VALUE: After Hours (S08 E09): Three Catalysts That Unlock Value in Mid-Cap Stocks

During their recent episode, Taylor, Carlisle, and Alex Roepers discussed Three Catalysts That Unlock Value in Mid-Cap Stocks. Here’s an excerpt from the episode:

[Alex] The first one is corporate action. I’ll elaborate that a little bit more later. That’s everything management can do to improve the value of a company.

Then there’s activism, which is more likely to be successful in midsize companies than in very large companies. And then thirdly, takeover. And takeover, we’d like to have both strategic and financial buyers potentially looking at a company when it becomes very attractive or when it goes into play.

And if you look at financial buyers, private equity firms, for instance, they typically would like an eight or $10 billion deal at the high end, not too much larger, hard to finance, typical big private equity fund is 20, 25 billion, $2 billion equity check is big, plus leverage, you get to six, seven, $8 billion. So we’ve had since inception, which is a long time ago now, companies in that sweet spot where if they don’t perform well and they’re undervalued, they’re gonna attract attention by either strategic and or financial buyers. So that’s the reason we’ve chosen all the way back to the $20 billion, exclude high tech and biotech, exclude financial service and insurance companies for the transparency issue.

And then focus on industrial products, services, companies, and then being Dutch, they’re pretty known to be stingy. We like to, there’s a joke as to how many Dutch people you can get into a Volkswagen. All you need to do is flick a dime in there, they’ll get in there.

I’m all over something that is very inexpensive and yet solid. So we want always money-making companies with solid balance sheets in our little universe of two to $20 billion industrial products and services companies that are down. We’re basically lying in wait.

I have all these analogies, like the sniper lying in wait, I’m not a hunter, I’m not a sniper. But you just imagine, you know what your target looks like, you wait, you wait, you wait. And then when you see it, you strike.

And we know our targets. And the targets are about 500 companies publicly traded in the US. After about 12, 13 years of doing that, well enough, we got to a level of self-imposed capacity limit in 2003, by which we basically say, okay, we wanna be about 10 companies in our portfolio.

And we want it to be an average five to $8 billion. And we don’t wanna be more than four or 5% of these companies. So then you’re at about a billion and a half, you’re maxed out in your capacity.

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VALUE: After Hours (S08 E09): Three Catalysts That Unlock Value in Mid-Cap Stocks

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