Interview Transcript

Disclaimer: This interview is for informational purposes only and should not be relied upon as a basis for investment decisions. In Practise is an independent publisher and all opinions expressed by guests are solely their own opinions and do not reflect the opinion of In Practise.

What are the lessons from your 20 years at Lifco that you applied to Röko?

If your business has a high margin, you are doing something well because your customers accept paying a high price. There is less risk of customer churn when something happens compared to a low margin business. A company with a history of good profit development also has strong numbers, which informs their future.

Which numbers do you look at?

We only look at asset-light companies. We check if the cash flow confirms with their historical EBITA.

What else did you take away from Lifco?

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.

Do you mean it’s harder to judge quality when they are smaller companies?


When they are bigger you can better understand the moat and asset quality.

Yes, those are some takeaways.

Why did you start Röko so soon. After Lifco’s success, you don’t have to do this?

I don't have to do this for money but I can no longer win an Olympic gold. It’s hard if you are trying to do something completely new when you don't have experience. I just turned 60 so my brain is also slower; you cannot win the Nobel Prize at my age.

Buffett would say you're still pretty young; he is 92 so you have 30 years.

But if you have 30 years’ experience of doing something, it’s easier.

Do you want to build a legacy or care about the numbers like Buffett? What drives you?

For me, it's the competition. Lifco continues to climb the Swedish large cap share list, catching up with old established big companies taking one after another. SKF and Electrolux; the old big Swedish corporations, they are taking company after company; they outgrow them. That is nice but I started on a smaller scale so I have to restart.

You started small but it is no longer that small. Is that the attraction of the public market where there is a scoreboard and that's the competition there for everyone to see?

For me it is attractive because if you compete with private companies, you have to somehow relate whether you are doing a good or bad job. Competition keeps you on your toes and I like the competition aspect of the public market. It's also good for us to have liquidity because we promised our shareholders we would go to public markets, so they can choose whether they want to stay on or sell.

How does it feel to run your own acquirer, owning significant equity, versus being a CEO of a business owned by someone else?

I had a lot of freedom under Carl Bennet at Lifco. Today, we are a team, so it is more complicated as I have to get everyone to agree. I was more a dictator at Lifco.

Do you prefer being a team rather than a dictator?

It's different. I had a lot of freedom at Lifco and I had great support from Carl Bennet, so it was more or less like running your own business.

Did you want a bigger chunk of equity? Were you missing that at Lifco?

I was remunerated well and still haven't sold any of my Lifco shares. That is good for a private individual but I needed to build long term wealth for my family. Tomas Billing and I now have control of the companies, which is advantageous.

Did the Lifco compensation plan limit your bonus to 70% of the base salary?

There was a cap on the bonus and I always received the maximum bonus.

Did you have to buy your 300,000 shares of Lifco personally?

I bought my shares at the public offering in 2014, at full market value. I also bought more when I quit Lifco.

Was it hard to get a real stake in the business?

I was offered a big stake in 2000 but I didn't dare because I had young children and had recently bought a house. I had loans so I didn't take the opportunity.

Were you more risk-averse then compared to today?

Yes, now that I have money it's a completely different story.

During the past four years, Röko has gone from a blank piece of paper to €100 million in EBIT. If you listed today, it would probably get 30X multiple which equates to a market value of €3 billion. Did you think it was possible to create so much value that quickly?

I tried to get a good team, then we would see what would happen. We didn't have a clue at first if we could use that money to acquire these companies.

No other serial acquirer has ever scaled to €100 million in three years.

Doing this for 10 years before Lifco and 20 years at Lifco, it's much easier if you have the experience because you know exactly what to do.

You bought many businesses quickly though.

Lifco bought the same amount of businesses as Röko did last year. I do the same thing whether I am sitting at Lifco or Röko, there is no difference.

It is slightly different because Lifco have 100 businesses with cash flow whereas you only have 20. Lifco is more diversified so can they be braver?

