The telescreen received and transmitted simultaneously. Any sound that Winston made, above the level of a very low whisper, would be picked up by it; moreover, so long as he remained within the field of vision which the metal plaque commanded, he could be seen as well as heard. There was of course no way of knowing whether you were being watched at any given moment.

-Quote from the book, 1984

I previously wrote about Zedcor and (now) painfully erred in deciding to pass on it. I have since corrected that mistake and it is a reasonable size holding in my portfolio today. I decided I should take a fresh look at it, as if I didn’t look at it before. For those keeping track at home, Zedcor is about a 10X from when I wrote about it. If you have found value in my writing, I would urge you to consider becoming a paid sub as I continue to work to find and uncover high quality investment ideas.

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The Setup

Here’s a question: what would you pay to avoid hiring security guards?

Not because there’s anything wrong with security guards as people—but because as a business model, it’s a mess. High turnover. Rising wages. No-shows. And the kicker: they’re expensive as hell. We’re talking $18,000 to $36,000 per month for 24/7 coverage at a single site.

Now imagine you could get better security outcomes—verified security, not just a warm body in a chair—for $1,200 to $3,400 per month. That’s a 25% to 60% cost saving, and you’re getting AI-powered cameras, live monitoring, and the ability to stop crimes before they happen.

This is the business Zedcor has built. And if they execute on what they’re setting up for 2026 and beyond, we could be looking at one of those rare opportunities where you catch a company right at the inflection point.

What Zedcor Actually Does

Zedcor makes and deploys the MobileyeZ platform—essentially a self-contained surveillance tower that combines solar power, batteries, high-res cameras, AI processing, and 4G/5G connectivity. These aren’t your typical “dumb” security cameras. They’re monitored 24/7 by trained operators in Calgary and Houston who can see what’s happening in real-time and respond immediately.

When someone tries to break into a construction site or steal copper wire from a storage yard, the AI flags the motion, a human operator verifies it’s a real threat (not a raccoon), and they can do a “talk down” via loudspeakers. According to Zedcor’s data, 95% of crimes are stopped right there. If the intruder persists, police get called with a detailed description—not just “motion detected,” but “white male, red hoodie, black pickup truck, license plate visible.”

The elegance here is simple: you’re replacing expensive variable costs (labor) with a fixed capital asset (the tower) and a highly scalable monitoring operation.

The Strategic Backstory: From Energy Services to Security Tech

Rewind to 2021. Zedcor was primarily an energy services rental company—the kind of business that looks boring on paper and bleeds cash when oil prices drop. Management made a gutsy call: sell off the energy rental division for $11.3 million and go all-in on Security & Surveillance (S&S).

This wasn’t just an asset sale. It was a purification of the business model. They paid down debt, got their debt-to-EBITDA under 2.0x, and refocused the entire organization on building out the MobileyeZ platform across North America.

2022 was the proof-of-concept year. Revenue from continuing operations jumped 63% to $22.1 million. Adjusted EBITDA hit $7.6 million—an 87% increase over 2021. Utilization rates on their MobileyeZ towers stayed above 90%, which is a great signal for any rental-style business. By the end of 2022, they had 506 units deployed and were expanding into Ontario and Manitoba.

The foundation was set. Now came the hard part: scaling.

2023: The Pipeline Cliff (And How They Navigated It)

For years, Zedcor had been heavily concentrated in a couple massive pipeline security projects, including Trans Mountain. When those projects wound down in late 2023, the company faced a classic “lumpy revenue” problem—hundreds of towers suddenly coming off contract, needing to be redeployed.

Management’s response? Go hyper-aggressive on customer diversification. They expanded the sales force, ramped up marketing, and signed over 190 new customers across industries like commercial construction, retail, and automotive logistics.

Despite the headwind, they still grew revenue to $24.9 million and held Adjusted EBITDA flat at $7.6 million. Margins compressed a bit (down to 30.5%) because they were investing in the infrastructure to manage a higher volume of smaller accounts, but the strategic work was critical. They were de-risking the business by spreading revenue across dozens of customers instead of two mega-projects.

Oh, and they opened a national HQ and assembly facility in Houston, Texas in November 2023. This wasn’t just a service center—it was the beginning of their manufacturing moat.

2024: The US Expansion Starts Paying Off

2024 was the year Zedcor’s “hub-and-spoke” model started proving itself in the US. They signed their first major national homebuilder (likely D.R. Horton, based on case studies) and several general contractors in Texas. By Q1, utilization was back up to 90% as the pipeline towers got redeployed into higher-margin urban and commercial sites.

Financially, it was a breakout year:

• Revenue: $33.0 million (+32%)

• Adjusted EBITDA: $12.0 million (+58%)

• EBITDA margin: 36.4% (up from 30.5%)

• Fleet size: 1,333 units (up 62%)

The US contributed about 15% of revenue by year-end, and the trajectory was steep.

The big operational win was getting the Houston manufacturing plant dialed in. By bringing more component assembly in-house, they cut production costs by 15% to 20%. They also launched the 2024 Solar MobileyeZ model—a fully standalone unit with battery backup and AI at the edge. Faster deployment, lower maintenance costs. The flywheel was starting to spin.

2025: Hyper-Scaling and the Capital Fortress

2025 is when Zedcor went from “interesting small-cap” to “holy shit, they might actually pull this off.”

Two big capital moves:

1. February 2025: Closed a bought deal for $25.3 million at $3.35/share

2. October 2025: Secured a new $75 million revolving credit facility with National Bank (replacing the old $30M facility)

That’s $100+ million of liquidity to fund growth without significant dilution going forward. Smart.

Results for the first nine months of 2025:

• Revenue: $41.0 million (+81% YoY)

• Adjusted EBITDA: $14.8 million (36% margin, holding steady)

• Fleet size: 2,351 units by end of Q3 (+88% YoY)

• US revenue contribution: 36% (up from ~15% in 2024)

They produced 1,016 towers in the first nine months alone. That’s more than double their entire 2022 fleet, built in less than a year. And they’ve opened new service centers in Denver, Phoenix, and Las Vegas, all showing “rapid growth” in their first year.

The 50-Tower-per-Week Manufacturing Moat

Here’s where things get really interesting.

As of February 2026, Zedcor’s new Houston manufacturing facility is fully operational. It’s 50% bigger than the old site, and they’ve ramped production to over 50 towers per week.

Do the math: 50 towers/week × 52 weeks = 2,600 towers per year.

For context, it took them several years to build their first 1,000 units. Now they can build twice that in a single year.

This is a massive competitive advantage:

• Enterprise orders: A national account asking for 500 units? Done in 10 weeks, without disrupting other deliveries.

• Geographic speed: They can supply new service centers in California, Florida, and Georgia simultaneously, ensuring sales teams have inventory on day one.

• Unit economics: Centralizing manufacturing for all of North America in one facility drives volume discounts on cameras, sensors, steel, etc.

Plus, they’ve de-risked the supply chain. They pre-ordered the bulk of their cameras and 35% of their steel for 2025/2026 before tariffs hit. And since raw steel is less than 10% of total tower cost, they’re insulated from commodity volatility.

The Labor Arbitrage Play (And Why It Works)

Let’s talk about why this business model is so compelling.

The traditional physical security market is trapped in a low-margin, high-churn model that relies on human guards. Wages are rising—$15 to $40/hour depending on the market—and labor shortages are chronic. To provide 24/7 coverage at a single site, you need 168 hours of labor per week, costing $18,000 to $36,000 per month.

A MobileyeZ tower, including 24/7 live verified monitoring, costs $1,200 to $3,400/month. That’s $1.64 to $4.66 per hour.

This isn’t a marginal improvement—it’s a structural cost advantage that gets more compelling as labor costs rise and budgets tighten.

And the security outcomes are better.

Traditional “blind” alarm systems have a 95% false alarm rate. When every motion sensor triggers a generic alert, police stop responding quickly, and the whole system becomes useless (”alarm fatigue”).

Zedcor’s approach uses AI to filter out irrelevant motion (animals, shadows, passing cars) and only alerts human operators to real threats. Once verified, operators do an immediate “talk down” via speakers, which resolves 95% of incidents before they escalate. If the intruder persists, police get a detailed description—much higher priority than a blind alarm.

The case study with D.R. Horton showed a 50% reduction in theft and $1 million in savings for a single division over 10 months. That’s the kind of ROI that gets CFOs excited.

The Margin Story (And Why It Matters)

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Imagine catching Gore-Tex, MIPS, or XPEL at the exact moment they pivoted from “cool niche tech” to “universal industry standard.” That is the inflection point currently facing Aluula.

Initially known as a high-end supplier for wind sports, Aluula is undergoing a radical transformation. They aren’t just selling wind sport material anymore; they are scaling a proprietary, adhesive-free manufacturing platform that produces materials up to 15x stronger than steel, yet light enough to float and 100% recyclable.

Before I go further, a special thank you to Meredith Brill for the initial exposure to the idea and for taking her time to speak with me about Aluula. She knows the business more than any other investor out there and when she talks, I listen. Check out her video pitch on Aluula. Now, on with the show…

Why the Opportunity is “Hidden”

At a ~$100M CAD market cap on $6M in trailing sales, the surface-level multiples might give a value investor pause. However, the real story lies in the “Lollapalooza Effect” brewing under the hood:

• The Tech Moat: A “no-glue” fusion process that eliminates delamination and enables “no-sew” heat-welded construction.

• The Scaling Milestone: The recent shift to industry-standard 1.5m widths, unlocking high-volume industrial and commercial markets.

• Strategic Refocus: The divestment of their retail arm (Ocean Rodeo) to become a pure-play, neutral ingredient brand partner.

• The Funnel: A massive backlog of active brands—including giants like Michelin—moving through an R&D pipeline that could drive a 10x revenue explosion.

With 45% insider ownership and a management team seasoned in global scaling, Aluula is no longer an R&D experiment, it is a manufacturing platform ready to disrupt the massive global textile and composites market.

The Technology Overview

Ultra-High Molecular Weight Polyethylene (UHMWPE, or UHMW) is a thermoplastic polyethylene with extremely long molecular chains (2–6 million daltons), providing exceptional durability, impact strength, and wear resistance. It is significantly stronger than steel by weight, highly abrasion-resistant, self-lubricating, and chemically inert, making it ideal for industrial, marine, medical, and high-performance applications.

