Hi Partner 👋

Earlier this week, we looked at what serial acquirers are and why they are interesting.

Today, it’s time for the second article.

You will learn how to identify the best serial acquirers yourself in less than 5 minutes.

Ready. Set. Go!

Invert, always invert

There are probably over 300 public companies that you could label as serial acquirers.

In Sweden alone, you can already find more than 30 of them.

No investor has time to analyze them all.

It’s exactly why your job as an investor is to say no as soon as possible.

The sooner you have found a reason not to invest, the better.

This will give you more time to dive deep in the best ones.

Instead of looking at a “what to look for list” in serial acquirers.

You are going to apply Charlie Munger’s advice: “Invert, always invert”.

Let’s look at a “what to avoid list” for serial acquirers.

Using this checklist, you can say no to 90% of public serial acquirers in just a handful of minutes.

What remains are the good serial acquirers.

Here is the checklist with five reasons to say a quick no:

1. The dividend payout ratio is too high

2. Excessive use of debt

3. Organic growth is poor

4. They do few, large deals

5. Too many people at HQ

Let’s now go a little bit deeper into why they are so important.

1. Dividend Payout Ratio is too high

If you are looking at serial acquirers, it helps to substitute the word “dividends” with “leakage”.

At least, that’s the advice of REQ Capital.

REQ Capital is a Norwegian investment firm focused exclusively on serial acquirers.

They wrote a phenomenal 300+ page deep dive on this subject.

One of their most important charts? The one below:

It shows what P/E multiple you can pay to earn a market-like return over 20 years.

This based on the company’s Return on Equity (ROE) and Reinvestment Rate.

Let’s take two examples.