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Top 10 Interviews in 2021, Danaher, and In Practise in 2022

In Practise Weekly Analysis


Most Read Interviews in 2021

These are the Top 10 most read In Practise interviews over the last 12 months:

1. Naked Wines: Business Model Economics

2. The Danaher Business System Mindset

3. Evolution Gaming & Unregulated Asian Gaming Markets

4. Topicus, PharmaPartners, & VMS Value-Based Pricing

5. Amazon European Logistics Buildout

6. Uber Eats, SkipTheDishes & Food Delivery Business Models

7. Burford Capital: Pioneering Litigation Finance

8. Carvana, KAR Auction, & The Used Car Ecosystem

9. Universal Music, Spotify, & The Music Industry

10. Costco Buying Strategies & Supplier Relationships

The fact the Danaher interview ranked so high was quite surprising to us because it was one we were fairly hesitant to conduct. Danaher is a well-known ‘serial acquirer’ with decades of outperformance. It is difficult to add incremental insight to serial acquirers like Danaher relative to other businesses because the intrinsic value stems from a culture of consistent, accretive M&A rather than the performance of any one operating company or end market at a given point in time.

Also, the executive we interviewed was also a mid-level Supply Chain and Logistics Director at Leica Biosystems, a Danaher operating company. We chose this executive because he was well versed in the Danaher Business System, the operational mindset that has largely driven the success of Danaher. The popularity of the interview is a reminder that going beyond the pool of former C-Suite executives of a business can be fruitful. In fact, with the right topic and the right executive, conversations with the second or even third level of management can often uncover more differentiated insight than a conversation with a much more polished C-suite executive.

The feedback from the Danaher interview also highlights a home truth: in the long run, company culture is what really matters. And a company's culture is very hard to understand and price.

A lot of our work at In Practise focuses on understanding how humans behave within a given system. How a company behaves is ultimately the company's culture. We believe understanding the set of values that drives management’s behavior is crucial to building investment conviction.

For example, not only does Constellation Software rarely see significant drawdowns because the FCF is durable, but the distribution of management's future behaviour is relatively narrow. Investors sleep well knowing it’s unlikely Leonard will do something crazy; CSU will just continue acquiring more, maybe larger VMS businesses year after year. Understanding management behaviour is especially important for serial acquirers where capital allocation is paramount. Leonard’s communication and prior performance is best-in-class in this case.

In the Danaher interview we set out to understand what really defines the way the company behaves by focusing entirely on the Danaher Business System. This is the first in many interviews we have planned to understand how businesses like Danaher or Halma can acquire and integrate companies in a platform-type strategy rather than a more decentralised model like CSU.

Although most serial acquirers have rerated in recent years, we believe it’s easy to underestimate the durability of companies that can consistently grow double-digits with ~50% of the growth from steady, value-accretive M&A. We feel like there is value to add by conducting primary research covering serial acquirers specifically focusing on the values that drive capital allocation and the potential limitations to scale M&A beyond 5-10 acquisitions per year that most acquirers achieve. M&A scalability and management's ability to add new platforms is one of the most important questions for acquirers like Halma, especially when paying today's full multiple.

Watch out for more coverage of serial acquirers next year and please reach out if you have any specific companies you’d like to see us cover.

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