| ANNUALIZED SINCE INCEPTION | QUARTERLY | YTD |
|---|---|---|
| - | - | -5% |
REQ Global Compounders returned -5.0% in H1 2026, bringing since-inception returns to 41.4%, as AI-driven rotation out of software into semiconductors created the single largest performance detractor despite strong underlying business performance. The Constellation Software family delivered healthy recurring organic growth while aerospace holdings HEICO and Diploma benefited from booming demand, with HEICO posting record results on 41% earnings growth. Portfolio companies continued compounding EBITA at mid-teens rates with median Q1 earnings growth of 14% on 6% organic growth. The fund trades at 17.7x NTM EBITA, one of the lowest valuations since inception, creating what management views as one of the most attractive entry points in years. The manager added two new industrial distribution positions—Applied Industrial Technologies and DiscoverIE—both proven acquirers with decade-plus M&A track records, while trimming Amphenol due to AI concentration and demanding valuation. Management emphasizes the gap between fundamental performance and share price performance is as wide as it has been for many years, with conviction in long-term compounding potential only strengthened despite near-term underperformance.
REQ Global Compounders invests in publicly traded companies that compound capital through organic growth and systematic acquisitions of small private niche businesses, combining deep fundamental analysis with qualitative insights to identify exceptional management teams with large reinvestment opportunities, decentralized cultures, and long-term compounding potential.
The manager expects fundamental performance to prevail over time despite near-term price disconnection. With portfolio companies compounding EBITA at roughly 14% annually and trading at depressed multiples, the setup from here looks very attractive. If the market simply holds today's multiple while earnings grow, share prices rise with earnings for around 15% return. Multiple expansion back to historical average combined with continued earnings growth would lift one-year return toward 30%. Over four years, if multiples normalize while companies continue growing earnings at 14% annually, portfolio value could roughly double. The manager views current valuation gap and strong fundamental performance as creating compelling risk-reward for patient investors.
| Date | Letter | Tickers | Keywords | Pitches | Quick Takes |
|---|---|---|---|---|---|
| Aug 7 2026 | 2026 Q2 | AIT, AME, APH, ATCO-A.ST, BRO, CSU.TO, DCC.L, DPLM.L, DSCV.L, HEI, HLMA.L, LMN.TO, ROP, TOI.TO | Acquisitions, aerospace, AI, compounders, Decentralization, Industrial Distribution, software, valuation | - | REQ Global Compounders fell 5.0% in H1 2026 as AI rotation pressured software holdings despite strong fundamentals—portfolio companies grew EBITA 14% while the fund trades at 17.7x NTM, the lowest valuation since inception. Aerospace holdings HEICO and Diploma surged on booming demand. Management added proven industrial distributors Applied and DiscoverIE while trimming AI-concentrated Amphenol, viewing current prices as creating exceptional long-term entry points for patient capital. |
| Jan 12 2026 | 2025 Q4 | ADDTECH-B.ST, APH, BERG-B.ST, BRO, CSU.TO, DPLM.L, GREEN.ST, HEI, HLMA.L, IMCD.AS, INDU-A.ST, JDG.L, LAGR-B.ST, LIFCO-B.ST, LMN.TO, MOMENT.ST, NCAB.ST, NIBE-B.ST, ROKO.ST, ROP, TOI.TO | Acquisitions, AI, Capital Allocation, compounders, Decentralized, long-term, Quality, software |
JDG LN BRO CSU CN |
REQ Global Compounders fell 8.2% in 2025 as AI narrative pressured vertical software holdings despite differentiated risk profiles. Portfolio companies maintained acquisition discipline with 145 deals while demonstrating dual growth engine resilience. Management opportunistically added to Constellation Software, Topicus, and Lumine during drawdown. Attractive 20.8x valuation with modest market expectations supports long-term compounding thesis for quality acquisition-driven businesses. |