ALUULA’s moat is not the fiber, which can be sourced from various vendors, but the process IP (and trade secrets). By eliminating adhesives, Aluula has solved the “creep” problem (material stretching under load over time) that affects almost all competitive laminates. Furthermore, the company’s ability to offer a “monomaterial” solution positions it as the only supplier capable of meeting the rigorous circularity mandates (completely recyclable) being introduced in the EU and North American textile markets.

The foundation of Aluula’s competitive advantage lies not in the discovery of a new fiber, but in the invention of a superior method for bonding existing high-performance materials. The core constituent of Aluula fabrics is UHMWPE. While UHMWPE fibers are recognized for being up to 15X stronger than steel on a weight-for-weight basis, they possess a notoriously low surface energy, making them virtually impossible to bond using traditional industrial adhesives.

Traditional composite manufacturers circumvent this “non-stick” property by sandwiching UHMWPE fibers between layers of polyester film (PET) or other polymers, utilizing heavy chemical glues to maintain structural integrity. This approach introduces two fundamental weaknesses: delamination and environmental toxicity. Adhesives act as a point of structural vulnerability, often failing under the repetitive stress of flexing or extreme UV exposure, leading to the peeling of layers. Furthermore, the presence of these adhesives renders the material unrecyclable, as the disparate polymers cannot be cleanly separated at the end of the product’s life cycle.

All of this gives Aluula the unique advantage of making a unique material with the following intrinsic characteristics:

1. Lightweight

2. Strong

3. Avoids delamination (adhesive free)

4. Damage resistant (abrasion, puncture, tear)

5. Water proof / UV and salt resistant

6. Capable of holding gas

7. Unique in its look and feel (can be a positive or negative)

8. Fully recyclable (mono polymer)

The Manufacturing Platform Hook

The relationship to the end markets for Aluula’s material is simple but not easy. They are an ingredient in a brand partner’s design but the brand partner, who sells their products to the end markets, are not the manufacturer in most cases. Using Arcterix as an example, they use a trusted manufacturing partner who has to include Aluula in their production facilities and methods in order to incorporate Aluula as an ingredient.

This means that Aluula can be seen as a new platform that needs to be digested, incorporated, transitioned into the capability of the manufacturer’s equipment and processes. This isn’t as simple as changing out some equipment, it is a whole new process (heat pressed welding, not seems). There are some advantages to the transition of course, but it is a significant barrier to entry that is not a barrier the incumbent materials need to overcome.

“As a good rule of thumb, proprietary technology must be at least 10 times better than its closest substitute in some important dimension to lead to a real monopolistic advantage. Anything less than an order of magnitude better will probably be perceived as a marginal improvement and will be hard to sell, especially in an already crowded market.”

― Peter Thiel, Zero to One: Notes on Startups, or How to Build the Future

Is Aluula 10X better? This is the million billion dollar question…

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"The report of my death was an exaggeration"

- Mark Twain

Constellation Software’s stock price appears as though it is on track to be a worthless corporate entity by the end of the year. The story of their demise then quickly follows suite. The classic “narrative follows price” is as evident now as it was when the stock was forever propelling higher year after year.

The truth about the quality of the business over the long term was and is somewhere in between these narrative extremes (it was and is a damn good business). CSI is not a business that can do no wrong, in fact they have made many mistakes over the years. The beauty in the culture and decentralized model is one in which they do measured experiments, share best practices, to learn, and fully take advantage of those mistakes as opposed to suffer deep consequences from them. Being an acquirer of small to medium sized businesses inherently offers this as a feature. No one acquisition (even the large ones) can wipe of the business in any meaningful way. No one vertical market, sector, geography, customer, industry, etc. can be a meaningful existential risk.

So SAAS Story Goes…

The prevailing narrative in 2026 is that the traditional SaaS business model is being “cannibalized” by AI. For two decades, software was valued as a high-margin tool that humans used to increase their own productivity, usually billed per “seat.” Today, that model is collapsing because AI agents are shifting the value from the tool to the task itself. We have entered the era of Software-as-Labor (SaaL), where the market no longer wants to pay for a subscription that a human must operate; it wants to pay for the “outcome”—whether that is a resolved customer ticket, a completed legal brief, or a processed invoice. This has turned general-purpose software into a deflationary commodity, compressing margins and threatening the “moat” of any company that lacks proprietary data.

AI and Acquisition Concerns: A major drag on sentiment is the perceived threat from AI, potentially reducing demand for legacy software or shrinking the pool of acquisition targets in vertical market software (VMS).

Counterarguments from investors note that CSU’s niche, regulated markets (e.g., utilities, transit) have slow adoption cycles, making disruption less imminent, and lower valuations could actually expand acquisition opportunities within CSU’s strict 20% IRR hurdle rates.

There’s speculation about share buybacks if the decline persists, which could signal confidence in compounding at high rates.

- From Grok on X: AI summary of investor sentiment and narrative regarding AI and its impact on CSI

The VMS Paradox: Stability in the Niche

While Horizontal SaaS (software for everyone) faces an existential crisis, Vertical Market Software (VMS), long considered the “boring” corner of tech, is emerging as the great AI-resilient holdout. The nuance lies in the “System of Record” vs. “System of Action” divide. While AI can easily replicate the action (writing an email or organizing a task), it cannot easily replace the record (the regulatory-compliant database and official workflow of a municipal water system or a specialized medical practice). VMS companies, such as those owned by Constellation Software, operate in tiny, “inch-wide, mile-deep” niches where the software is often legally or operationally “bolted” to the business. In these environments, the cost of switching is driven not by UI preference, but by the massive risk of data loss and regulatory non-compliance, making them remarkably immune to the “vibe-coding” startups currently disrupting the broader market. For years, CSI bears have pointed to “crappy” dated UI of many of the VMS offerings as evidence of the poor quality, when in fact this was argument of quality! The stickiness so high, even a dated windows 98 motif could not make companies move to alternatives. It was never about the code.

Constellation as a Capital Fortress

For a capital allocator like Constellation Software, the rise of AI is viewed less as a threat and more as a long-term efficiency filter. The current narrative suggests that AI makes software easier to build, which should theoretically invite competition; however, the VMS reality is that distribution and trust are the real moats, not the code. Constellation doesn’t buy “growth,” it buys “permanence.” or in some cases, just buys at such a low price, the durability of the product is not impactful to returns of the investment. In 2026, the narrative for VMS is one of “Defensive AI”: using agents to lower internal R&D costs and clean up legacy “unstructured sludge” (PDFs, logs, and manual records) to make their existing databases even stickier. While broad SaaS companies are forced to reinvent their entire billing structure to survive, the VMS model continues to thrive on the “structural monopoly” of being the only provider in a niche too small for Silicon Valley to care about, but too mission-critical for the customer to ever leave.

The question one must ask is something along the lines of one of the following:

“is the plumbing parts distributor going to vibe code an alternative to a product they know works already?” or

“is this 5-10 million niche vertical something worth competing with a new entrant just because anyone can code up a compelling new VMS?” or

“is the AI going to go and sell this code for me, to customers and verticals a new entrant likely doesn’t know as well as the incumbents?”

Valuation Review

With the current stock price at $2,700 CAD, the valuation for Constellation Software has moved into a significantly more attractive Margin of Safety zone (cheeky, I know). At this level, the market is pricing the business as if its best days are behind it. This could be a unique window for investors who understand the durability of Vertical Market Software (VMS).

• Current Stock Price: $2,700 CAD

• LTM Operational Cash Flow (OCF) per share: ~$170 CAD (Approx. $124 USD)

• Implied P/OCF Multiple: 15.9x

Historically, Constellation has traded at a median of 25x OCF. Buying it at under 16x is essentially getting a “Quality-at-a-Reasonable-Price” (GARP) entry for what remains one of the greatest compounding machines in history.

5 and 10-Year IRR Scenarios

Assuming a starting OCF of $170 CAD/share and a current entry of $2,700 CAD, here is what your annualized returns (IRR) look like based on varied growth and exit multiples. This is not meant to be a complete in-depth valuation model for an investment from here but rather to give some broad view of possible outcomes, with some implicit assumptions regarding the stability of the business model relative to its own history. Obviously if you believe VMS is dead, these projections won’t be of any value and you would lose money.

Baby, Meet Bathwater

I truly believe AI tools and agents and whatever other end use we want to describe will be impactful to essentially all of business. And I don’t think I differ in my view on the large horizontal SAAS destruction that will likely have meaningful impacts on business models and products that businesses like Adobe, Workday, Salesforce and others offer. Where I do differ from some is about the distinction that VMS has in terms of the impact on businesses like Constellation.

Ironically, Constellation Software, much like Mark Twain and his sick cousin, has been mistaken as the same as the large SAAS winners that are under threat. And on a unrelated but somehow applicable narrative note, it was recently mentioned that the other Mark (Leonard) is expected to make a full recovery after stepping down due to health concerns. You can’t make this stuff up; a fitting narrative, indeed.

And if that analogy didn’t resonate with you, try this classic Monty Python skit on for size…”Bring out your dead!”

That’s it for now.

- Simon

This Again?

For those of you following along, Avricore (AVCR on the TSX-V) has been a painfully bad investment for me (I was wrong about the fundamental thesis) but an amazing investing lesson as well. I’ve been following along with their pivot plans to forget about growing in Canada and turn their focus towards partnering with neighborhood pharmacies in the UK, starting with a pilot program in North East London.

Before we go further, a disclaimer: I still own some stock in AVCR, so keep that in mind and know I’m likely to be biased.

To catch you up on the story:

1. Healthtab is their point of care rapid testing product. They deploy Abott equipment (the hardware) and integrate their software (Healthtab) as a turnkey POCT (Point of Care Testing) offering to end customers, mainly pharmacies. This is relatively new ground for most western ways of conducting medical care, namely its mostly preventive/diagnostic but also its meant to be done via a pharmacist, not a doctor/nurse.

