The Roper Model

We compound cash flow. That’s our focus.

One metric

When Brian Jellison took over Roper in 2001, it was a $1.5 billion industrial conglomerate. When he died in 2018, it was worth over $30 billion. The transformation rested on a single obsession: cash flow.

Neil Hunn, who succeeded Jellison and continues the playbook: “We compound cash flow. That’s our focus. How do we compound the cash flow for our shareholders over a long arc of time?”

Most companies track dozens of metrics. Roper built its entire capital allocation system around one: CRI, or Cash Return on Investment. The formula strips away accounting complexity to reveal what actually matters — how much cash a business generates relative to the capital invested in it.

Jellison’s view was blunt: “Cash clearly remains the best measure of performance in a world of adjusted commentary.”

No budgets

Roper’s most distinctive practice sounds almost reckless: they don’t do budgets.

Hunn explains the logic: “We pay our field executives based on year-over-year growth. Sounds like a simple idea, but it’s superpowerful… if you pay based on a budget or planned attainment, you have a field team that is essentially incented to lie.”

Budget-based compensation creates a negotiation. Executives argue for lower targets to maximise their bonus potential. The company ends up paying people to sandbag. Year-over-year growth eliminates the game. You either grew or you didn’t. There’s nothing to negotiate.

This requires trust. Roper has to believe their business leaders will make sensible decisions without the oversight that budgets provide. In return, leaders get autonomy — real autonomy, not the corporate version where you’re free to do anything as long as it matches the plan.

Sixty people

Roper runs thirty distinct business units with over 16,000 employees. Corporate headquarters has sixty people.

That’s not a typo. The ratio is deliberate. Capital allocation is centralised; everything else is decentralised. Jellison: “We hate centralized directives.”

Each acquisition keeps its management, its culture, its way of operating. Roper doesn’t integrate. They don’t impose shared services or common systems. They measure cash flow, hold leaders accountable, and stay out of the way.

The discipline required is counterintuitive. Most acquirers believe they add value through integration — shared back offices, purchasing leverage, best practice transfer. Roper’s bet is that the value destroyed by integration exceeds the synergies captured. Autonomous businesses, run by people who know them deeply, compound better than optimised divisions of a corporate whole.

Asset-light by design

Jellison transformed Roper’s portfolio through a simple filter: asset intensity. Every acquisition had to be less asset-intensive than the existing portfolio.

Over two decades, this shifted Roper from industrial manufacturing to software. Today, roughly 75% of revenue comes from software businesses, and 85% of that revenue is recurring. Gross margins exceed 70%. The company generates negative working capital — customers pay before Roper has to.

The 2022 Indicor spinoff completed the transformation. Roper sold 51% of its remaining industrial businesses to private equity, keeping a minority stake. Industrial to software in twenty years, through hundreds of small decisions about what to buy and what to divest.

Hunn on the endgame: “This is the final step in Roper’s divestiture strategy to reduce the cyclicality and asset intensity of our enterprise.”

Vertical software

Roper’s software businesses share a pattern: they’re vertical, not horizontal. Each one serves a specific niche — freight matching, legal practice management, food service distribution, education administration. The markets are small enough that larger competitors ignore them. The software is embedded deeply enough in customer operations that switching costs are prohibitive.

Jellison had a colourful way of describing the acquisition criteria: “Buy businesses with 40% gross margins from idiots in private equity who don’t know how to run them.”

The “idiots” part is tongue-in-cheek, but the point is real. Private equity often undervalues businesses that don’t fit their typical playbook — businesses with limited growth potential but exceptional cash generation, businesses too small to matter at scale, businesses that require patient capital rather than a five-year exit. Roper is the patient buyer.

The compounding flywheel

Cash flow funds acquisitions, acquisitions generate more cash flow — the flywheel has been spinning for over twenty years.

Roper deployed $10.5 billion in acquisitions between 2020 and 2022 alone, including Frontline Education at $3.75 billion. In 2024, another $3.6 billion went out the door. The pace is relentless because the cash keeps coming.

The constraint on growth isn’t capital — Roper generates more than it can deploy. The constraint is finding businesses that meet the criteria: asset-light, niche leadership, embedded in customer operations, run by people who want to stay.

Hunn: “The next business that we buy, we want it to be better than the last businesses we bought.”

That’s how you avoid the serial acquirer trap of buying increasingly marginal businesses as you run out of good ones. Each deal has to clear a bar that rises over time.

What Jellison built

Brian Jellison died in 2018, five years before seeing Roper complete its transformation. The system he built continues under Hunn, generating the same results with the same playbook.

The track record speaks for itself: 19% compound annual returns over Jellison’s tenure, a 1,500% total return while the S&P 500 returned 295%. Roper became a 26-bagger from 2001 to today.

But the numbers only capture part of the achievement. Jellison proved that you could build a compounding machine around a single metric, radical decentralisation, and the discipline to do nothing except allocate capital well.

“For all the value that was created over time at Roper,” the authors of Lessons from the Titans observe, “it all came from a simple acquisition model, a singular management philosophy, and a one-variable compensation scheme.”

Simple. Not easy.

Connects to Library: Theory of Constraints · Process Power · Optionality

See also: The Halma Discipline — Similar patient capital allocation, different execution philosophy. The Danaher System — The opposite bet: systematic operational improvement over hands-off decentralisation.