Uncovering the qualities that set compounders apart

Compounder companies (“compounders”) are those with highly visible and long-duration growth. Lindy’s Law explains an anti-ageing process for such companies — the longer they exist, the stronger they become to survive well into the future. This enables many to become industry leaders and dominant global players. We refer to these types of venerable companies as “marathon runners”. They form the bedrock of the returns we generate for our clients. It’s not just their age that sets these companies apart. It’s the combination of unique corporate culture and resilience that keeps them growing in good and bad times.

Over decades — even centuries — these bastions of business have used their resilience and built up competitive moats yielding exceptional free cash and healthy balance sheets. Their secret is spending this cash wisely on opportunities to unlock new pathways for organic growth. They filter out noise and have a clear strategy for pursuing their long-term goals.

Turning M&A into long-term success

Mergers and acquisitions (M&A) can highlight the qualities that separate compounders from the rest of the pack. Compounders grow predominantly using in-house resources, but M&A can serve as a valuable litmus test for their investing prowess.

Leveraging their free cash flow and balance sheets, compounders seize on M&A opportunities to fuel future organic growth. Their size enables synergies which smaller peers can only dream of attaining. Their abundancy of cash provides them the optionality to buy into new growth avenues independent of the state of capital markets. These are two ingredients crucial to success in M&A.

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Supporting documents

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