   

2. Shoppers (and Loblaws, who owns Shoppers Drug Mart - aka SDM) were far and away the biggest customer. Initial growth looked amazing, up to several hundred pharmacies were technically offering the service in several provinces. Alas, there was no real push for the service and governments in Canada being provincial in terms of who controls medical regulations meant very slow progress. Shoppers gave up on the MSA and moved on. Rexall remains a small client in Canada in very limited numbers, say a handful, not meaningful.

3. The company pivoted to UK where they were able to get in with a pilot program in north central London as the UK gov looks to improve access and service to focus on prevention care to a badly managed healthcare system.

4. The (now-former) CEO was fired.

5. The CTO was appointed CEO, likely to be an interim measure. He appears to be leading the UK pivot and expansion.

6. Recently announced growth in the pilot to an additional 70 pharmacies in the

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I wouldn’t trade this underperformance for any of my personal blessings that came this past year. 2026 is on our doorsteps. I would be lying if I said I wasn’t having some investing fatigue this past year. I’m hopeful that enough time has past that I can rejuvenate myself in 2026 with some fresh ideas as well as improving weightings in existing holders. Reflecting has been helpful in finding that selling has been the biggest issue in the last few years (both ways). (Not) cutting the weeds being a large part of this.

Selling is Hard

There are, for me anyway, three main challenges when it comes to selling:

1. Ego - If I thought this was a great idea to buy, it is surely admitting defeat to sell. This plagues a lot of people, other than the best of investors in the long term. It is something I would like to improve on and I think admitting it (especially publicly) is a great first step.

2. Timing - When exactly does a business change from good to bad? It isn’t as if one day, all of a sudden you get news that actually this isn’t a good long term business to be a part of. I would like to setup some rules for myself to help with this one. Mainly, a minimum hold period after I buy something (2 years seems reasonable to me, even for microcaps to actually play out from the thesis). After that if the business isn’t doing what it was supposed to do, I was wrong and should get out promptly (illiquid stocks do take time to get out of though).

3. Alignment with a Buying Opportunity - I need to do a better job of cultivating the bench for the portfolio so that I have better things to buy. Ideally, these should be “pushing” for things to be sold so that they can be bought. I should also be more patient and willing to sit on some cash. Historically, I have not done that and I suspect it is my temperament (patience) that is the cause, not the strategy.

Existing Stock Ideas

Below are some quick thoughts on my current favorite ideas going forward that are not new. If I had to guess, these would be the best performers over the next 3-5 years that I already own. I recently added to all three and they are major weights in the portfolio (updated portfolio coming soon). I think Charlie sums it up best.

Happy Belly Food Group

Heal and Rosies are growing like weeds. They are making entry into some select US markets and are continuing to get great locations in existing Canadian markets. Yolks is also growing (it is not as much a fast food brand so won’t have that sort of growth). They are staffing up for expectations to around 2x the store count for Heal and I expect similar growth for Rosies. Strategically, they just sold their Holy Crap! CPG brand which I think signals they want to double down on their focus with QSR brands. It also signals they are fully willing to sell their brands for the right price, something the CEO has said before. To me, this is smart capital allocation as these brands are not necessarily “forever” names; some will be in style with high growth for a few years, others a bit longer, but most will fizzle at some point. Look no further than MTY brands for evidence of this as something that is normal in the industry. Selling once they are established to incubate others to grow makes a lot of sense to me as a longer term strategy for their capital. This strategy will take years to play out but so far they are executing well.

Constellation Software and related

AI fears seem a little overblown but only time will tell. From what I can tell, there are plenty of opportunities to reinvest the scalable model that CSU, TOI, PineTree, Sygnity, Lumine and future spins will employ. Valuation for the growth engine (even if we assume slower growth going forward due to size) is at relative lows compared to the past 5 years. Historically, investors have done well buying at these levels. I am comfortable holding and would even continue to add with new funds if there are no other opportunities that are obvious.

Zedcor

They are growing their towers. They are selling more to more customers and in more industries. I’m happy to watch this thing grow for the next few years. Enough said.

New Stock Ideas

Below you will find four “new” stock ideas that I find interesting. They all have high potential for big returns over the next few years based on the business growth and/or quality. They are all relatively small and unfollowed, although some have a growing following of individual and small institutional investors.

Aluula

Aluula holds a proprietary patent for molecularly fusing polymers, creating composites that are 50% lighter and significantly stronger than incumbents by eliminating heavy glues. They have successfully validated the technology in the niche windsports market and are now entering a rapid growth phase through confirmed commercial partnerships with major outdoor brands like Arc’teryx. Beyond consumer gear, the company is unlocking high-volume industrial revenue streams through aerospace and wind energy applications where weight reduction directly correlates to cost savings. Their “mono-polymer” chemistry solves a critical supply chain problem, offering one of the few high-performance materials that meets strict new industrial recycling mandates.

Essentially, this is an early-entry opportunity into a high-margin “ingredient brand” model with the technical moat to become the standard for lightweight durability, similar to the trajectory of Gore-Tex. Microcap investors have already caught on to this idea and the stock has surged as a result. So it means you need to believe in the long term TAM for this product to be a buyer, which I think has potential. Execution is the risk here.

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The Elevator Pitch

Small-cap equities occasionally present opportunities for outsized returns when a company combines a scalable model with disciplined execution. Happy Belly Food Group (CSE: HBFG), valued at approximately C$160 million, has built momentum in both quick-service restaurants (QSR) and consumer packaged goods (CPG). Its trajectory, coupled with strong management alignment through insider ownership and performance-based incentives, suggests that effective execution could yield meaningful compounding. For long-term investors comfortable with higher risk in pursuit of superior returns, Happy Belly represents a differentiated opportunity in the Canadian small-cap landscape.

Business Model

Happy Belly Food Group operates as a multi-brand platform, acquiring promising food and beverage concepts and scaling them nationally.

• Core Strategy: Acquire emerging food brands and expand them through franchising or expanded distribution.

• Revenue Mix: Corporate store sales, franchise royalties and fees, and retail CPG products.

• Operating Approach: Favor an asset-light model by relying on franchisee capital, while selectively owning flagship stores.

• Objective: Transform regional concepts into nationally recognized brands through systems, marketing, real estate, and supply chain support.

This approach resembles mature consolidators such as MTY Food Group, though Happy Belly is at an earlier, higher-growth stage with greater reliance on acquisitions.

A quick message about a tool I use in my investing research…

Use code SIMON10 and get 10% off at ROIC.AI

Growth Outlook (3–5 Years)

The last two years highlight the company’s ability to scale:

• 2024 Results: 30 new restaurants opened, bringing the network to 43; system-wide sales surged +419% to $30.3M.

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There is a tremendous siren song playing loudly during bull markets. An anthem of the successful investor: the “100 bagger”.

It is actually quite useful to think in terms of long term high rates of compounding and the difference it can make over time, the quest for 10, 20, 50, even 100 or more multiples of the initial investment. I actually think there’s a lot to be learned by studying 100-baggers and even recommend strongly people read Chris Mayer’s book of the same title.

The problem becomes when people either romanticize the story or they actually try directly “hunting” for such businesses. This will inevitably turn your brain into an irrational space, either taking on too much risk in an effort to find secret shortcuts to bypass the time component or making venture type bets akin to taking a bachelor party trip to a Vegas casino (and not a good one).

The Reality

Instead of even thinking about 100 baggers, its much more effectively to think in terms of 5X or 10X. The reason is not that the math works any differently. But it can ground you a timeframe and returns that are well within reasonable efforts to look for. And your hit rate can be orders or magnitude higher. String together a few of these in your investing career and the results of a 100-bagger look like child’s play.

Let’s dissect the math. There’s two key variables to get to a 10X. They are essentially the same types of things you would study in 100-baggers: time and return.

A 10× happens in this amount of time for the given annual return. I chose these cases to show you the bounds of what is possible.

• 15% per year → ~16.5 years

• 20% per year → ~12.6 years

• 30% per year → ~8.8 years

Less than 15% is still is a good portfolio return. But hopefully it isn’t your best performer in your portfolio. Somewhere around 20%, there have been numerous relatively well known stocks that have been able to do this over long time frames (10+ years). Closer to 30% per year is pushing what is realistic for even the best businesses with rare exceptions. Faster rates than this are typically short lived.

The annual return can be thought of as total shareholder return (TSR). The components include growth (cash flow - so some combination of revenue and/or margin expansion), shareholder yield (buyback + dividend yield), multiple re-rating. The key is to consider the per-share metrics here. Cash flow is great but its no good if stock is given away like candy and your ownership over the cash flow disappears.

Let’s look at three hypothetical paths:

A) The “pure compounder” route (patient, low drama)

• Assume: 11% per‑share growth (steady reinvestment, modest margin tailwind)

• Plus: 2% net buyback yield

• Plus: 2% dividend yield

• Multiple: flat (no re‑rating)

  TSR ≈ 15% → ~16.5 years to 10×
  This is the “own a great business for a long time” path. Entry price must be sensible because you’re not counting on multiple expansion. Great capital allocators at the helm of the management for these types of businesses can squeeze out a lot of juice from an otherwise decent but not amazing business. If you can find these, you should be happy to own them for long periods. The key here is the long period, as the growth is not blowing your returns out of the water in the short term. Short term swings in market re-ratings will do more in terms of return than the business performance and capital allocation.

B) “Execution + some re‑rating”

• Assume: 12% per‑share growth

• Plus: 3% net buyback yield

• Plus: 1% dividend yield

• Multiple: entry P/E 12 → exit P/E 18 over 10 years

  • Annualized multiple effect ≈ +4.1%

  TSR ≈ 20% → ~12.6 years to 10×
  Here you underwrite tangible per‑share growth and allow a modest normalization of the multiple from “cheap” to “fair.” As compared to scenario A, the impact of buying cheap is seen clear as day here. It also helps the buyback yield considerably the “cheaper” the stock is in the beginning.

C) “High‑quality compounding with a strong re‑rating”

• Assume: 18% per‑share growth (new products, pricing power, reinvestment runway)

• Plus: 3% net buyback yield

• Plus: 2% dividend yield

• Multiple: entry P/E 10 → exit P/E 20 over 10 years

  • Annualized multiple effect ≈ +7.2%

  TSR ≈ 30% → ~8.8 years to 10×

  
  This is still reasonable if the starting multiple is suppressed and the business can genuinely grow per‑share economics high‑teens for a decade. This is the dream scenario. The typical ways to buy companies like this are when they are under very temporary duress, hated by investors, or are still relatively unknown (too small or new), or have not undergone some business transformation yet. This is rare and if you are fortunate to find a few of these cases in your investment career, try to hold on long enough. A lot of people are tempted to sell these winners too quickly as they approach “fair value” (myself included).