| Jul 30 2025 | 2025 Q2 | ADDT-B.ST, BEIJ-B.ST, BERG-B.ST, BRK-A, CSU.TO, DCC.L, HEI.A, HMS.ST, INDU-A.ST, LAGR-B.ST, LIFCO-B.ST, LMN.TO, NCAB.ST, NIBE-B.ST, TOI.TO | Acquisitions, compounders, Decentralization, Europe, long-term, Nordics, Quality | ROKO.ST | REQ's acquisition-driven compounders delivered solid first-half returns of 5-6% backed by strong fundamentals and 78 completed acquisitions. The strategy targets quality businesses that reinvest 75-80% of cash flow at high returns through small acquisitions. Key moves included cornerstone investment in Röko AB and increased Constellation family exposure to 20%, maintaining focus on long-term compounding through decentralized, entrepreneurial cultures. |
| Dec 31 2024 | 2024 Q4 | ADD.ST, ADDT-B.ST, AME, ATCO-A.ST, BERG-B.ST, BRO, BUFAB.ST, CSU.TO, DCC.L, IDUN.ST, IMCD.AS, INDU-A.ST, ITW, LAGR-B.ST, LIFCO-B.ST, MC.PA, MOME.ST | Acquisitions, Capital Allocation, compounders, Decentralization, Industrial, Nordics |
AME DCC.L VITEC.ST IDUN.ST |
REQ's acquisition-driven compounders delivered strong 2024 returns of 23.0% (Global) and 17.6% (Nordic) through 331 total acquisitions. The strategy targets decentralized companies reinvesting 75-80% of cash flows into small, frequent deals. Despite weak organic growth, portfolio companies generated record cash flows entering 2025, positioning them for continued compounding through disciplined capital allocation. |
| Jul 1 2024 | 2024 Q2 | ATCO-A.ST, BEIJ-B.ST, BERG-B.ST, CSU.TO, DPLM.L, ELUX-B.ST, ERIC-B.ST, IMCD.AS, INDU-A.ST, JDG.L, LAGR.ST, LIFCO-B.ST, MEDC.ST, NIBE-B.ST, SAND.ST | Acquisitions, B2B, Compounding, Decentralization, Industrial, Sweden | - | REQ Capital's acquisition-driven compounder strategy delivered 14% returns in 1H 2024 through companies with dual growth engines and decentralized structures. Portfolio companies announced 99 transactions while maintaining strong cash generation and low debt levels. The fund capitalizes on Sweden's decentralized management legacy and sees significant European expansion opportunities for Nordic compounders in the vast SME market. |
| Dec 31 2023 | 2023 Q4 | CSU.TO, LUMN | Acquisitions, Capital Allocation, compounders, Decentralization, Nordics, private markets | - | REQ Capital invests in acquisition-driven compounders that systematically acquire smaller private companies at attractive valuations. The Global fund returned 42% in 2023 as portfolio companies completed 260 transactions. The strategy focuses on exceptional capital allocators that reinvest most cash flow at high returns while maintaining decentralized structures that preserve entrepreneurial culture and enable consistent M&A execution. |
| Jul 21 2023 | 2023 Q2 | ADD.ST, ADDT.ST, BEIJ-B.ST, CSU.TO, DPLM-B.ST, HEI, INDU-A.ST, LAGR-B.ST, LIFCO-B.ST, LUMI.TO, MTUM.ST | Acquisitions, Capital Allocation, compounders, Decentralization, global, Nordic, private markets, Quality | - | REQ invests in acquisition-driven compounders that acquire smaller private firms while maintaining decentralized structures to preserve entrepreneurial energy. Both funds delivered strong first-half 2023 returns (Global: 34.6%, Nordic: 37.6%) with portfolio companies completing 126 transactions. The strategy focuses on companies reinvesting 70-80% of cash flow at 15-20% returns through disciplined capital allocation and autonomous business unit operations. |
| Jan 31 2023 | 2022 Q4 | HEI, TDY | Capital Allocation, CashFlow, Compounding, Decentralization, M&A | - | |
| Jul 31 2022 | 2022 Q2 | - | Capital Allocation, Compounding, growth, M&A, ROIC | - |
| QUARTER | THEMES | TAGS |
|---|---|---|
| 2026 Q2 |
AIAI narrative drove significant rotation out of software into semiconductors and infrastructure, creating the single largest performance detractor despite strong underlying business performance. The manager views AI as a tailwind for mission-critical software holdings like Constellation Software rather than a disruption risk. AI-related demand boosted holdings including Amphenol, Halma, and Diploma, with Halma's photonics business benefiting directly from data center buildout. |
Software Semiconductors Data Centers Infrastructure |
AerospaceBooming aerospace market lifted HEICO and Diploma significantly. HEICO posted record fiscal Q2 with earnings up 41% on 18% organic growth, with both Flight Support and Electronic Technologies segments firing strongly. Aftermarket aerospace demand and steady integration of recent acquisitions continue to compound at exceptional rates. |
Aftermarket Defense Aviation Services | |
