customer's interest to try and respecify because it's penny parts. Do you understand? - Former Managing Director at Essentra

A bigger challenge for Essentra is how it can grow organically through the cycle. Given it has recently spun its packaging and filters business, the remaining industrial components products are highly cyclical.

Indeed, the key to this business is its growth. If the top line can grow, it will convert at a healthy rate to the bottom line due to the gross margin. You're correct, there are a number of fixed costs involved. Therefore, if growth exceeds 5%, the business starts to look quite attractive. The big question is, how can they achieve this? How will they market? They could acquire assets to increase their share if they can afford it. - Former Managing Director at Essentra

This interview explores the product mix, criticality, and sales motion of Essentra components in more detail.