My Personal Experience

Alas, real life is not math and catchy phrases about compound interest. I have had mixed success/failure when it comes to holding onto potential and real 10-baggers. On reflection, the biggest issues I’ve had (that have cost me plenty of money) have been both omissions (where I should have known better) and quite often simply selling too early in the story. The temptation to take your winnings after a nice gain in a short period is strong. And it isn’t always wrong, but if there is plenty of runway remaining and nothing fundamentally wrong with the business, a longer leash should be used.

With Constellation Software, I was able to purchase at reasonably decent valuations a few years ago and it could very well be on its way to be somewhere in the 10-bagger realm within the next 5 years (it will have been around a decade by then). I’m hopeful that their ugly duckling step siblings, Pinetree Capital and Sygnity S.A. will also be candidates to become 10X’s for me.

I decided to pass on Zedcor initially but recently corrected that mistake. It will be well on its way to 10-bagger status (if I bought when I first studied it).

Vitalhub was one I did own but sold too quickly after some temporary risks associated with their off-shore development team got me worried. I also recently bough back into Vitalhub after thinking about their long term potential to grow much larger and get better margins.

Finally, I also bought (and sold too quickly) Happy Belly Food Group. I was able to buy for under 0.20$ initially and sold after just over a double in the stock price had me thinking I had gotten a fair return for the risk. Boy was I wrong. The good news is that I also recently corrected this mistake.

The smaller positions are difficult to see or are not detailed on the above chart, so here is the full list in the table that follows:

I have no in-depth commentary on the portfolio at this time but I wanted to provide an update. I am planning some company specific updates coming in the near future. Check out my recent posts on Secure Waste Infrasture, Boyd Group, and updates on OTCM and Pinetree Capital.

What Is OTCID, and Why Does It Matter?

On the surface, the transition from the old “Pink Current” tier to the new OTCID™ Basic Market is a simple name change. But dig a little deeper, and it’s clear that OTCM is shifting its business model toward higher quality standards, improved transparency, and a bigger fee pool.

• More Stringent Requirements: Companies in the OTCID tier will need to file quarterly and annual financials, have verified share data, and submit an annual management certification—raising the bar well above the historical “Pink Current” minimums.

• Higher Fees: The new market structure boosts annual issuer fees from $5,000 to $7,500 and ramps up first-time application fees (now $11,000, up from $1,000). This meaningfully increases the revenue opportunity per company.

• Better Disclosure, More Trust: By nudging companies toward higher standards, OTCID aims to attract higher-quality issuers and investors, while discouraging “zombie” tickers or opaque firms from clogging up the platform.

  Margin of Safety Investing is a reader-supported publication. To receive new posts and support my work, consider becoming a free or paid subscriber.

Impact on OTCM’s Business Model

Short Term:

Expect a flurry of application activity in Q3 and Q4 2025 as issuers rush to comply before the May 2025 deadline. This should provide a one-time bump to Corporate Services revenue (OTCM’s largest segment).

In the short term, some keen investors have already taken notice and the stock has been moving higher.

Medium Term:

The shift to higher recurring fees is likely to structurally increase revenue from existing clients—offsetting declining issuer counts that have dogged OTCM in recent years. For OTC Link ATS (the trading platform) and Market-Data Licensing (data sold to brokers and quants), richer company data and better disclosure should drive higher engagement and potentially justify premium data pricing.

Longer Term:

If OTCID successfully raises the standard, the quality of issuers and the reliability of data on the platform should improve. This could attract more liquidity, encourage more broker-dealer participation, and further entrench OTCM as the de facto venue for quality small- and micro-cap trading outside of the main exchanges.

What Could Go Wrong? Risks for Investors

• Issuer Attrition: Not all companies will (or can) meet the new standards. Some may migrate to lower tiers (Pink Limited/Expert Market) or delist altogether. If attrition outpaces fee gains, the revenue boost could be muted.

• Execution Risk: Upgrading compliance infrastructure and onboarding thousands of issuers comes with cost and complexity. Investors should watch SG&A (selling, general & administrative) expenses closely during this transition.

• Regulatory Wildcards: The move aligns OTCM more closely with SEC disclosure rules, but sudden regulatory changes—such as shifts in access to Expert Market, or overnight trading rules—could still throw a wrench in the business model.

The Big Picture: A Higher Quality Moat

For long-term investors, the shift to OTCID marks an important evolution in OTCM’s moat. By creating a clearer “issuer ladder” from basic disclosure (OTCID) up to higher tiers (OTCQB/QX), the company positions itself as an indispensable partner for quality microcaps. Better standards and richer data mean more sustainable fee growth and greater resilience to regulatory shocks.

If management executes well, OTCM’s valuation could re-rate toward its larger exchange-operator peers.

Recent Investor Sentiment

The stock has recently gotten a bit ahead of itself, reaching mid-twenties price levels. These levels represent something around 2X book value. Even for something that has the advantage of tax-loss carry forwards to take advantage of, allowing relatively frictionless capital recycling, this is likely pushing the bounds of what makes any real sense to pay for a holding company the likes of Pinetree.

Above 20$, L6 Holdings (the Leonard family vehicle that is partnering with Pinetree on friendly activist investments such as their stake in Bravura) has been net sellers of Pinetree stock (small amounts). This seems like they are opportunistically taking advantage of any euphoria in the stock in which the price is far above their hurdle rates and there is liquidity available. I would keep an eye on this going forward for signs of the stock price getting ahead of itself again. The caveat here is that they also did this when the stock price was just above 10$ or so and in hindsight that was a likely a bit premature.

If we take a look, you can see the rise in valuation premium as the company has executed very well with somewhere around 50% growth in book value per year starting in 2023. The other aspect here is the relative awareness of investors. Still today, Pinetree is too illiquid for most investors with any significant amount of capital to deploy.

Holdings

Pinetree holds both public and private investments, with the majority being in the public equities side (small VMS businesses they have an edge on and can help

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This is why I’ve started a side-project that I’d love for you try out. I present to you: Prime Movers.

Prime Movers

Actionable insights from standing on the shoulders of giants

By Simon Handrahan

A publication where we explore the extraordinary lives and groundbreaking contributions of trailblazers who truly moved the needle in their fields. Each post will highlight a remarkable individual whose innovative thinking, laser-focused determination, and courageous progression transformed the landscape of their discipline.

From visionary scientists and daring entrepreneurs to pioneering artists and thought-provoking philosophers, these are the prime movers whose shoulders we stand upon to see further, clearer, and deeper.

"If I have seen further, it is by standing on the shoulders of giants.”

- Sir Isaac Newton

Check out the posts out so far on Tiger Woods, Angela Merkel, Jeff Bezos, Mark Zuckerburg, Charlie Munger, and coming soon: Winston Churchill, Muhammad Ali, and many other greats in all fields.

For those wishing to stick to the investing world, I would suggest starting with the Charlie Munger post below.

Prime Movers

Charlie Munger

This article contains affiliate links, which may earn us a commission at no extra cost to you…

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a year ago · 1 like · Simon Handrahan

Our analysis suggests this initiative, if executed successfully, has the potential to evolve Meta from a predominantly advertising-driven enterprise into a diversified, higher-margin AI-driven platform. The path will inevitably be volatile and costly in the short term. However, the potential long-term payoff could be significant, resulting in a structurally stronger and more durable business.

Why the AI Push Matters for Meta’s Long-Term Business Quality

1. Moat Expansion Meta’s strength already lies in its vast data assets across Facebook, Instagram, WhatsApp, and Messenger. Advanced, proprietary AI models trained on this unique dataset can significantly enhance content recommendation, targeted advertising effectiveness, and platform safety. These improvements would raise user engagement and advertiser ROI, thereby deepening Meta’s competitive moat and solidifying user retention through higher switching costs.

2. Second Growth Engine Currently reliant primarily on advertising revenue, Meta could leverage its AI developments to open substantial new revenue streams. These include monetizing AI models through enterprise APIs, integrating advanced premium AI assistants within its extensive ecosystem, and enabling sophisticated AR/VR experiences. Each of these avenues offers high-margin, recurring revenue potential, helping Meta diversify its profit streams.

3. Self-Reinforcing Flywheel Superior AI capabilities can significantly improve user experience, which drives higher engagement and richer data generation. Enhanced data then refines AI further, creating a virtuous cycle that compounds value. Such self-reinforcing loops characterize high-quality compounding companies, enabling sustained competitive advantage and consistent earnings growth.

Meta’s Strategy vs Peers

For long-term quality investors, Meta’s aggressive direct-investment strategy highlights a willingness to pursue high-risk, high-reward opportunities to solidify future dominance. While such concentrated governance under Zuckerberg enables decisive long-term bets, it also requires investor trust in management's capital discipline and strategic judgment.

Prime Movers

Mark Zuckerburg

Mark Zuckerberg’s ascent from a Harvard dormitory coder to chief executive of Meta Platforms illustrates how a single entrepreneur can redirect the trajectory of global communication and commerce. As Facebook’s co‑founder and long‑standing CEO, he architected the largest social network in history, linking billions of users and pioneering features—such a…

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9 months ago · Simon Handrahan

Key Milestones

Long-term investors must tolerate near-term earnings dilution as the necessary investment to unlock future optionality and sustained competitive advantage.

Valuation and Capital Allocation

• Current Valuation Context
  Meta shares currently reflect its strong advertising cash flows, assigning limited value to its AI-driven optionality. This provides investors a margin of safety should Meta’s AI endeavors at least partially succeed.

• Capital Discipline During Investment Phase
  Investors should monitor capital allocation carefully—R&D spending and capital expenditures should peak by around 2026, after which disciplined management should slow spending as AI initiatives mature and start generating returns.

• Financial Strength & Cash Flow Generation
  Despite heavy upfront investments, Meta’s core businesses remain highly cash-generative, capable of funding these strategic investments without jeopardizing financial stability.