AcquisitionsPortfolio companies remained active acquirers despite cautious economic backdrop, with disciplined programmatic M&A central to the investment thesis. Manager emphasizes proven acquisition platforms with repeatable processes, distinguishing between proven and unproven acquirers. Recent additions Applied Industrial Technologies and DiscoverIE both have decade-plus track records of disciplined M&A at modest multiples. |
M&A Capital Allocation Integration Compounding | |
ValuationPortfolio trades at 17.7x next-twelve-month consensus EBITA, one of the lowest valuations since inception in 2021, creating attractive entry point. Gap between fundamental performance and share price performance is as wide as it has been for many years. Manager sees meaningful optionality from multiple expansion back to historical averages combined with continued earnings growth. |
Multiples Discount Entry Point | |
Industrial DistributionManager initiated two new positions in value-added industrial distribution: Applied Industrial Technologies and DiscoverIE. Both are evolving from box-movers toward higher-value engineering and design, with Applied moving from shipping boxes to engineering and installing systems. DiscoverIE shifting from distribution toward specialized manufacturing with rising margins. |
Distribution Engineering Value-Added | |
SoftwareNegative AI narrative drove considerable rotation out of software despite strong underlying performance. Constellation Software family delivered strongly with healthy recurring organic growth across all three companies. Manager's research and industry conversations reinforce conviction that AI is a tailwind rather than disruption risk, with deep customer intimacy and domain expertise positioning the group to benefit. |
SaaS Mission-Critical Recurring Revenue | |
DecentralizationManager emphasizes decentralized operating models as core to investment thesis, with local P&L accountability and entrepreneurial autonomy. Applied Industrial Technologies runs roughly 600 locations each with own P&L, while acquired businesses frequently retain their own brand and identity. Culture and decentralization viewed as critical drivers of value creation rather than soft factors. |
Culture Autonomy Local Management | |
| 2025 Q4 |
AIMassive capex cycle linked to AI representing increasing cash flow from hyperscalers. Signs that AI adoption is flatlining with unclear use cases for profitability. Reliance on Magnificent 7 for equity market performance continues with credit markets becoming increasingly sensitive to AI companies. |
Artificial Intelligence Hyperscalers Capex Technology Valuations |
GoldExceptionally strong performance with gold returning 65% for 2025 and silver 148%. Trend has continued into 2026 with gold rising 13.3% and silver 18.9% by end of January. Extreme moves following very strong performance last year. |
Precious Metals Commodities Safe Haven Inflation Hedge | |
CreditCredit spreads remained tight at historic levels with returns mainly generated by carry. Four of the largest credit issuers in 2025 were hyperscalers. Record-tight credit spreads present valuation concerns alongside high equity valuations. |
Credit Spreads Fixed Income Corporate Bonds Yield | |
GeopoliticalPresident Maduro taken from Venezuela, fracturing of Western alliance as Trump looked to acquire Greenland, protests in Iran violently suppressed. Tensions between countries may make cross-border transactions more difficult as countries favor national champions. |
Geopolitics Venezuela Iran Trade Policy International Relations | |
| 2025 Q2 |
CompoundingREQ focuses on acquisition-driven compounders that reinvest 75-80% of cash flow into organic growth and acquisitions at high returns. These companies demonstrate sustained exponential earnings growth through high reinvestment rates, strong returns on invested capital, and long duration of growth opportunities. |
Compounding Reinvestment Capital Allocation Long-term Growth |
AcquisitionsPortfolio companies completed 78 acquisitions in first half 2025, with Nordic companies announcing 65 deals. The strategy focuses on small, private acquisitions of niche businesses that generate incremental returns well above cost of capital. |
Acquisitions M&A Private Companies Niche Integration | |
DecentralizationREQ invests in companies with high-performing decentralized cultures where portfolio companies retain operational independence. This approach preserves entrepreneurial energy while maintaining strict financial requirements and performance accountability. |
