Stocks that grow through acquisitions
Stocks that grow through acquisitions
Over the years I recall commentators and respected investors who express caution about investing in stocks that grow through acquisition. Valent and Concordia Healthcare are two two recent train wrecks which used this strategy. Now you have companies like CSU who have been successful with this strategy. What is the difference? to much debt, to big a price, poor quality acquisitions and to big an acquisition . It seems to me that CHR medical and CSU are successful because they stick to small little tuck ins and use free cash flow to finance the purchases. MTY , Boyd Group and Cara are companies that has been successful with that approach as well. Would appreciate the thoughts and insights of others on this topic.
Re: Stocks that grow through acquisitions
Hi,
Debt or the inability to get loans is usually what kills companies that have to acquire to grow. Two companies which I have had direct negative experiences with in the last 24 months are Linn and CPG (Canada). Both have (had in the case of Linn) to acquire burnt out oil producing properties and tech them back into a few more years of production. CPG has managed to survive in the borrow, issue shares, acquire rat race but only after a painful dividend cut. The numbers on G&M and look pretty nasty and I'm glad to be out. I sold without losing money. Linn, different story. My cost base was $20 a share and sold out at $3.50 Ouch! Today's share price is 6 cents and the company is in Chapter 11 proceedings. The failure was due to lack of access to funds when most needed. The acquisition of Berry Petroleum, a contributing factor, turned to be, well, not good.
Companies that have led acquisitions in the last 2 years are Google and Intel and I suppose Microsoft figures in there somewhere. I think the goal is not to survive, but to squelch the competition. None of these companies are in any serious debt problems and organic cash flow is obviously very strong.
You also recently bought Kraft-Heinz. Another excellent company which has reached success both as an acquirer and acquiree. Acquiring Cadbury was a pretty good idea, and merging with Heinz, nothing less than brilliant.
I guess when considering a company that grows through acquisition, debt seems very important in my experience. Too much cash and nothing to do with it often leads to wild deals. Sticking with your knitting might be important, although that doesn't apply to CPG and Linn.
Debt or the inability to get loans is usually what kills companies that have to acquire to grow. Two companies which I have had direct negative experiences with in the last 24 months are Linn and CPG (Canada). Both have (had in the case of Linn) to acquire burnt out oil producing properties and tech them back into a few more years of production. CPG has managed to survive in the borrow, issue shares, acquire rat race but only after a painful dividend cut. The numbers on G&M and look pretty nasty and I'm glad to be out. I sold without losing money. Linn, different story. My cost base was $20 a share and sold out at $3.50 Ouch! Today's share price is 6 cents and the company is in Chapter 11 proceedings. The failure was due to lack of access to funds when most needed. The acquisition of Berry Petroleum, a contributing factor, turned to be, well, not good.
Companies that have led acquisitions in the last 2 years are Google and Intel and I suppose Microsoft figures in there somewhere. I think the goal is not to survive, but to squelch the competition. None of these companies are in any serious debt problems and organic cash flow is obviously very strong.
You also recently bought Kraft-Heinz. Another excellent company which has reached success both as an acquirer and acquiree. Acquiring Cadbury was a pretty good idea, and merging with Heinz, nothing less than brilliant.
I guess when considering a company that grows through acquisition, debt seems very important in my experience. Too much cash and nothing to do with it often leads to wild deals. Sticking with your knitting might be important, although that doesn't apply to CPG and Linn.
Cheers
"A dividend being paid today is always a positive return." Josh Peters, Morningstar
"A dividend being paid today is always a positive return." Josh Peters, Morningstar
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Re: Stocks that grow through acquisitions
Facebook has predominately grown by acquisition. They acquired over 50 companies since 2005 including Oculus VR, WhatsApp, and Instagram. The last two gave them the ability to pivot from a predominately desktop advertising platform to a mobile-driven one.
Warren Buffett's, Berkshire Hathaway has also been known to acquire companies now and then.
Warren Buffett's, Berkshire Hathaway has also been known to acquire companies now and then.
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Re: Stocks that grow through acquisitions
I guess if the guy doing the acquiring is good at acquisitions, then the business will do ok. If the guy isn't good at acquisitions, then the business will suffer.
Acquisitions Drive Berkshire Hathaway Inc. Earnings 25% Higher
Acquisitions Drive Berkshire Hathaway Inc. Earnings 25% Higher
Re: Stocks that grow through acquisitions
Hormel Foods (HRL) would be my little gem.
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Re: Stocks that grow through acquisitions
Alimentation Couche-Tard comes to mind. As well as Algonquin power. I worry the latter is going to get stuck holding underperforming wind farms if they stop getting paid such premium rates.
Re: Stocks that grow through acquisitions
Yes Couche-Tard looks like one that has been very good with this strategy.Hammerer wrote:Alimentation Couche-Tard comes to mind. As well as Algonquin power. I worry the latter is going to get stuck holding underperforming wind farms if they stop getting paid such premium rates.