• Strategic Shareholder Returns
  Monitor share buyback activity during periods of market pessimism. Opportunistic repurchases at attractive valuations can amplify long-term compounding potential.

Stewardship and Risk Considerations

1. Execution Risk
   Successfully integrating numerous highly paid external hires into Meta’s established culture is complex. Poor execution here could significantly impair returns and dilute internal morale.

2. Regulatory and Trust Risks
   AI-powered personalization strategies will inevitably face intense regulatory scrutiny on privacy, misinformation, and antitrust fronts. Robust governance and proactive compliance frameworks will be essential to mitigating these risks.

3. Capital-Allocation Overshoot
   Investors must maintain vigilance on capital allocation decisions, requiring clear performance metrics (such as model quality improvements and commercialization pace) to justify continued high expenditures.

4. Technological Uncertainty
   AI breakthroughs, particularly AGI ambitions, carry inherent uncertainties. Diversifying R&D investments across multiple avenues will help mitigate this single-thesis risk.

The Rosy Conclusion:

Meta’s ambitious AI strategy represents a long-term quality bet aimed at fundamentally strengthening and extending one of the world’s leading consumer technology platforms. For patient, quality-focused investors, the company offers:

• Durable Core Cash Flows
  Meta’s advertising-driven profitability provides stable financing for transformative innovation.

• Undervalued Optionality
  Investor skepticism surrounding high initial spending may overlook substantial potential future growth and diversification.

• Clear Progress Milestones
  Concrete and trackable indicators (model benchmarks, product launches, margin improvements) allow investors to continuously reassess progress.

By accepting short-term volatility and margin compression as investments in a stronger future, investors align their holding period with Meta’s strategic horizon. Investors should size positions in accordance with their conviction and risk tolerance, staying disciplined about execution and capital allocation signals. This disciplined approach can ultimately yield significant long-term returns from a uniquely positioned AI-driven growth engine.

I’m happy to say I look forward to the next 100. In reflection of my time as an investor (something like 17 years, let’s call it), I’ve grown a great deal from making mistakes (mainly), learning from others, having real life experiences, researching businesses and leaders, and finally from reading books.

I’ve read fewer books than I’d like to admit but enough that I’ve had a chance to reflect on what were truly the biggest influences on my improvement as an investor. Here they are, in no particular order:

The Snowball: Warren Buffett and the Business of Life

Schroeder’s biography doesn’t just chronicle Buffett’s track record. It shows how an obsession with compounding, rationality, and an almost monk-like focus on capital allocation shaped every decision he made. For the individual investor, the book is a master class in long-term thinking and illustrates why temperament often outweighs IQ in building enduring wealth.

One up on Wall Street

Peter Lynch demystifies stock-picking by teaching investors to “invest in what you know,” blending everyday observations with rigorous homework. His simple yet powerful categories (stalwarts, fast growers, turnarounds) give readers a practical framework for spotting mispriced gems before Wall Street catches on.

You can be a Stock Market Genius

Despite the playful title, Greenblatt delivers a street-smart manual on special situations: spin-offs, mergers, restructurings. Most amateurs ignore these (or they did before this book was published anyway). By revealing where the market is structurally inefficient, he equips individual investors with a niche playbook for achieving outsized returns without needing inside information.

The Outsiders

Thorndike profiles eight unconventional CEOs who compounded shareholder value through disciplined capital allocation rather than headline-grabbing growth. The takeaway for private investors is clear: great management often looks boring in real time but proves dazzling in hindsight; follow the cash, not the charisma.

Thinking Fast and Slow

Daniel Kahneman’s exploration of System 1 (intuition) and System 2 (reason) arm investors with a vocabulary for their own biases such as overconfidence, loss aversion, anchoring. These biases, unchecked, silently erode returns. Reading it makes every subsequent investment decision a little more self-aware, and therefore more rational.

100 Baggers

Chris Mayer distills common threads like sustained high returns on capital, long growth runways, shareholder-friendly cultures and relays them to stocks that delivered 100-to-1 gains. For investors, it reframes portfolio construction around possibility rather than mere probability, encouraging patience and conviction in truly scalable businesses.

Poor Charlies Almanack

Part memoir, part mental-model anthology, Munger’s collected talks hammer home multidisciplinary thinking and the power of avoiding stupidity over seeking brilliance. It’s a portable checklist of heuristics from economic, psychological, even biological domains that sharpen an investor’s judgment far beyond the balance sheet.

That’s all I have for now. Again, thanks to all those who have been reading my work. I look forward to continuing to publish more investment ideas and updates on the businesses that are interesting to me and hopefully are also to you!

100 posts, 1000 to go!

Share Margin of Safety Investing

Boyd Group Services Inc. (TSX: BYD) is one of North America’s largest operators of collision repair and auto glass service centers, with nearly 1,000 locations under brands like Gerber Collision & Glass (U.S.), Boyd Autobody & Glass (Canada), Assured Automotive (Canada), and Glass America. Boyd has achieved rapid growth as a consolidator in the fragmented $50 billion collision repair industry, holding approximately 7% market share as the #2 player behind Caliber Collision (14% share). The company’s new “Double Down” five-year strategic plan targets aggressive expansion and margin enhancement by 2029 – aiming to grow revenue to $5 billion and double adjusted EBITDA to $700 million (about a 14% EBITDA margin). This will be a qualitative and quantitative review of Boyd’s business, industry dynamics, competitive position, management, and a detailed valuation. It will conclude with scenario-based return forecasts over 3, 5, and 10 years, evaluating whether Boyd can clear a 15% annual return hurdle for a long-term investor.

Investment Thesis: Boyd benefits from sustainable competitive advantages as a scale operator in a non-discretionary, steadily consolidating industry. Its extensive North American footprint, strong insurer relationships (top five insurance customers account for ~51% of revenue), and proven acquisition playbook give it a durable growth runway and cost efficiencies that smaller competitors cannot match. The business has shown operational resilience through economic cycles – collision repair demand is underpinned by baseline accident rates and insurance-funded repairs, yielding relatively stable cash flows even in downturns. Boyd’s management has a long track record of disciplined growth and capital allocation, nearly doubling revenue from 2015 to 2019 and again from 2019 to 2025. Looking ahead, structural industry trends such as increasing vehicle complexity (ADAS, sensors, advanced materials) are raising repair costs and favoring large, sophisticated operators like Boyd. These factors support Boyd’s ability to continue consolidating market share and expanding margins (via initiatives like its Project 360 cost savings program).

However, the investment case is not without risks. In the near to medium term, Boyd faces headwinds from macroeconomic and industry factors: elevated inflation in parts and labor, a recent dip in accident claim volumes (due to factors like a milder winter and higher insurance premiums causing some claim deferrals), and rising vehicle total-loss rates (as used car prices normalize, more crashes result in write-offs rather than repairs). These contributed to same-store sales declines of 1.8% in 2024 and margin compression (2024 adjusted EBITDA fell 9% to $334.8M, a ~11% margin). Longer-term, the proliferation of Advanced Driver Assistance Systems (ADAS) is expected to gradually reduce collision frequencies by ~2% annually – a structural headwind to volume growth. Additionally, competition for skilled auto technicians remains intense, and insurance companies continually pressure repair costs and reimbursement rates. Boyd must also execute its ambitious expansion without overpaying for acquisitions or stretching its balance sheet (current net debt/EBITDA is a moderate ~2.8×).

Business Segments & Operations

Core Business: Boyd Group Services operates collision repair centers across 34 U.S. states and 5 Canadian provinces, making it the second-largest collision repair operator in North America. As of Q1 2025, Boyd had 987 repair locations (doing business primarily as Gerber Collision & Glass in the U.S., and Boyd Autobody & Glass or Assured Automotive in Canada). These facilities perform vehicle body and paint work to restore damaged cars to pre-accident condition, largely serving customers referred by insurance companies. In addition to collision centers, Boyd has a significant auto glass repair and replacement division. It is one of the largest retail auto glass operators in the U.S., operating under trade names like Gerber Collision & Glass, Glass America, and others. The glass business handles windshield replacements, chip repairs, and ADAS sensor recalibrations, both through physical service centers and mobile units. Boyd also runs the Gerber National Claim Services unit, which helps manage glass claims and dispatch jobs (a similar model to Safelite’s referral network).

Revenue Mix: The vast majority of Boyd’s revenue is insurance-funded. Approximately ~95% of repair sales are paid by insurance carriers (either through direct repair programs or customer insurance claims), with only ~5% from customer-pay or other sources. This reflects the essential, non-discretionary nature of collision and glass repairs – if an insured driver has an accident or broken windshield, the insurer typically covers the cost (minus deductibles). Boyd’s customer base is therefore primarily the large auto insurers, and it relies on maintaining strong relationships and service level agreements with those partners. Geographically, about 90% of Boyd’s revenue is generated in the United States, with Canada contributing ~10%. Boyd reports its financials in U.S. dollars (since 2021) to reflect its U.S.-weighted operations.

Operating Model: Boyd’s scale allows it to operate with a standardized, efficient model across its locations. The company leverages centralized procurement (for parts, paint, glass, and materials) and shared corporate functions, while each repair center focuses on throughput and quality. Many of Boyd’s U.S. locations carry the “Collision & Glass” co-branding, indicating that both body repair and auto glass services (including windshield calibration) can be handled in-house. This one-stop-shop capability is increasingly important: modern vehicles often require both body work and sensor recalibration after collisions (or even something as simple as a windshield replacement). By internalizing those services (Boyd increased its scanning & calibration staff by 125% in 2024), Boyd can capture more revenue per repair and improve efficiency. Notably, in Q1 2025 Boyd’s gross margin ticked up to 46.2% (from 44.8% a year prior) partly due to bringing more calibration work in-house and improving parts procurement.