It is the growth that is important. Half of Lifco's business will be new within four years because these businesses renew themselves.

Why did Lifco not make that many acquisitions between 2006 and 2010?

My shareholder was happy to increase profits annually; that was my goal. I was under no stress, nor did I have anything to compare it against.

Was Carl happy with simply growing profits?

Carl was happy and profits were growing.

He gets a dividend.

It was a private company but that changed in 2014 when we went public.

You acquired one company in 2014, seven in 2015, then 11, 13, 10, so it accelerates year on year.

Public markets are good as you can benchmark, and I was happy doing three acquisitions per year.

Why did you choose to be actively sector agnostic at Röko?

Between 2014 to 2022, Lifco increased profits 2X. Demolition and tools was 6X, and system solutions, which was the sector agnostic division, grew 10X. We didn't have a magic formula for software businesses like Constellation did when we started. It was better to go sector agnostic and invest in good companies where management want to stay on and run the business.

How do you look at the risk-adjusted return when entering areas you know less about such as outside of dental, for example?

Having good financial performance for several years is vital. It's much stronger when you belong to an industry if you are not Constellation Software.

They are buying recurring revenue whereas Beth's Beauty is more cyclical.

Beth's Beauty is not affected in a crisis as they go for the high-end market.

Is the craft beer business far more cyclical than Constellation Software?

Yes, the craft beer business is slightly cyclical.

The great benefit of being sector agnostic is it increases your runway so you can acquire more, but you have to know the sectors and businesses on a wider scale which arguably increases the risk of making mistakes?

Yes, but it also increases the quality because you have a greater choice and are no longer forced to buy bad businesses.

Beth's Beauty may be consumer but it is higher quality than a dental business Lifco might buy, because you buy the best possible business in that space?


How well do you know the beauty industry?

I've been involved in many industries throughout my life so I look at the company and the competition.

Do you have to study these industries for 10 years to make a decision?

I see how the competition developed compared to the company I am looking at. It is not very good if the company lost market share over a 10-year period.

Do you focus on the financials of the business?

And the competition, customers and suppliers to understand the whole business. This is a very niche beauty business so knowing everything about Estée Lauder doesn't help; you have to study the specific business.

Constellation have a pure model in vertical market software whereas Buffett is a different type of serial acquirer and buys anything and everything and looks at the quality of the business like you do. How would you compare Röko's style?

Buffett applies the same principles to mature public markets and Röko in immature small companies.

It should be better for you in a private market.

It should be better and easier to find the kinds of companies he looks for.

What is the big risk?

The beauty of this business model is that you invest in many companies in different industries, so it doesn't matter if you make a mistake in one company. Lifco and Indutrade are two of the oldest in the business. I discussed this with Alvesson who is more experienced in the business than I am, and he makes mistakes once every 20, but it doesn't matter. I cannot think of a company where we had to close or inject cash. The mistake you can make is buying a company for 20% more and it goes down 10%, but it still contributes cash and you end up with a slightly lower return on investment.

What were the biggest mistakes you made at Lifco?

We bought several small companies where we couldn't increase profits. One service company had very good development in the beginning but we had problems with personnel and quality and it took four years to get them back on track. Sometimes it's not a smooth ride and you have to work a little to get it going again.

Were they typically small or bigger acquisitions where you made mistakes?

More of them were smaller. Constellation can do this but buying a small company without recurring revenue is much higher risk.

If you are not buying recurring revenue, should you buy bigger businesses?

Yes, I didn't realize Constellation were buying such small businesses; I wouldn't have touched them.

They buy businesses worth less than $1 million.

I would never touch them because I thought it was too much work and risk, then I saw they had 70% recurring revenue so now I understand why they can do it.

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

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.

There is always someone bigger and better.

It's annoying that another company performed better than we did. You can ask me why we didn't go into the software business.

That was my next question.

Hundreds of companies are trying to copy Constellation; we were too late.

Are you open to buying software businesses?

