Anish Patel

Acquisition as Strategy

Fifteen companies, fifteen distinct philosophies. The “serial acquirer” label obscures more than it reveals.

The limits of a label

“Serial acquirer” is a useful shorthand. It points to companies that grow primarily through acquisition rather than organic investment. It suggests a pattern worth studying.

But the label hides as much as it shows. Danaher and Constellation both acquire relentlessly, yet their philosophies are opposites. TransDigm and Heico compete in the same industry with strategies that can’t coexist in a single company. The Swedish compounders share DNA with each other but not with the American industrials.

Understanding these companies requires seeing past the category to the strategic choices beneath. Each represents a distinct answer to fundamental questions: Where does value come from? How much should headquarters interfere? What makes the advantage durable?

The integration spectrum

The first dimension that separates serial acquirers is how much they change what they buy.

At one extreme: Danaher. Every acquisition goes through the same integration — one week of DBS training, one week running a kaizen event, a 100-day improvement plan, three years of metric tracking. The system is the same whether the target makes dental equipment or water quality sensors. Danaher bets that its operating system creates more value than the disruption of applying it.

At the other extreme: Heico and Judges Scientific. Heico runs 80+ independent business units with 2-3% corporate overhead. Judges runs 25 operating companies with a head office of six people. Neither integrates. Both bet that the people who built the business know it better than anyone at headquarters ever could.

In between: Halma incrementally reshapes acquisitions toward a quality focus. ASSA ABLOY calls its approach “mergers among equals” — governance and treasury integrate, but brands and operations stay local. ITW centralised radically under Scott Santi, reducing 800 divisions to 83, then resumed selective acquisitions.

There’s no right answer on this spectrum. Danaher’s 40-year track record proves transformation works. Heico’s 35-year track record proves hands-off works. The mistake is thinking one approach is universally correct.

Where value comes from

The second dimension: what creates the value that makes returns compound?

Operations. Danaher and ITW bet on operational excellence. DBS raises margins by attacking waste, improving quality, and compressing cycle times. ITW’s 80/20 model simplifies everything — fewer products, fewer customers, dedicated production lines. Both treat their operating systems as inimitable assets.

Pricing. TransDigm reduces operations to three value drivers: get the price up, get the cost down, generate new business. The first driver — pricing — generates the extraordinary margins that define the company. Sole-source positioning on aerospace parts creates pricing power that operational improvement alone can’t match.

Capital allocation. Constellation and Roper bet on allocating capital better than competitors. Constellation’s hurdle rate discipline has changed only three times in 30 years. Roper organises everything around a single metric: Cash Return on Investment. Both prove that knowing what to buy (and what not to buy) can be the primary source of value.

The Swedish compounders — Lifco, Indutrade, Bergman & Beving — combine capital allocation discipline with radical decentralisation. They pay disciplined multiples, leave businesses alone, and let the math compound. The metric that governs the tradition: EBITA / Working Capital, with a 45% target. One ratio, understood universally, driving capital allocation across six listed companies.

Opposite strategies, both rational

The clearest illustration of strategic variety: Heico and TransDigm.

Both make aerospace aftermarket parts. Both have compounded at 20%+ annually for decades. Their strategies are opposites.

TransDigm prices aggressively on sole-source components, capturing maximum value through pricing power. The 54% EBITDA margin — roughly double industry average — reflects this positioning. The approach is legal. Whether it’s ethical is a question the numbers don’t answer.

Heico prices 30-50% below OEM, competing on value and building customer loyalty. The company positions as a permanent home for entrepreneurs, keeping sellers’ 20% stakes alongside family ownership. Employee stock in retirement accounts has created 400+ employees with $8 million+ in Heico shares.

Neither can adopt the other’s model. TransDigm’s pricing power comes from sole-source positioning that Heico deliberately avoids. Heico’s culture comes from treating employees as owners in ways TransDigm doesn’t prioritise. The opposite of each strategy is also a rational choice — which is precisely what makes them strategies at all.

Vitec and Constellation offer a similar contrast. Vitec pays 10x+ EBIT for vertical software companies, invests in modernisation, and holds forever. Constellation pays 4-6x, applies cost discipline, and extracts cash. Both work. The underlying bet differs: Vitec on growth through investment, Constellation on returns through discipline.

Which Powers they build

Hamilton Helmer’s 7 Powers framework helps map what makes each company’s advantage durable.

Process Power. Danaher is the canonical case — forty years of accumulated kaizen learnings that competitors can observe but can’t replicate quickly. ITW’s 80/20 system shows the same pattern. The barrier is time: you can’t skip the learning, and the learning takes years.

Switching Costs. TransDigm’s sole-source positioning creates 30-year annuity streams — once a part is certified for an aircraft, qualifying an alternative takes years and millions of dollars. Vertical software acquirers like Constellation and Vitec benefit from similar dynamics: mission-critical software embedded in customer operations becomes expensive to replace.

Counter-Positioning. Heico vs TransDigm is a textbook case. Each has adopted a model the other can’t copy without damaging their existing business. The power comes from making imitation irrational, not from being better at the same game.

Scale Economies. ASSA ABLOY consolidates access control globally, using scale to command premium pricing and fund R&D that smaller competitors can’t match. The Swedish acquirers build scale differently — through accumulated dealmaking capability rather than operational integration.

What varies, what doesn’t

Beneath the variation, patterns emerge.

Time horizon. Every company in this series thinks in decades, not quarters. Constellation has sold one business in thirty years. Heico has made two disposals in thirty-five years. The Rales brothers built Danaher with a “20-to-30-year” BHAG. Patient capital isn’t a nice-to-have; it’s the foundation.

Acquisition discipline. The multiples and hurdles differ — Judges pays 4.8x EBIT, Vitec pays 10x+ — but the discipline is universal. Each company has defined what “good enough” means and walks away from deals that don’t clear the bar. Constellation changed its hurdle rate three times in thirty years. That restraint is rare.

Decentralisation. Even Danaher, the most systematic integrator, decentralises operations once DBS is installed. The Swedish compounders push autonomy to the extreme. The common insight: the people running businesses know them better than headquarters ever could.

The practice

Studying these companies teaches principles, not formulas.

Pick your spot on the spectrum. Integration vs autonomy, operations vs pricing vs capital allocation — these are real choices with real trade-offs. The mistake is trying to do all of them or refusing to choose.

Build what can’t be copied. Danaher’s DBS took forty years. Heico’s culture took thirty-five. Constellation’s dealmaking capability required over 500 acquisitions. The advantages that matter are the ones competitors can’t replicate by reading about them.

Test opposite strategies for rationality. If the opposite of your approach sounds absurd, you haven’t made a strategic choice. Heico’s value-based pricing vs TransDigm’s extraction. Vitec’s growth investment vs Constellation’s cost discipline. Both sides work. That’s what makes them strategies.

Hold the frame. Halma raised dividends for 46 consecutive years using the same playbook from 1975. Bergman & Beving’s metric governed six spinoffs over four decades. The companies that compound aren’t the ones making headlines. They’re the ones resisting the pressure to be interesting.

The “serial acquirer” label is useful for finding these companies. Understanding them requires seeing the strategic variety beneath.

This essay synthesises ideas from the serial acquirer case studies:

Connects to Library: Process Power · Counter-Positioning · Switching Costs

See also: Reading Guide for the complete collection of Field Notes.

#strategy #synthesis