Management and Structure: Boyd Group’s head office is in Winnipeg, Canada (where the company was founded in 1990 as a single autobody shop). It transitioned from an income trust to a corporate structure in 2019 and now trades on the TSX as a common share. The current leadership is undergoing transition – longtime CEO Tim O’Day (who led Boyd through its 2015–2023 growth surge) is retiring in 2025, with President & COO Brian Kaner taking over as CEO in May 2025. Kaner joined Boyd in 2022 and brings experience in operational roles, indicating continuity in strategy. The management team is known for a disciplined approach to acquisitions and a focus on operational metrics. They maintain a modest quarterly dividend (C$0.153, ~0.3% yield), reflecting a capital allocation strategy that prioritizes reinvestment for growth but also provides a small return to shareholders. Boyd has approximately 21.5 million shares outstanding and a market capitalization around C$4.5–4.6 billion at the current share price (~C$210).

Industry Landscape and Structural Trends

Market Size and Fragmentation: The North American collision repair industry generates roughly $50 billion in annual revenue. This market remains highly fragmented, with over 30,000 autobody repair shops across the U.S. and Canada. The vast majority are small independent businesses – an estimated ~23,900 are single-shop operators accounting for about $26B of revenue. There are also hundreds of regional Multi-Shop Operators (MSOs) that each own a few repair centers (e.g. small chains with 2–20 locations). Only a handful of companies have achieved national scale: Caliber Collision (the largest player, U.S.-based), Boyd/Gerber (the second-largest), and a few emerging consolidators like Crash Champions, Service King (merged into Crash in 2022), and private equity-backed regional groups (Classic Collision, Joe Hudson, etc.). Even the largest, Caliber, holds only ~14% market share, with Boyd at ~6–7%, and Crash Champions around 5%. In other words, ~74% of industry revenue is still serviced by smaller competitors and independents. This extreme fragmentation provides a long runway for consolidation – a core pillar of Boyd’s growth thesis. Boyd has successfully grown from ~300 locations in 2015 to 987 locations by early 2025 through steady acquisitions and new shop openings, yet it still only addresses a single-digit percentage of the total market. The industry economics (stable cash flows, insurance-driven demand) have attracted significant private equity interest as well, which means competition for acquisitions exists, but also that strategic/financial buyers continue to place value on these collision repair businesses.

Stable Demand with Cyclical Fluctuations: Demand for collision repair is fundamentally tied to vehicle miles driven, weather, and accident rates. In general, accidents are non-discretionary events – when collisions happen, repairs (or replacements) follow, often paid by insurance. This gives the industry a degree of recession resilience: even during economic downturns, people continue driving and accidents occur at a baseline rate. For example, during the Great Recession of 2008–09, repair volumes dipped only modestly before normalizing. That said, the industry can experience short-term swings. Recent years illustrate this: 2020 saw a sharp downturn in repair volumes due to COVID lockdowns (less driving), followed by a rebound in 2021–2022 as driving resumed. In 2023–2024, volumes softened again, influenced by factors like unusual weather and insurance conditions. Boyd noted that industry repairable claims were down ~9% year-over-year in 2024 (through Q3). Contributing factors included a mild winter (fewer ice/snow-related crashes), higher total loss rates (lower used car values made it more common for insurers to declare vehicles total losses rather than repair them), drivers deferring minor repairs amid economic uncertainty, and significantly higher insurance premiums (which may discourage filing claims for borderline cases). These headwinds temporarily reduced repair volumes industry-wide. Boyd saw same-store sales decline ~1.8% in 2024, but still outperformed the broader market’s ~7–9% volume decline, indicating market share gains. Over the long term, underlying demand should track with the number of vehicles on the road and miles driven – which tend to rise gradually with population and economic activity – but moderated by vehicle safety technology improvements.

Impact of Vehicle Technology (ADAS and Complexity): One of the most important structural trends is the rising complexity of vehicle repairs. Modern cars are equipped with Advanced Driver Assistance Systems (ADAS) – sensors, cameras, radar, and on-board software that help avoid collisions.

ADAS has a twofold effect:

(1) it is gradually reducing accident frequency (features like automatic emergency braking prevent some crashes), but…

(2) when accidents do happen, the repairs are much more expensive. A simple fender-bender on a 2023 model car might involve repairing or replacing bumper sensors, recalibrating cameras, and working with new materials (aluminum, carbon fiber, etc.), driving up costs and required expertise. Industry data shows the average cost of repair has jumped ~40% over the past five years due to these factors. For collision repair operators, higher repair severity is a tailwind: revenue per repair increases, and insurers generally must foot the larger bill. It particularly benefits large, certified shops that can handle complex jobs – smaller body shops that lack the training and equipment may be unable to repair advanced vehicles, pushing more volume toward consolidated operators. Boyd’s management has explicitly cited these structural shifts as a positive: “The increasing complexity of vehicles and need for scanning/calibration services… has been a benefit to larger players like us,” noted incoming CEO Brian Kaner. ADAS frequency reduction is a more gradual headwind – according to Boyd, the broader market may see ~2% annual declines in claim counts due to safety tech adoption. Importantly, that decline is currently being outpaced by the rise in cost per claim, yielding net industry growth in dollar terms. Over the next decade, fully autonomous vehicles could pose a more existential reduction in accidents, but true self-driving fleets remain beyond the medium-term horizon. For now, incremental ADAS improvements will likely continue (modestly) decreasing incident rates, but vehicles are also getting larger (the SUV/truck mix) and more complex, which increases damage in crashes and repair spend.

Insurance Company Dynamics: Insurance carriers are a critical force in the industry. They ultimately pay for most collision repairs, so their policies affect repair volumes and pricing. Insurers typically direct customers to “approved” shops via Direct Repair Program (DRP) referrals – these relationships funnel work to MSOs like Boyd in exchange for agreed service standards and pricing discounts. For large MSOs, DRP partnerships are a moat: insurers prefer shops that can handle volume across wide geographies with consistent quality, which gives consolidators an edge over single-location outfits. Boyd enjoys entrenched ties to major insurers (again, 51% of its revenue comes from its top 5 insurance clients). That concentration is both an advantage (steady business) and a risk (loss of a big account or unfavorable pricing terms could hurt margins). Industry experts note that insurers have a bit of a love-hate relationship with large consolidators – on one hand, big MSOs offer efficiency and reduce insurers’ administrative burden; on the other hand, as MSOs gain market power, they can negotiate higher labor rates or refuse unprofitable work. Going forward, we expect insurers to continue pressuring repair costs: raising deductibles and premiums (as seen in 2023–24) and trying to push labor rates down or steer volume to lower-cost options. Still, with repair capacity constrained (many shops are booked out due to tech shortages and high backlog), larger players have recently had negotiating leverage to secure better reimbursement rates in some markets. Boyd’s scale and insurer relationships position it well, but maintaining margin will require constant efficiency gains to offset inevitable pricing pressure from payors.

Competition: Boyd’s direct competitors fall into a few categories:

• National/MSO Competitors: Caliber Collision (private, PE-owned) is the largest U.S. chain (~1,600+ shops, including the 2019 ABRA merger). Crash Champions (PE-backed) recently merged with Service King to form a ~550-location entity with ~$2B annual sales. A number of other multi-regional MSOs have emerged (e.g. Classic Collision, Joe Hudson’s Collision, CollisionRight, Kaizen Collision, etc.), each with dozens of shops and PE funding. Driven Brands (NASDAQ: DRVN) is a public company that owns the CARSTAR franchise system and Maaco, among other auto service businesses, which gives it a footprint in collision via franchised locations. Compared to these, Boyd is the only major publicly traded pure-play collision operator, which provides transparency and potentially a lower cost of capital. Boyd’s size (nearly equal to Crash+Service King, and second only to Caliber) and coast-to-coast presence are key competitive advantages in winning national insurer accounts and achieving purchasing scale.

• Independent and Regional Shops: Despite the consolidator growth, tens of thousands of independent body shops still compete locally. These range from mom-and-pop garages to regional chains and dealership-owned body shops. Many have strong community relationships or OEM certifications to repair specific car brands. Boyd must often acquire these shops to enter new markets or increase density. The independents that thrive tend to be those focusing on high-end repairs, heavy OEM certification, or superior customer service. Nonetheless, the trend is that many single-shop owners are aging out or selling due to the capital needed to keep up with modern repair demands. In 2024 alone, an estimated 800 independent shops closed. This attrition benefits consolidators like Boyd, which can step in to absorb the demand.

• Auto Glass Competitors: In the glass repair segment, the 800-pound gorilla is Safelite (privately owned by Belron and Hellman & Friedman). Safelite has a nationwide network and handles a large majority of insurance glass claims in the U.S. (often via its claims management arm). Boyd’s Glass America is a distant #2 in U.S. auto glass. While Safelite is much larger, Boyd leverages cross-referrals between its collision and glass operations. For instance, a Gerber collision shop can take care of glass replacement during a body repair, or Glass America can serve insurance customers in areas where Gerber doesn’t have a body shop. The glass business has similar dynamics to collision: scale players have purchasing advantages (on glass sourcing) and insurer relationships to get referrals. This segment is also consolidating, though Belron/Safelite has a dominant position. Boyd’s glass division is strategically valuable as cars with ADAS often require windshield camera recalibration – Boyd can perform that in-house rather than outsourcing to Safelite or dealers, keeping more revenue in the family.

Private Equity Influence: The collision industry has seen heavy PE investment, which has intensified competition for acquisitions. Firms are attracted by the strong cash flows and recession-resistant demand. Unlike high-growth tech startups, body shops generate steady profits and require operational expertise – making them ideal for buy-and-build strategies. Over 50 PE firms have expressed interest in collision repair investments, according to industry advisor Focus Advisors. As a result, valuations for multi-shop operators have risen in recent years. Smaller single shops might sell for ~3× EBITDA, medium regional MSOs for ~5× EBITDA, and large platform acquisitions can command high-single-digit multiples. Boyd, being a consolidator itself, benefits from “multiple arbitrage” – it can buy mom-and-pop shops at (we estimate) 4–6× EBITDA and fold them into its network which the market values at ~12–13× EBITDA. But when bidding on larger deals, Boyd faces competition from other consolidators and PE willing to pay up. In 2022, for example, Crash Champions outmaneuvered others to partner with Clearlake Capital in acquiring Service King (in a distressed deal that injected $200M and restructured debt). Boyd’s strategy has generally been to avoid overpaying; management noted they would consider a large MSO acquisition “only if the economics made sense” and that many big targets have traded recently, leaving just a few potential large deals out there. The continued availability of acquisition targets – at reasonable prices – is a key factor for Boyd’s future growth (more on this in the Reinvestment section).