Constellation do many direct deals but ours are mainly through brokers, who are not interested because we don't see many software companies, and when we do, they are extremely expensive.

Because private equity comes in and pays 5X revenue.

Constellation have the database and know how they can increase profits so they can buy them. Normally, we can't because they are too expensive.

Do brokers not bring you software companies?

No, because we don't pay enough so we are not in the game.

How many brokers do you use?

We have maybe 1,000 brokers because there are so many in Europe. We have close relationships with some of them and others we have only met once.

They could be one person acting as a broker in a certain region?

Yes. Although we don't usually buy companies as small as Constellation does, we do buy small companies so it's not Goldman Sachs or Morgan Stanley.

Going back to being sector agnostic, when you look at serial acquirers such as Lagercrantz, the old Bergman & Beving, Addtech, and even Lifco, focusing on dental, demolition and tools, what advantages, if any, did they get?

We always looked at companies individually. If you want to make a company public, you have to put them into baskets.

You have to tell a story so they are not really segments.

We always look company by company.

Were there any synergies in having 20 dental businesses?

There were synergies, to some extent, as they shared the same warehouses.

When you were going to increase prices, did you know what would happen?

We saw immediately if a company had too much cost or were running the wrong pricing strategy. Constellation don't do synergies; this is more about knowledge.

How does Röko do that without the knowledge from 10 beauty companies?

There is no value having all the knowledge if there are not enough companies to apply it to.

If you don't know how 20 beauty businesses perform, you have to buy better quality businesses because you don't know how to run them as well as you would for dental?

We look at some general things and always have a feel for that. Before starting Röko, Tomas and I did a private investment in yacht supplies which was a tremendous success and we know nothing about yacht supplies before acquiring them.

Are you looking at cash flow?

We look at whether they need all their personnel and discuss it with them. We ask the companies relevant questions such as in which segments they can increase prices, and they usually improve their margins. The return on sales in the Swedish dental industry went from 5% to 20% during my time. That wasn't because we knew the industry; it was more political such as high or low taxes.

Are there any risks for Röko?

One big risk is the recession.

Why is that a risk?

In 2008, our profits dropped 30% at Lifco. That is the only major risk in a diversified company such as Röko, Lifco or Indutrade. Another risk is if management make a bad decision, are slow or destroy the culture. A new manager who doesn't understand that it is a centralized culture can ruin the company.

Why do you buy 60% or 70% of a company instead of 100%?

Management is incentivized to do a good job when we allow them to stay, and they prefer us as a buyer as opposed to those who don't offer that. A business that increases profits every year, with a good margin, is good for us.

That is true especially when buying across different sectors. When you have 30 dental companies and one goes wrong, you can take this guy and put him there, whereas if you have 20 different sectors, succession planning is harder.

It is vital to get a good manager because the industry knowledge is within the company; moving a good manager from another dental company causes problems.

How do you find them?

Recruiting internally is less risky because you know the people.

Buffett buys 100% but founders always stay; but maybe it's because he's Buffett.

My first acquisition was a Norwegian dental company where the owner had 15%, but he stayed on as a manager because he knew his industry and loved his job and customers.

It's about finding those fanatical people who love their job.

Yes, they stay on if they love their job.

How do you tell if a founder loves their business?

It is more a feeling and people are honest when they sell. They normally tell us they work too hard and feel like a change in their life. A few people tell a story, but not many.

You have to get that feeling of someone who knows their business.

Yes, because it means you delivered constant growth for several years and are better than your competitors. The numbers prove you are do something right.

Is there a risk at the end of a 10-year put call option that a founder leaves?

The risk differs per industry. In the beauty business, she wants to stay on and we have a discussion about prolonging options about two thirds of the time. There is always a discussion at the end of the period about whether they want to stay or not.

When that person wants to leave you need a successor in place?

In that case, when the person leaves, they were very clear from the start. We recruited a new bad manager, then I recruited another who will hopefully be good.