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Re: Stocks that grow through acquisitions
Couche-Tard is one I've owned for many years. Here are a couple of others that I've held for a long time. First one is Stantec (STN). They are a consolidator in the engineering/architecture space. According to their website, Acquisition History - Stantec, they've done 90+ since 2000. If there have been missteps in their strategy, I don't recall any big ones. I've been a very satisfied shareholder since 2000.
The other is Stella Jones (SJ). Read Stella-Jones has grown significantly, with organic growth and strategic acquisitions each playing a prominent role for some background on their history. Again the common theme is consolidation within their industry and doing it well.
The common theme is prudent, strategic and well planned growth through acquisitions that complement the existing business. Empire builders need not apply, they tend to lead to the train wrecks like Valeant.
The other is Stella Jones (SJ). Read Stella-Jones has grown significantly, with organic growth and strategic acquisitions each playing a prominent role for some background on their history. Again the common theme is consolidation within their industry and doing it well.
The common theme is prudent, strategic and well planned growth through acquisitions that complement the existing business. Empire builders need not apply, they tend to lead to the train wrecks like Valeant.
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Re: Stocks that grow through acquisitions
It appears that one key is to stick to one's area of expertise. Another is to be patient and gradual. CGI is another one that fits this mould.
Re: Stocks that grow through acquisitions
I would look at WSP Global if I picked stocks.
Re: Stocks that grow through acquisitions
Just last night I listened to a 35 minute podcast from Keystone Financial which, in part, compares the poorly executed "growth by acquisition" strategy of Valeant, Concordia and Patient Home Monitoring with Boyd Income Fund.
https://www.keystocks.com/VideoArchive.aspx?cat=audio
Podcasts are free and this is number 4 in a series of topics ... well worth listening to all.
https://www.keystocks.com/VideoArchive.aspx?cat=audio
Podcasts are free and this is number 4 in a series of topics ... well worth listening to all.
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Re: Stocks that grow through acquisitions
Don't have 35 minutes. Could you please advise what was the key learning/difference? Similar to Couche-Tard?
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Re: Stocks that grow through acquisitions
It certainly showed its stuff last week. Up 4.37% Friday!brad911 wrote:Hormel Foods (HRL) would be my little gem.
Cheers
"A dividend being paid today is always a positive return." Josh Peters, Morningstar
"A dividend being paid today is always a positive return." Josh Peters, Morningstar
Re: Stocks that grow through acquisitions
Couche Tard has already been mentioned. Another acquisition announced this morning.
http://www.theglobeandmail.com//globe-i ... ug=MO73298
http://www.theglobeandmail.com//globe-i ... ug=MO73298
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Re: Stocks that grow through acquisitions
Counter: JDSU - Wikipedia, the free encyclopedia
Acquisitions have to be made at a rate within which they can be incorporated.
Acquisitions have to be made at a rate within which they can be incorporated.
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Re: Stocks that grow through acquisitions
The market is a funny place. Six months ago no one wanted the stock as it sank down to the low 50's. Today, on the strength of the announcement it was up over $6 off the hop and is trading strongly on huge volume up $3.50 to $65 and change as everyone is tripping over one another trying to get a fill!ockham wrote:Couche Tard has already been mentioned. Another acquisition announced this morning.
http://www.theglobeandmail.com//globe-i ... ug=MO73298
I'm half tempted to offer up some liquidity, but what would I replace it with? May as well go along for the ride...
"On what principle is it, that when we see nothing but improvement behind us, we are to expect nothing but deterioration before us?"
Thomas Babington Macaulay in 1830
Thomas Babington Macaulay in 1830
Re: Stocks that grow through acquisitions
I'm even more tempted to offer up some Parkland (PKI). It's up about 15% from its participation in the deal.scomac wrote: I'm half tempted to offer up some liquidity, but what would I replace it with? May as well go along for the ride...
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Re: Stocks that grow through acquisitions
I own that one too! It has been quite a day!schmuck wrote:I'm even more tempted to offer up some Parkland (PKI). It's up about 15% from its participation in the deal.scomac wrote: I'm half tempted to offer up some liquidity, but what would I replace it with? May as well go along for the ride...
"On what principle is it, that when we see nothing but improvement behind us, we are to expect nothing but deterioration before us?"
Thomas Babington Macaulay in 1830
Thomas Babington Macaulay in 1830
Re: Stocks that grow through acquisitions
And by being able to acquire companies at low enough prices because there are few other bidders. I believe this was one major factor in Valeant's decline: pharma buys and sells all the time.Shakespeare wrote:Counter: JDSU - Wikipedia, the free encyclopedia
Acquisitions have to be made at a rate within which they can be incorporated.