Regulatory and OEM Trends: Another trend to watch is vehicle manufacturer (OEM) involvement in the repair process. As cars become more complex, automakers have been raising certification requirements for shops to buy parts and perform repairs on their newer models. They sometimes limit the sale of certain parts to certified shops or dealers. This could be a double-edged sword: it raises the bar for all repairers (potentially squeezing out under-capitalized independents), but it also means consolidators must invest continuously in training, equipment, and facility upgrades to keep certifications. Boyd has the financial resources to do so, and indeed one of its stated priorities is to invest in highly certified repair facilities to handle advanced repairs. Another regulatory aspect is environmental (paint process regulations, etc.), but no major disruptive legislation is on the horizon.

In summary, the industry landscape is favorable for Boyd as a scale consolidator, with plenty of fragmentation to consolidate and secular tailwinds of rising repair complexity and cash flow stability. Key external risks include gradual volume erosion from safer cars, insurer margin pressure, and the competitive bidding environment for acquisitions. Boyd’s positioning – as a top-two player with broad geographic reach and multi-service capabilities (collision + glass + calibration) – gives it a solid platform to navigate and capitalize on these industry trends.

Competitive Advantages and Moats

Boyd Group possesses several enduring competitive advantages that underpin its market position and should support its earnings resilience and growth. Below we discuss the qualitative moats:

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Secure Waste Infrastructure Corp (SES) presents a notable investment opportunity within the stable and lucrative sectors of waste management and energy infrastructure. Initially positioned as an oilfield services company, SES has effectively transformed into a regional leader now trading around 3 billion CAD market cap on the Toronto exchange. It leverages its significant infrastructure assets, recurring revenue streams, and strong operating margins to create shareholder value. Despite these advantages, SES currently trades at a significant discount relative to industry peers, primarily due to market concerns regarding its exposure to the oil sector, seemingly a Mr. Market misnomer to some extent. The below succinct discussion and analysis examines SES’s robust financial position, aligned management incentives, strategic acquisitions, and clear growth strategies, underscoring a considerable valuation opportunity. Is it a compounder at value prices? That will be for you to decide.

Company Overview and Business Model

Taking a look closer at the sources of operating cash flows (EBITDA), you can see that the business has multiple business units that are related but distinct in some ways. The company has taken actions over the last decade to improve the quality of the revenue streams in terms of where the business grows.

SES primarily focuses on collecting, processing, recycling, and disposing hazardous industrial waste, notably from the oil and gas industry. Its infrastructure includes critical assets such as waste processing facilities, specialized landfills, pipelines, terminals, and storage sites, which are integral to its operations. Approximately 80% of SES’s waste volumes derive from recurring production-related waste streams, offering substantial protection against fluctuations in commodity prices. The infrastructure assets SES has built are capital-intensive and challenging for competitors to replicate (for regulatory, technical or plain old NIMBYism), thereby creating substantial entry barriers.

The pivotal 2021 merger with competitor Tervita significantly expanded SES’s operational scope and geographic presence, significantly increasing its market share. The successful integration and optimization of Tervita’s assets have generated considerable operational efficiencies, allowing SES to elevate its EBITDA margins to over 30%, considerably surpassing typical industry benchmarks.

Additionally, SES’s business model is complemented by a growing metals recycling division, providing diversification beyond traditional oil and gas waste streams. The strategic expansion of its recycling operations through acquisitions has further bolstered the company’s market position and growth potential.

Highlighting again, the EBITDA makeup is claimed to be 80% tied to highly stable sources, meaning the 20% from drilling and completions will be volatile and tied to commodity prices.

Management Team and Incentives

The management structure at SES is designed to strongly align executive incentives with shareholder interests. Approximately 85% of the CEO's total compensation package is performance-based, linked to clearly defined metrics including corporate financial targets, safety standards, and strategic objectives. SES employs Performance Share Units tied directly to shareholder returns and discretionary free cash flow per share to ensure executives remain highly motivated toward creating shareholder value.

Furthermore, SES mandates significant shareholding requirements for its senior management team (five times annual salary for the CEO), further aligning executive interests with those of investors. While insider ownership excluding major shareholder TPG Angelo Gordon (16.1%) is relatively modest, robust long-term incentives ensure executive decisions remain closely aligned with long-term shareholder value.

Industry Landscape and Competitive Advantages

I previously wrote an overview of the industry quality and dynamics of the big public players in the industry. Check it out for more detail.

The waste management industry in North America has exhibited consistent annual growth of approximately 5-6% and is projected to continue this stable trajectory due to increasing regulatory oversight, environmental standards, and economic expansion. High barriers to entry, including strict regulatory frameworks, considerable capital expenditures, and specialized infrastructure requirements, have fostered a market dominated by a limited number of large operators.

SES’s extensive operational footprint within the Western Canadian Sedimentary Basin (WCSB) positions it as the premier third-party provider of industrial waste management services in the region. Its competitive advantages include unmatched operational scale, significant customer loyalty, and strong pricing power. Additionally, SES benefits from broader industry trends that see increasing outsourcing of waste management by companies prioritizing environmental compliance.

Despite these robust fundamentals, SES is currently undervalued, trading at roughly

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We often talk about finding "high-quality" businesses here – companies with wide moats, resilient earnings, and the ability to compound capital over the long haul. Sometimes, these businesses aren't glamorous. They operate in plain sight, providing essential services that we often take for granted. Today, let's delve into one such industry: North American waste management. If you aren’t convinced, just check out the chart of some of the most well known players in the industry for the last 5 years.

It might not scream "innovation" like tech, but the business of collecting, processing, and disposing of trash is fundamentally essential. Think about it – society simply cannot function without it. This inherent need provides a powerful baseline demand that makes the industry remarkably resilient, even during economic downturns. This is aimed to be a short and sweet primer on a resilient high quality industry.

A Growing Market with Strong Tailwinds

The North American waste management market isn't just stable; it's substantial and growing. Valued at nearly USD 98.5 billion in 2023, projections see it expanding to over USD 157 billion by 2030, representing a compound annual growth rate (CAGR) of roughly 5.9%. Other estimates vary slightly, but the overall picture is one of steady expansion.

What's driving this?

• More Waste: Growing populations and increased industrial activity naturally generate more waste.

• Stricter Rules: Environmental regulations are tightening, demanding more sophisticated waste handling, recycling, and disposal methods.

• Sustainability Focus: Increased environmental awareness and ESG (Environmental, Social, Governance) pressures are pushing the industry towards more sustainable practices like recycling, composting, and waste-to-energy solutions.

• Urbanization: Growing cities strain existing infrastructure, creating needs for modernization and expansion.

Moats Made of Landfills and Routes

The industry structure itself creates significant competitive advantages, particularly for established players. Key segments include:

1. Collection: Picking up waste from homes, businesses, and industrial sites. This is a route-based business where density matters. Efficient routes create network effects and economies of scale. Revenue often comes from long-term contracts.

2. Processing/Recycling: Sorting and processing waste at transfer stations and Material Recovery Facilities (MRFs). Revenue comes from processing fees and selling recovered commodities.

3. Disposal: Landfills and incineration (waste-to-energy). Owning permitted landfills is a major barrier to entry. Stringent regulations and the difficulty of siting new landfills create significant hurdles for potential competitors, granting pricing power to incumbents. The Nimbyism is strong here.

This structure favors large, vertically integrated companies like Waste Management, Inc. (WM), Republic Services, Inc. (RSG), and Waste Connections, Inc. (WCN). These giants benefit from economies of scale across collection routes and disposal sites. However, numerous private players and smaller regional companies also exist, often carving out niches or dominating local markets.

Financial Characteristics: What About Returns?

Profitability varies by segment. Collection margins can range significantly (15-40%), influenced by efficiency and contract types. Landfill operations, benefiting from those high barriers to entry, can be very profitable, with potential operating margins of 60-70% cited. Recycling profitability is more volatile, tied to commodity prices for recovered materials.

Crucially for long-term investors, how effectively do these companies deploy capital? Returns on Invested Capital (ROIC) provide a glimpse. Major players often generate ROIC that exceeds their cost of capital:

• Waste Management (WM): Historically 9-10%, with recent figures between 8% and 14%.

• Republic Services (RSG): Historically 7-8%, with recent figures also in the 7-9% range.

These figures suggest that the industry leaders are, on average, creating value for shareholders. Companies reinvest capital into maintaining their fleets and facilities (maintenance capex) and expanding through acquisitions or developing new technologies and sites (growth capex).

Risks and Considerations

No investment is without risk. Key challenges include:

• Cost Pressures: Labor (drivers, technicians) and fuel are significant operating expenses. Fuel price volatility can directly impact margins.

• Commodity Price Volatility: Recycling margins are sensitive to the market prices of recycled materials.

• Regulatory Changes: While often a barrier to entry, evolving regulations can also impose new costs.

• Shift to Circular Economy: Initiatives focused on waste reduction could eventually decrease landfill volumes, impacting disposal revenues.

• Technological Disruption: New technologies in sorting (AI, robotics) or alternative waste treatment could alter the competitive landscape. If however, other barriers to new competitors remain, this could be a strong margin lever the current leaders could pull for a long time.

The Long-Term View

Despite the risks, the North American waste management industry exhibits many characteristics of a high-quality, long-term investment:

• Essential Service: Non-discretionary demand.

• Resilience: Less sensitive to economic cycles.

• Significant Barriers to Entry: Particularly in landfill ownership and route density.

• Potential for Attractive Returns: Demonstrated ability of major players to generate ROIC above their WACC.

• Consolidation Potential: A fragmented market beyond the top players offers acquisition opportunities for growth.

It's a reminder that durable value can often be found in industries providing essential, recurring services with strong competitive moats.

Publicly Traded Players

For those interested in further research, here's a list of publicly traded companies operating in the North American waste management sector, based on the provided analysis:

As always, thorough due diligence on individual companies is essential before making any investment decisions. Analyze their specific financial performance, management quality, competitive positioning within their niche, and capital allocation strategy. But for investors seeking resilient businesses with durable competitive advantages, the often-overlooked waste management industry is certainly worth digging into.