Is that a challenge to find good successors when the original founder leaves?

Yes, but big companies are less challenging because they can afford to pay. It's trickier for small businesses who can't pay a proper salary.

Why don't more companies offer founders the 10-year put call option?

We only started doing that recently at Lifco.

Why did you start doing a 10 year put-call?

For these circumstances where they wanted to stay on.

Normally, they do a two to three year earn out and a standard bonus.

Indutrade is the earn out company but the problem with earn outs is that managers are solely focused on them instead of the longer term. We sometimes use earn outs but it always turns out more expensive than paying cash from the beginning.

They always hit it.

They know the businesses will develop over the next one or two years.

What metrics do you look at during your due diligence process?

We look at financials, specifically consecutive profit growth. We increased our minimum margin to 15% because our average is between 18% and 19%.

I thought your 10% margin target was slightly low.

95% of our opportunities cannot meet the financial criteria.

Why do you have no target metric for return on invested capital?

The industry average is 8X EBITA, and that hasn't changed in 20 years.

Why is that?

I don't know; it has no connection whatsoever to the stock market.

Why is that an arbitrage that will always exist?

It has existed for the last 20 years. We bought a company who sells artificial flowers; they had 37 offers but we won it at normal rates.

A small company with a founder is riskier so it worth less than a public one.

All this proves is that a bunch of them are worth more. Your return on investment is 12.5% before you have done anything. Between 2010 and 2019, Lifco had nine good years where almost all their companies increased profits, making the return on invested capital better. There is also amortization of intangibles over time and the base gets smaller. The older your company is, the higher the return on invested capital. We are very young so ours is only 12.5%. Our average holding period of our 22 companies is 1.5 years, so we are basically still at what we paid.

If a business comes to you do you look at the invested capital and return they are currently earning at the opco level?

The return on their capital is normally more than 100%.

Yes, because they have no capital.

They have some receivables, some stocks and very few fixed assets and high profit margins.

Some companies, like Judges Scientific, say that they look at the opco level. As you said, over a long period of time, for the holdco, Röko, the return on invested capital will converge with the returns on the underlying assets. It will increase, over time, as you have seen at Lifco?

Lifco never bought companies with under 50% return on capital employed; most were closer to 100% or 150%. An aerospace spare parts business could be low, initially, due to their stock, but as they increase prices that will be rectified. We never buy any paper manufacturing or asset heavy companies because it simply doesn't work.

How did you come up with metrics such as continuous profit growth, EBITA margin, manager in place, capex under 5%, size and customer concentration? Did you read Buffett, Fisher and others?

At least 70% is Buffett or Fisher; I simply read the book about this.

Philip Fisher.

I think he talks about continuous profit growth with only two profit drops in 10 years. Some were inspired by them and others is seeing what worked personally.

Do you follow Buffett or Berkshire Hathaway?

No, not what he is doing today, but I do read papers about how he thinks. I do read his annual letter after someone summarizes it for me.

Do you follow anyone like that in Sweden or any of the old families?

My greatest hero was Jan Wallander from Handelsbanken, which used to be Europe's best bank for 40 years. He was the first to push for decentralization by letting the management of each bank decide up to a certain level on individual loans. He pushed that responsibility down, in traditional banking. He did that in the sixties which stopped budgets which take time and add no value.

How decentralized is Röko?

It is the same.

Do you tell them to have specific HR or financial ERP systems?

The only thing they need to do is complete our monthly Excel spreadsheet.

And send you the money.

They have to report every month, connect their account to ours and deposit excess cash. We decide what dividend to pay out for each company.

Do you send them an Excel file and they report to you monthly?

Profit and loss and balance sheet.

Do you have an auditor who does that annually?

We run quarterly reports like a public company that are on our home page. We will go public when things calm down after the recession, if it happens.

You increased your EBITA margin target from 10% to 15%, why not higher? Say around 20% like Constellation, for example, which earns 25%?

