1/ Long thread on reinvestment of internally generated cash flow. One of the biggest things I’ve learned from people on Twitter is the power of reinvestment. Interestingly it’s core to our strategy @evergreensvcs but I never really appreciated it

2/ until a lot of the public market investors on here talked about looking for companies that could redeploy capital at high rates of return

3/ in the small amount of public investing I did I used to look at high dividend yield stocks and thought that was great. But now I’d much rather find a company that can reinvest their cash flow at 20% than one that pays me a dividend. So much easier and more tax efficient!

4/ another thing I’ve learned is that reinvestment can take many forms. Sbux opening stores, saas companies acquiring sticky customers, cmcsa passing new homes and my personal favorite: m&a!

5/ one thought really hammered home the power of reinvestment for me. What if mark leonard at $csu.to had just taken that initial $25m investment, bought some small software businesses and just paid out the dividends?

6/ nobody would have heard of constellation software! Instead he took that cash flow from those initial acquisitions, reinvested it into new acquisitions and has compounded his face off for 25 years at like 30%! If that doesn’t show you the power of reinvestment nothing will

7/ interestingly most pe firms take the approach we’re all glad mark Leonard didn’t take. They buy some companies and flip them in 3 years to trigger carried interest and put a “win” on the board for LPs

8/ those LPs would often be way better off if the pe firms reinvested. And they’re in a good position to use m&a as their vehicle for reinvestment like $csu.to does. They are oftentimes very good at it!

9/ reinvestment is really the key tenet of the strategy we’re executing at evergreen. If we can buy companies that generate healthy cash flow and strong returns, we should keep doing that! And we shouldn’t just buy a couple companies, suck out cash and punch out in 3 years.

10/ Over the past few years we’ve bought 23 businesses that generate strong cash flow. A chunk of that goes to debt service and the rest can be reinvested into new great businesses that generate more cash flow.

11/ we’re starting to reach the point of self funding most acquisitions with internally generated cash flow and debt, and it’s so exciting to add earning power without adding additional equity investment. It feels like compounding is really starting to kick in!

12/ anyway I appreciate all the folks on here that have given me an appreciation for the power of reinvestment and helped me really understand the “why” around our own strategy at evergreen. Reinvestment just might be the biggest driver of value in business...