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(1/n) $CSU.TO deep-dive finally done - check it out. TLDR; I don’t think the market is giving them full value for the VMS M&A opportunity, and zero value for CSU 2.0 (new initiatives). An excellent business at a great price, with a world-class capital allocator at the helm.
(2/n) They’ve perfected decentralized M&A that’s scalable: proprietary data sets, quantitative framework that reduces subjectivity, and education process to produce the next gen of allocators. What enables them to do 100 small acquisitions/year, can enable them to do 200/year
(3/n) To compliment small VMS M&A, they are also pursuing large VMS M&A. Even if ROIC is much lower on large M&A, it will still be higher than their cost of capital. Accretion will still be significant. Better than a return to shareholders
(4/n) Similarly, CSU 2.0 (new initiatives) > return to shareholders if incremental ROIC exceeds 7.5-8.0%. Hard not taking the over with Mark driving the bus. The base rate for ROIC in the broader technology GICS is mid-teens. The value of this real option is meaningful.
(5/n) In time, CSU will use the balance sheet (currently negative ND/EBITDA). If not to grow to return cash to shareholders. A great lever to pull “eventually”. Mark changed his mind on special dividends – he’ll change his mind about this too. The seed is planted. His own words:
(6/6) I’m bound to be wrong about some part of this thesis. If you disagree with something, let me know! All assumptions can be found in the model on my blog.