They buy lower margin companies then increase their profits to 25%.

Why can't you have 20%?

My personal experience with manufacturing businesses, is that in a 2009 situation is that you need to begin with a 15% operating profit, otherwise you will make a loss.

Why not have 20% as a hurdle rather than 15%?

If you tell brokers you only buy companies with 25% margins, we won't see anything. When you are public, people don't like it when you decrease your margins.

Why did your margin decline 1% last year?

We had problems with our businesses that increased prices not quickly enough. It's also a culture thing. Entrepreneurs love to grow their business but are not as interested in high margins as we are, because your cash flow decreases with lower margins. We still have some work to do to get them to understand that.

You must operationally change their mind as to how they focus on margins?

You have to be very clear that it is extremely important to keep the margin.

Bergman & Beving say you can grow with a profit over working capital above 45%, otherwise you have to focus on margins.

We can't say that because these companies are above that 45% threshold. We tell managers that they shouldn't lose their margins, but pricing is always an art.

How do you think about organic growth?

It is good enough for us if organic growth is 1%.

Is that because the returns are so high?

Even Constellation Software doesn't have high organic growth. It is better to have secure cash flow than high growth, that way you can buy new businesses.

If you have businesses to buy.

Yes, there are always available businesses when you are sector agnostic.

How do you balance that because some companies focus on higher organic growth and others focus on redeploying free cash flow quicker, buying more businesses? How do you weigh up buying more businesses but also making sure you have quality assets and that they are, at least, maintaining their growth or their absolute dollar size, in EBIT? If they start to decline 5% or 10% a year, then that's a problem.

It's very rare to these kind of businesses. If you speak to Alvesson at Indutrade, most business grow on average. They can decline 5% to 10% in a single year but not year after year, that is really bad.

What if your businesses don't grow and the organic growth remains zero?

That is not a problem if you invest their cash flow into other companies.

If Constellation cannot continue buying new businesses they will have 0% organic growth asset, effectively, which is not worth a 30X multiple; it is only worth 15X.

Therefore, it's good to have shares in other companies that are sector agnostic like we are, because there is much more opportunity.

Is your model similar to Berkshire Hathaway but for smaller businesses?


You buy whatever you want and choose good managers like Buffett does. He doesn't get involved in the companies; he is simply a capital allocator. He invests the cash flow by buying public market shares and private companies.

We only buy private companies but he has to invest so much money that he is forced to buy public companies. We prefer private companies because they are much cheaper. Buffett does what I call investment nirvana; he buys a business with good management then does nothing.

Isn't that the dream?

That is the dream but we have to change management who don't perform.

Buffett does get involved in GEICO and insurance stuff and, I assume, you will have to get involved in health management at some point, potentially, if you have to. The sector agnostic angle should work if you are good at capital allocation because you will always have something to buy, but what will Mark Leonard buy once everyone starts buying software companies? The other problem they face is they have to allocate so much capital. They are currently doing $1.5 billion a year and cannot buy 2,000 $1 million companies; they have to buy bigger companies. Is that true for Röko?

We have plenty of room to buy more companies.

How do you think about scaling M&A?

Scaling M&A is important for Constellation but we only need to buy six to 12 companies per year over the next 10 years, so we don't have to scale our M&A.

You can do those yourself, every year?

We have three investment managers who regularly meet with brokers.

But do you make the final decision?

Yes. We have an investment committee who make the final decision.

Today, you do 100 million in EBIT. If you assume zero organic growth and want to grow 10%, you have to acquire 10 million EBIT. 10X means 100 million; if you want to grow 20%, you have to allocate 200 million. The numbers quickly get quite big for you.

We are the same size Lifco was in 2014. They had €100 million EBITA then and €450 million in 2022.

Could Röko beat Lifco over the next nine years?

We have the same investment organization as Lifco today. We can run with our current organization and increase the profits 4X before we have to think about it.

Have you made any acquisitions this year?

