Q: hi. after just reading your latest report on CSU, I am still not sure that I understand their "roll-up" business model vis a vis earnings growth? are they buying up these little niche software companies, and then increasing the prices that their customers have to pay, with no real value add to the customer otherwise? can you describe their model to me ( or us? ) like I was a 5 year old ( to quote Michael Scott from the Office ).
cheers, Chris
cheers, Chris
5i Research Answer:
The core of the business model is they go out and purchase smaller but sticky software companies at low valuations. They then help those management teams operate more efficiently, provide access to capital, and different potential avenues to growth to help grow earnings over time. Those cash flows are then harvested and 'recycled' into other acquisitions. Those earnings that are acquired at lower valuations, also then get 'rolled up' and valued at the higher CSU overall valuation, adding a bit of a 'bonus synergy' for the company.