First Advantage (NAS:FA) — mrkt cap $2.2B; Price $15.32; EV/EBITDA 13
PASS. FA provides background check services for enterprise and other organizations. It competes with HireRight, Sterling Check (and newcomers such as Checkr). Private equity took these companies private 5 years ago and bought them public again in 2021. They are all roughly the same size with each at about $800mm in annual sales. Although FA has slightly better operational execution exhibited by higher revenue retention rates, investing in a company with multiple competitors that occupy the same niche is a large hurdle.
Alta Equipment Group (NYSE:ALTG) — mrkt cap $300mm; Price $9.12; EV/EBITDA 4.8
MORE RESEARCH NEEDED. ALTG is a dealer of construction equipment. Its business model is similar to our holding TITN (although TITN primarily is in the ag sector). Namely it has semi-exclusive geographic supply for OEM equipment. These relationships are extremely important to OEMs as dealers act as both distributors and customer service reps to their equipment. OEMs have the ultimate say in what dealers can get acquired and as a result PE has been prohibited from entering the space. This allows consolidators such as ALTG, who have an existing relationship, to acquire smaller dealerships at low multiples. Although we generally pass on serial acquirers, given the dynamics at play in this industry more work needs to be done to determine the capital allocation proficiency of management.
Villeroy & Boch (XETR:VIB3) — mrkt cap €469mm; Price €17.7; EV/EBITDA 6.9
PASS. Villeroy & Boch was founded in 1748, making it the oldest company we have looked at. Unfortunately, legacy is not correlated with shareholder returns as share prices have grown at an anemic 2% CAGR over the last 30 years. VIB3 produces high end ceramics (toilets and sinks) for bathrooms and kitchens and has gross margins of over 40%. VIB3 has primarily targeted the residential industry and it has recently made headways into the commercial space with its large acquisition of Ideal Standard earlier this year. Ultimately, the driver of this business will be operating leverage and if it can achieve the projected $40mm in synergies with Ideal Standard, it will be cheap on a cash flow basis. The key word is IF. We will wait to see the effects of this combination on the firm.