Decentralization Autonomy Culture Entrepreneurial Independence | |
QualityThe fund targets highest-quality companies with consistent track records of profitable growth, disciplined capital allocation, strong free cash flow generation, and EBITA margins above 15%. Quality is prioritized over quantity in investment selection. |
Quality Margins Cash Flow Profitability Discipline | |
ResiliencePortfolio companies demonstrated resilience through uncertain macroeconomic conditions, defending margins and continuing acquisition activity. Companies benefit from diversified cash flows across products, industries, and geographies with low debt levels. |
Resilience Diversification Margins Defensive Stability | |
| 2024 Q4 |
AcquisitionsPortfolio companies completed 185 acquisitions in Global Compounders and 146 in Nordic Compounders during 2024. The companies focus on small, frequent acquisitions typically ranging from EUR 1-20 million in sales, with 95% under EUR 50 million. This programmatic M&A strategy allows for trial-and-error approaches without material risk while building acquisition expertise over decades. |
M&A Private Markets Deal Flow Integration Growth |
DecentralizationThe fund emphasizes companies with decentralized structures that grant substantial autonomy to business units while maintaining accountability through financial metrics. This approach preserves entrepreneurial spirit, enables customer proximity, and allows companies to grow big by staying small. The pull integration strategy lets acquired companies determine their own pace of integration. |
Autonomy Entrepreneurship Culture Integration Management | |
IndustrialSignificant focus on industrial companies, particularly through Momentum Group which supplies critical aftermarket components for Swedish industrial machinery. The industrial theme encompasses maintenance, repair, and operations (MRO) products, with over 750,000 SKUs serving fragmented customer bases with high barriers to entry due to technical expertise requirements. |
MRO Components Manufacturing Aftermarket Distribution | |
CompoundingThe core investment philosophy centers on acquisition-driven compounders that consistently reinvest substantial portions of cash flows into small private acquisitions at attractive returns. These companies demonstrate high reinvestment rates (75-80%), attractive returns on capital, and dual engines of organic and acquisitive growth over decades. |
Reinvestment Cash Flow Returns Growth Capital Allocation | |
NordicsStrong geographic focus on Nordic markets through REQ Nordic Compounders fund, which targets Nordic-listed companies pursuing frequent small acquisitions. Portfolio companies are expanding beyond Nordic borders, with 62% of 2024 acquisitions located outside the Nordics compared to 55% in 2023, accessing larger addressable markets. |
Sweden Nordic Regional Expansion Markets | |
| 2024 Q2 |
DecentralizationREQ emphasizes decentralized organizational structures as a core investment pillar, where management delegates responsibility down the organization. This approach enables companies to maintain entrepreneurial agility while scaling, with decision-makers close to customers and lean corporate headquarters. |
Organizational Structure Management Philosophy Entrepreneurship Autonomy Efficiency |
CompoundingThe fund focuses on acquisition-driven compounders that consistently generate high free cash flows and reinvest at attractive returns. These companies demonstrate dual growth engines through organic expansion and acquisitions, creating sustainable long-term value creation. |
Capital Allocation Reinvestment Cash Flow Growth Engines Value Creation | |
Industrial DistributionPortfolio companies operate in B2B markets offering critical products and services across business cycles. Many holdings are involved in industrial distribution, specialty chemicals, and niche manufacturing with strong pricing power and high margins. |
B2B Distribution Specialty Products Pricing Power Industrial | |
SwedenThe letter extensively discusses Sweden's rich legacy of decentralized management and acquisition-driven companies, tracing back to industrial pioneers and influenced by leaders like Jan Wallander and Hans Werthén. Sweden's transparent business environment and trust culture create fertile ground for acquisitions. |
Nordic Industrial Heritage Business Culture Trust Transparency | |
