The Diploma Model
We’re not here to standardise our businesses, suppress their unique identities, disempower local leaders or add bureaucracy.
Value-add distribution
Diploma sells seals, gaskets, controls, and medical consumables. The products are low-cost and mission-critical — a hydraulic seal costs pennies but a failed seal stops an aircraft. Customers cannot operate without them.
The model wraps technical expertise around commodity components. Diploma’s businesses don’t just distribute; they specify, advise, and solve problems. The gross margin has held at 35-36% for twenty-five years — one of the lowest standard deviations in the sector.
Johnny Thomson, CEO since 2019: “We have fantastic, brilliant local management teams. They’re very accountable people, very commercial, humble, and focused on continuous improvements.”
Three sectors: Controls (industrial automation), Seals (fluid power), Life Sciences (medical consumables). Each contains multiple operating companies. Each operating company runs its own business.
The federated structure
Most serial acquirers centralise deal-making at headquarters. Diploma federated it. Operating companies can acquire businesses themselves.
The logic: the people closest to customers and markets see opportunities that corporate never would. A seals business in Germany knows which local competitor is worth buying. A controls distributor in North America knows which adjacent product line fits.
Thomson: “Post-acquisition, our decentralised model means we preserve the name, legacy, heritage and core values of the business. We’re not here to standardise our businesses, suppress their unique identities, disempower local leaders or add bureaucracy.”
The structure mirrors the Swedish compounders but with a twist. Lifco and Indutrade keep subsidiaries autonomous; Diploma makes them active acquirers. The centre provides capital, governance, and accountability. The periphery provides deal flow and integration.
Two eras
Bruce Thompson ran Diploma from 1996 to 2018. He deployed roughly £200 million on acquisitions over twenty years — conservative, methodical, disciplined. Free cash flow compounded at 19% annually. The foundation was solid.
Johnny Thomson accelerated. In his first three years, he deployed £800 million — four times what Bruce spent in two decades. The largest deal, Windy City Wire in 2020, cost £357 million. Operating profit nearly tripled within three years.
The philosophy remained constant: decentralisation, permanent ownership, disciplined multiples. The pace changed. Thomson saw that the market for quality businesses was getting more competitive. Waiting meant losing deals to private equity.
The fifteen-year record: 15% revenue CAGR, 15-16% EPS CAGR, operating margins of 20-22%. Returns on acquired capital in year one: 16-20%.
UK comparison
Britain has three prominent serial acquirers: Halma, Judges Scientific, and Diploma. Each operates differently.
Halma buys niche manufacturers of safety and environmental technology. The products are proprietary. The multiples are higher (~7.5x EBIT). The focus is engineering and innovation.
Judges buys scientific instrument companies at 3-6x EBIT. The businesses are tiny, often founder-led, often turnaround situations. Six people at headquarters.
Diploma buys technical distributors at 6-8x EBIT. The businesses add value through expertise and service, not manufacturing. The federated structure lets subsidiaries drive acquisitions.
All three decentralise. All three hold permanently. The difference is what they buy and how they source deals. Diploma’s bet is that technical distribution — the expertise layer around commodity products — creates durable value.
Critical products
The common thread across Diploma’s portfolio: products that customers cannot operate without but represent a tiny fraction of their costs.
A seal in a hydraulic system, a sensor in an automation line, a consumable in a medical procedure — the price is low, the cost of failure is high, and switching is irrational.
This positioning creates stability. Customers don’t shop around for seals when their production line depends on them arriving tomorrow. The relationship compounds. Technical expertise becomes embedded. Gross margins hold.
Thomson: “Organic growth is our number one priority. We complement this with acquisitions to drive future organic growth. Building effective scale is key — becoming better, not just bigger.”
The target is 5% organic growth plus 5% acquired growth. The discipline is resisting deals that don’t fit. The outcome is a portfolio of businesses with structural advantages in unglamorous markets.
Connects to Library: Switching Costs · Scale Economies · Process Power
See also: The Halma Discipline — UK peer, niche manufacturing focus. The Judges Approach — UK peer, scientific instruments at lower multiples. The Lifco Way — Swedish parallel with similar decentralisation philosophy.