Interview Transcript

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What else did you take away from Lifco?

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We have this thing with sector agnostic and not sector agnostic. At Lifco, our dental business was very focused and they only doubled their profits from 2014 until today, whereas in system solutions which could be anything, they 10Xed profits. If you are sector-focused and the sector is not huge, you run into problems if the sector suddenly gets popular because multiples become too high and you cannot acquire. You will be forced to buy bad companies because there are not enough good deals around. When we look at small companies, we try to find market leaders in a niche with moats, but that is sometimes difficult to judge and you can make errors on the quality aspect.

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Do you look for recurring revenue or is it not a major factor?

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The best businesses we bought at Lifco were involved in dental software. Constellation found the perfect niche to buy small businesses. Aerospace spare parts is another but there very few niches like that. I didn't know how Constellation worked until a year ago, nor did I know we were so bad at Lifco.

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