| 2023 Q4 |
AcquisitionsPortfolio companies completed 260 transactions in 2023 versus 249 in 2022, demonstrating continued robust M&A activity. Companies maintain disciplined acquisition approach while expanding geographically outside the Nordics. The acquisition engine serves as a key growth driver alongside organic growth. |
M&A Private Markets Bolt-on Integration Targets |
DecentralizationDecentralized structures enable entrepreneurial independence and customer intimacy while maintaining acquisition pace. Companies avoid forced synergies and integration, instead focusing on preserving entrepreneurial culture. This organizational design is essential for sustaining multiple small private transactions annually. |
Autonomy Entrepreneurial Independence Structure Culture | |
Capital AllocationPortfolio companies reinvest 70-80% of cash flow at 15-20% returns on capital over extended periods. Companies demonstrate exceptional capital allocation skills through disciplined acquisition strategies and self-financed growth. The P/WC metric of 45% ensures self-sustaining business models. |
Reinvestment Returns Cash Flow Discipline Self-financed | |
| 2023 Q2 |
DecentralizationREQ emphasizes acquisition-driven compounders that maintain decentralized structures to preserve entrepreneurial energy. The best performers avoid forced integration and instead give business units high autonomy, treating them as actual owners while sacrificing efficiency gains to maintain vibrant entrepreneurial culture. |
Autonomy Entrepreneurship Business Units Ownership Culture |
QualityREQ defines quality as companies with consistent ability to reinvest significant portions of free cash flow at high returns over extended periods. Their approach differs from typical quality investing by focusing on acquisition-driven compounders that provide access to smaller private entrepreneurs who are profit-oriented. |
Free Cash Flow Returns Capital Allocation Private Markets Compounders |
| Date | Pitch Type | Author | Ticker | Company | Industry | Sub Industry | Bull / Bear | Exchange | Keywords | Action |
|---|---|---|---|---|---|---|---|---|---|---|
| Jan 12, 2026 | Fund Letters | Oddbjørn Dybvad | JDG LN | Judges Scientific plc | Industrials | Scientific & Technical Instruments | Bull | New York Stock Exchange | Acquisitions, Decentralization, dividends, Researchfunding, Scientificinstruments | Login |
| Jan 12, 2026 | Fund Letters | Oddbjørn Dybvad | BRO | Brown & Brown, Inc. | Financials | Insurance Brokers | Bull | New York Stock Exchange | Acquisitions, Brokerage, cashflow, dividends, Insurance | Login |
| Jan 12, 2026 | Fund Letters | Oddbjørn Dybvad | CSU CN | Constellation Software Inc. | Information Technology | Application Software | Bull | New York Stock Exchange | Automation, Integration, Missioncritical, Pricingpower, Recurringrevenue, Regulation, Switchingcosts, Verticalsoftware | Login |
| Jul 1, 2025 | Fund Letters | REQ Global Compounders | ROKO.ST | Röko AB | Industrials | Industrial Conglomerates | Bull | Nasdaq Stockholm | acquisition-driven, capital allocation, compounder, Decentralized, EBITA margins, European, growth, industrial conglomerate, private equity, Sector-agnostic | Login |
| Dec 1, 2024 | Fund Letters | REQ Global Compounders | AME | Ametek Inc | Industrials | Electrical Components & Equipment | Bull | NYSE | Acquisition-driven compounder, Advanced technology, Aerospace, Cultural continuity, Decentralized operations, energy, healthcare, instruments, Internal promotion, margin expansion, Niche markets, Precision components, specialty materials | Login |
| Dec 1, 2024 | Fund Letters | REQ Global Compounders | DCC.L | DCC plc | Energy | Oil & Gas Storage & Transportation | Bull | LSE | Asset Divestiture, attractive valuation, Business Simplification, cash conversion, Energy Distribution, Extraordinary dividends, LPG, Return on capital, Strategic Refocusing, Underperformance | Login |
| Dec 1, 2024 | Fund Letters | REQ Global Compounders | VITEC.ST | Vitec Software Group AB | Information Technology | Application Software | Bear | NASDAQ Stockholm | Acquisition prices, capital allocation, Cash culture, Equity raises, Exit decision, High debt levels, Organic investments, Self-funded growth, vertical market software, Weak returns | Login |