We made our biggest one so far on the 31st December, which was AJAT. We didn't write that in the press release but they have 90% market share for student caps in Norway, Denmark and Sweden.

The company that sells uniforms?

Caps, and the way they grow is to make them more elaborate every year. We might close the next one tomorrow.

Is there any limit to how many you can acquire? Do you have the cash flow to make five acquisitions this year or are you limited by the debt?

We still have €50 million from our shareholders to invest and can collect a further €100 million if we want. The current acquisition we are doing is from cash flow. The one around the New Year we could have done without any shareholder injections. We have started to use our cash.

How did you think about optimizing leverage at Lifco?

Banks offer decent interest rates if you stay below 3X or 4X EBITDA in debt.

Do you use that to finance acquisitions or is that on the balance sheet?

When we buy a company, it's usually 3X EBITDA bank debt, the rest cash.

The return on equity invested should be much higher than 12.5% on capital. Constellation delegated M&A down the organization really well, but they can do that because they are acquiring recurring revenue. Buffett hasn't done that because he does it himself. Could you potentially train others like Johan or will it always be you?

I don't have any problem making a decision a day on an acquisition. If I get the right material. I still speak with the management of companies we acquire. I will always go through the financials with an investment manager.

Is there a limit?

I can do 10 a day, so the limit would be 3,650 acquisitions. I just want to understand what I’m buying. Constellation is different because they buy similar companies so Mark Leonard doesn't need to look at each individual investment.

He doesn't look at the majority of them.

I will continue to look at all of them. If you buy tiny add-ons and do not do proper due diligence, you will make a mistake. You have to be as tough with the tiny things as you are with the big things.

Do you look at all the bolt-ons?


Do you enjoy doing that?

Yes, I will be like Buffett who never stops.

It’s in your blood.

I will do that until I die.

Would you do Röko until you die?

I will do it until I die, if I continue to perform.

And if you don’t, you will step down.


You could be 92 like Buffett and still running Röko?

My retirement position will be a member of the investment committee.

What age are you looking to retire?

I don't want to retire, I want to do business. It’s like Buffett, otherwise I will be bored.

There is no need to retire.

Has Buffett made good decisions over the last three or four years?

Yes, he has outperformed most big managers. He bought Apple and oil companies over the last few years, so he is actually getting better.

That is good news, then I will continue working.

You have 32 years left.

That's perfect.

Fredrik this has been great; is there anything else we should know?

Constellation is an excellent company but they have a lot of capital to deploy. If they run a sector agnostic model their returns might be slightly lower, but they can continue growing.

Are there any other public companies you admire or you own stock in?

Everything I've been involved in has outperformed the stock market. Novo Nordisk is the only one I bought, apart from Lifco, which has performed well; I sold everything else. I kept one bad company called Attendo, who make homes for elderly people. It was heavily regulated with the government involved. I kept it just to remind me not to do any business with government.

Do you invest in public stocks at all or do you only focus on Röko?

I mainly focus on Röko. I bought Constellation because I realized they have a very different model, which could be recession proof with their recurring revenues.

What did you like about it so much?

Their model allows them to increase profits immediately post-acquisition.

Hiking up the prices.

Increasing prices and cutting costs; it's different without a standard moat.

Other serial acquirers in Sweden say they can do that in their specific fields.

If that were true, they would have outperformed Lifco, but they have not.

Since IPO, did Addtech do better or not?

No, I look at how much they increased profits. They made 5X in 10 years whereas Lifco made 6X. They have done well but they might do something else wrong.

I like the Berkshire Hathaway model, which your model seems similar to, which is pure and sector agnostic, you buy companies without the need for synergies. Whereas some serial acquirers feel they can change the business when sector specific.

They say that but you have only seen that in Constellation in the numbers. I interviewed ex-employees of Constellation, so I know it works.

Were you going to hire them or were you only chatting?

I was only chatting.

Maybe you can give Constellation a run for their money over the next 10 years. Thanks for your time.