I recently read a presentation by David Barber of Halma, who co-founded the company in 1972. It dates from 1997 but is still relevant today. It highlights (amongst other things) why a buy and build strategy works in practice to create shareholder value. This is partly why I personally believe HLMA is a quality business and may remain so over the longer term.
(maybe start from page 4 because he initially refers to charts which aren’t provided).
Mr Barber believed that to create value for the shareholder, any company purchases should be;
paid for by internally generated cash.
a replica of one already owned by the purchaser (i.e. within the circle of expertise, knowledge and competence of the purchasing company)
a bolt-on or quasi bolt-on (i.e. smaller than the purchasing company, because large acquisitions carry with them a large amount of risk if things don’t turn out as expected).
likely to improve the quality as well as the quantity of earnings.
This contrasts starkly with the buy and build strategy of some companies I can think of, and it’s certainly something I will use as a filter in the future for ‘buy and builds’ in the future!
Just for context, Halma’s total return over 25 years is 13% and 10 years 26%, which is pretty staggering imo.
Co-incidentally I stumbled across a blog post by Chris Meyer (of ‘100-BAGGERS’ book fame) who puts the above (a little more eloquently) here;
How They Did It: Halma, Plc (woodlockhousefamilycapital.com)
Looking at all of the content in this blog, it seems like a blog worth following?
(In my search for compounders, and based on my research, I have purchased some HLMA shares, but of course they may crash tomorrow -who knows! )