| Dec 1, 2024 | Fund Letters | REQ Global Compounders | IDUN.ST | Idun Industrier AB | Industrials | Industrial Conglomerates | Bull | NASDAQ Stockholm | Acquisition pipeline, Acquisition-driven compounder, Balance sheet strengthening, Early stage, EBITA margins, FCF growth, High insider ownership, Management stability, Resilient portfolio, Swedish industrials | Login |
| TICKER | COMMENTARY |
|---|---|
| CSU.TO | The CSI family — Constellation Software, Topicus and Lumine — has delivered strongly, with healthy recurring organic growth across all three companies. The research we have done and our conversations with people across the industry point in the same direction. Capital deployment remained impressive, and CSI's AGM reinforced the picture — leaving us more convinced than ever that AI is a tailwind for these businesses rather than a disruption risk. As AI experimentation continues, we believe the group's deep customer intimacy, domain expertise and learning culture across its 1,600+ companies position it to benefit rather than be disrupted. |
| TOI.TO | The CSI family — Constellation Software, Topicus and Lumine — has delivered strongly, with healthy recurring organic growth across all three companies. Conversely, we added to Topicus and Lumine at various points during their share price declines in the first half, where the underlying development and our long-term conviction remained strong while the valuation became more attractive. |
| LMN.TO | The CSI family — Constellation Software, Topicus and Lumine — has delivered strongly, with healthy recurring organic growth across all three companies. Conversely, we added to Topicus and Lumine at various points during their share price declines in the first half, where the underlying development and our long-term conviction remained strong while the valuation became more attractive. |
| APH | We sold the majority of our Amphenol position during the first half – earlier than we had envisaged when we initiated the position in early 2024. We did not foresee the magnitude of the AI- and data-center-driven demand boom from which the company has since benefited. When we initiated the position, IT datacom was one market among several; by 2025, it had become Amphenol's largest, accounting for 36% of sales. At the same time, the order backlog had increased to approximately USD 8.9 billion, from USD 6.1 billion the year before, driven by AI-related demand. In Q1 2026, Amphenol reported revenue growth of 58%, of which 33% was organic, led by exceptional demand in the IT datacom business. We continue to have great respect for the company and its culture, but increasing thematic concentration toward AI, combined with an increasingly demanding valuation, made the stock a less natural fit within our portfolio framework. |
| HLMA.L | Halma delivered a record year (twelve months to March 2026): revenue rose 15% to £2.58bn and adjusted EBIT climbed 22% to £594.5m, with adjusted EPS up 21% — on 16% organic growth and its 23rd consecutive year of adjusted profit growth. The standout was its Environmental & Analysis division, where organic growth reached nearly 36%, led by photonics — demand tied directly to the AI data-center buildout. In Halma's case, its largest subsidiary has lately come to depend heavily on a single hyperscaler customer for its data-center optical components — a concentration that has grown, not receded, and introduces a structural weakness Diploma simply does not carry. Set against what we also judge to be the lower expected return of the two, that combination of rising fragility and thinner prospective return has led us to trim Halma's weight relative to Diploma's as the risk has built. |
| DPLM.L | Diploma delivered a similarly strong first half (FY26), with earnings up 36% on 15% organic growth. Its Controls business was the engine — 26% organic and 45% earnings growth — while group margins expanded around 300bps to 24.5% and leverage stayed conservative at 0.8x, leaving ample headroom for further M&A. The very rotation out of software and into semiconductors and AI infrastructure that weighed on our software names played to several other holdings, including Amphenol, Halma and, to a degree, Diploma. |
