We’re close followers of companies that deploy M&A as a key driver of value-creation. Not M&A in the form of large mergers or multi-billion dollar acquisitions, but regular, smaller, programmatic transactions. M&A that can be repeated tens or even hundreds of times over decades. A strategy similar to Lifco and Halma, two companies each worth ~£10bn and with top quintile 20-year TSR in Sweden and the UK, respectively. 

Both companies acquire niche, leading small and medium industrial companies with proprietary technology, low but stable organic growth, high margins, and low capex requirements. For such acquirers, aligning incentives between the parent and subsidiary companies is critical. How do you encourage organic growth versus free cash flow margin or inorganic growth? Are subsidiaries paid for inorganic growth? Do they receive parent company shares? 

This research builds on a previous note on the org structure and scalability of serial acquirers. We compare Halma and Lifco’s incentive and remuneration policies for subsidiary managers to better understand the underlying operations and drivers of organic growth for each company. Both companies are similar in scale and economics but very different in org structure and operating philosophy.