| HEI | HEICO posted record fiscal Q2 (quarter to end-April) with earnings up 41% on 18% organic growth. Both segments fired: Flight Support grew 21% (19% organic) and Electronic Technologies 34% (17% organic), lifting margins by roughly 290bps and EPS by 48%. Aftermarket aerospace demand and the steady integration of recent acquisitions continue to compound at an exceptional rate. The other dominant theme was a booming aerospace market, which lifted both HEICO and Diploma. |
| BRO | Brown & Brown was the clearest disappointment of the first half — both as a contributor to performance and in fundamental terms. Organic growth has slowed over recent quarters and was flat in Q1, with reported revenue up 35% to $1.9bn almost entirely from acquisitions. That stall stands out against brokerage peers — Marsh McLennan grew 4% and Gallagher is guiding to around 5.5% — and the shares have slipped toward a 52-week low. Our evidence so far points to a temporary headache rather than a structural change in thesis: a couple of identifiable one-offs and a softer pricing backdrop account for most of the shortfall, and we expect organic growth to normalize as these factors wash through. |
| AIT | Applied Industrial Technologies is a US-listed value-added distributor and technical solutions provider in industrial motion, fluid power, flow control, automation, and related maintenance supplies. The company generates sales of c. USD 5bn and EBITDA of c. USD 600m, with a market capitalization of c. USD 12bn. Roughly 85% of what Applied sells today consists of specialized, technical products rather than simple commodity supplies, and the company is steadily moving from shipping boxes to engineering and installing the systems those products go into. The programmatic M&A engine is central to our thesis. Applied avoids auctions, building relationships with targets over the years so that when a business is ready to transact, it is the natural home. Multiples paid are modest — typically mid-to-high single-digit EBITDA pre-synergy — and the synergy case is low-risk because Applied buys in categories it knows deeply. |
| DSCV.L | DiscoverIE Group, listed on the London Stock Exchange, is an international designer and manufacturer of customized electronic components for industrial OEMs. The company has revenues of c. 450m GBP and EBITA of c. 60m GBP. Over the last 14 years, DiscoverIE has completed around 30 acquisitions. Our research suggests its solutions are hard to replace once designed in: industrial customers are typically conservative, service-sensitive rather than purely price-sensitive, and reluctant to switch suppliers when performance, delivery, and engineering support are working well. We also see an interesting parallel to Lagercrantz in its earlier journey. Like Lagercrantz in its formative years, DiscoverIE has evolved from a value-added distributor before gradually shifting the business mix toward its own products, specialized manufacturing, and higher-value engineered solutions. The recent share price weakness — driven more by sentiment toward UK small caps and market concerns than by anything we believe has changed structurally in the business — has allowed us to build a position at a price that points to attractive forward returns and clears our qualitative underwriting bar. |
| DCC.L | DCC, a 5% position at the start of the half, became the subject of an indicative acquisition proposal from a private-equity consortium comprising Energy Capital Partners and KKR. The initial approach in April, at £58 per share and valuing the equity at approximately USD 6.7 billion, was a modest premium to the prevailing price and, in our view, well below intrinsic value; the board rejected it. A revised proposal at £66.72 per share (~USD 7.6 billion) followed in June, which the board indicated it would be minded to recommend on firm terms. The consortium's put-up-or-shut-up deadline expires on 8 July. Regardless of the outcome, the episode illustrates a theme running through this letter: the gap between where these businesses trade and what they are worth. |
| AME | In line with our portfolio framework, we significantly trimmed Ametek. We see a shift toward larger and more expensive acquisitions, completed at higher multiples, with more aggressive synergy assumptions and lower expected returns. In our framework, this is a warning sign, as it weakens the quality of capital allocation and future earnings growth. |
| ATCO-A.ST | We also reduced Atlas Copco on similar grounds, due to a demanding valuation and more modest expected returns. |
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