Disclaimer: This is not investment advice. Do your own research.

In Part 1, "A shark eating a whale", we examined Alimentation Couche-Tard's (the parent of Circle K) persistent pursuit of Seven & i Holdings (7&i), the parent company of the globally recognized 7-Eleven brand. We detailed Couche-Tard's history as a disciplined, acquisition-driven powerhouse built from a single Quebec store into a global convenience leader. We traced the timeline from ValueAct Capital Management's initial activist push in 2021 through Couche-Tard's formal bids in 2024, 7&i's rejections, restructuring plans, and reports of potential management buyouts. Couche-Tard's management emphasizes value creation, operational synergy (historically boosting acquired EBITDA by 30-50%), and a willingness to walk away if terms aren't right. Now, let's cross the Pacific and look at the situation from the perspective of the potential target: Seven & i Holdings.

The Whale: Seven & i Holdings - More Than Just Convenience

While Couche-Tard sees a "unique strategic fit", 7&i presents a complex picture far beyond the ubiquitous 7-Eleven stores familiar in North America.

• Global Scale, Japanese Roots: Seven & i Holdings is a massive entity, boasting trailing twelve-month revenue (as of late 2024) of approximately $79.4 billion USD and a market capitalization around $36.2 billion USD (as of early April 2025). While 7-Eleven (operating as SEI in North America and Seven-Eleven Japan) is the crown jewel with the #1 position in Japan and leading international spots, the holding company also encompasses superstores (Ito-Yokado, York), financial services (Seven Bank), specialty stores (Barneys Japan, formerly), department stores, and e-commerce (Nissen Holdings).

• Financial Snapshot: As of late 2024, the company carried significant assets (around $72.7B) but also substantial debt (around $26.4B). Its TTM EBITDA was approximately $5.2B.

• Activist Pressure & Strategic Shifts: Long before Couche-Tard's latest bid, 7&i faced pressure, notably from ValueAct, to streamline and focus on the high-performing 7-Eleven business. This pressure undoubtedly influenced the strategic shifts announced over the past year.

Updated Timeline: Defense, Delay, and Divergence?

Picking up where Part 1 left off (around Nov/Dec 2024):

• December 27, 2024: Couche-Tard claims it provided 7&i with specific commitments regarding US regulatory approval, including a store divestiture number and a large reverse termination fee.

• January 24, 2025: Couche-Tard submits a revised, yen-denominated, non-binding proposal, reportedly at 7&i's request, reaffirming interest.

• February 5, 2025: 7&i agrees to let Couche-Tard explore potential buyers for divested US stores but insists this happen before deeper engagement or due diligence – a sequence Couche-Tard calls "unusual".

• March 6, 2025: 7&i publicly announces major "Management Initiatives":

  • Appoints Steve Dacus (formerly involved in overseeing value creation strategy) as President & CEO.

  • Confirms plan for a US IPO of 7-Eleven Inc. (SEI) by the second half of 2026, intending to retain a majority stake.

  • Commits to returning JPY 2.0 trillion (approx. $13.2B USD) to shareholders by FY2030 via proceeds from the SEI IPO and superstore sale, plus a progressive dividend.

  • Reiterates intent to sell a majority stake in the Superstore Business Group (York Holdings) and deconsolidate Seven Bank.

  • States focus remains on improving core Convenience Store (CVS) performance and pursuing disciplined M&A for growth.

• March 10, 2025: Couche-Tard responds publicly, expressing "disappointment" that engagement with 7&i has been "very limited" and focused only on US regulatory hurdles. They contrast their offer's value with the "material uncertainty" of 7&i's multi-year plan (IPO timing/valuation, capital return dependency, CVS turnaround). Couche-Tard reiterates financing confidence and its commitment to growth in Japan without job cuts or store closures.

Seven & i's Playbook: Culture, Countermoves, and Calculated Bets

Understanding 7&i's response requires looking beyond simple financials.

• The Defensive Spinoff/IPO: The plan to IPO the North American 7-Eleven (SEI) is a classic defense strategy. It aims to:

  • Unlock Value (on their terms): Argue that the market isn't fully valuing SEI within the conglomerate structure, and an IPO will realize this value for existing shareholders.

  • Create Complexity: An IPO introduces valuation complexities and potentially delays or deters a full takeover bid.

  • Retain Control: By keeping a majority stake post-IPO, 7&i maintains control over its most prized asset while potentially satisfying some shareholder demands for value realization.

  • Strategic Focus: Officially, it aligns with the narrative of focusing the remaining Japanese entity and SEI on their respective core strengths and growth strategies, allowing SEI "greater autonomy".

• Cultural Context & Shifting Norms: Japanese corporate culture has historically been resistant to unsolicited takeovers, favoring stability and stakeholder consensus (including employees and suppliers) over pure shareholder value maximization. However, this is changing rapidly.

  • Recent government guidelines (METI 2023) and TSE pressures (PBR > 1) encourage boards to fairly consider unsolicited bids and prioritize shareholder value more explicitly.

  • The rise in M&A and shareholder activism signifies a move towards global norms, although the transition creates tension.

  • 7&i's measured engagement, requesting specific regulatory plans from Couche-Tard and proposing the SEI IPO, can be seen as navigating this new landscape – engaging bidders as required by new norms but controlling the process and narrative.

• Delay and Negotiate: The drawn-out discussions, focusing on regulatory aspects first and requesting pre-engagement work on divestitures, serve to slow Couche-Tard's momentum. This buys 7&i time to execute its own plan (IPO, restructuring) and potentially strengthen its negotiating position or hope Couche-Tard walks away, as it has done in challenging situations before (e.g., Carrefour).

• The Management Buyout Lever?: While less discussed recently, the earlier reports of a potential management buyout shouldn't be dismissed entirely. It remains a potential defensive alternative if external bids become too difficult to fend off, although likely complex and expensive to execute.

• Incentives & Motivations:

  • Management/Board: Preserve the existing structure (to a degree), maintain control, potentially secure roles in the post-IPO entities, and demonstrate responsiveness to shareholder value concerns without fully ceding to an external bidder. The appointment of Steve Dacus signals a focus on executing this specific value-creation plan.

  • Shareholders: Maximize value. This is where opinions diverge – activists like ValueAct and Artisan Partners pushed for engagement with Couche-Tard, seeing the bid as a faster, potentially higher-value route than 7&i's multi-year plan with its inherent execution risks. Other shareholders may prefer the management plan or be wary of a foreign takeover.

Potential Outcomes & Investor Considerations (Speculation Alert)

The endgame remains unclear. Several paths are possible:

1. Couche-Tard Succeeds: Despite resistance, Couche-Tard could raise its offer sufficiently or navigate the regulatory and cultural hurdles to win over 7&i's board and shareholders. This would create a global convenience behemoth but faces significant integration challenges and potential antitrust divestitures.

2. Seven & i Executes its Plan: 7&i proceeds with the SEI IPO, sells the superstore business, and returns capital as planned. This hinges on successful execution, favorable market conditions for the IPO, and delivering on the promised CVS turnaround. Value realization could be significant but spread over several years with execution risk.

3. Stalemate/Withdrawal: Couche-Tard, facing continued resistance, delays, and potentially unsatisfactory terms (especially if 7&i proceeds with the IPO), could walk away, adhering to its disciplined approach. 7&i would then be left to execute its standalone plan under shareholder scrutiny.

4. Alternative Bidder/MBO: Another suitor could emerge, or the management buyout concept could resurface, though these seem less likely currently given the scale and complexity.

We still have a view that the managers of Couche-Tard could succeed but it still isn’t a lock. Given they appear to be very patient, have the funding required, and with the possibility that economies may weaken at the same time that Japan is becoming more friendly and there is still slow progress, the probability might be something just over a coin-flip. Given how challenging this transaction would be to occur in any multiverse, this appears to be relatively high odds in our view.

For Investors: The key variables are the credibility and execution risk of 7&i's standalone plan versus the potential premium and certainty (offset by regulatory risk) of Couche-Tard's offer. The evolving Japanese M&A landscape adds another layer of complexity. Watching institutional shareholder reactions, further developments in the SEI IPO process, and any shifts in Couche-Tard's public stance will be crucial in the coming months.

Share Margin of Safety Investing

Disclaimer: This analysis is based on publicly available information and the author's interpretation. It does not constitute investment advice. The author may hold positions in securities mentioned.

We all dream of finding the next Microsoft in its early days and holding on for decades, watching it grow into a portfolio cornerstone. But let's be honest, holding onto any stock for more than a couple of years is a challenge for most investors (myself included!). The market throws temptations and anxieties at us constantly.

So, how can we approach finding those elusive "forever" or, realistically, very long-term hold stocks? This post offers a framework and explores industries—and specific companies within them—that might fit the bill.

Start with the Punch Card Mindset

Warren Buffett popularized the "punch card" investment idea: imagine you have a card with only 20 punches, representing the total number of investments you can make in your lifetime. This forces a critical shift in perspective. You're no longer looking for the flavor of the month or the next hot trend. Instead, you're laser-focused on certainty.

The primary question becomes: How sure am I that this business will not only be bigger and better in 20 years, but that it will even exist?

This mindset steers us away from chasing the "next big thing"—the disruptor—and towards businesses that are incredibly difficult to be disrupted. If I'm parking my capital for two decades, I want the immovable wall, not the seemingly unstoppable train. In my experience, those "unstoppable trains" often find ways to derail.

A Top-Down Approach for a Long-Term Game

Normally, I advocate for bottom-up stock picking, focusing on individual company merits. However, when the goal is identifying "forever" businesses, the resilience of the industry itself becomes paramount. Over decades, industry stability matters far more than short-term catalysts or cyclical trends.

So, what kinds of industries possess the characteristics we need? I'm looking for businesses with:

1. Irreplaceable Assets: Physical infrastructure or unique locations that are practically impossible to duplicate.

2. Enduring Brands: Names that command loyalty and pricing power across generations.

3. Entrenched Critical Services: Essential functions deeply embedded in the economy with high switching costs.

I'm specifically excluding regulated utilities (due to potential profit caps) and broad conglomerates like Berkshire Hathaway (as that sidesteps the exercise of identifying resilient business types).

Here are some industries that fit the framework, along with potential stock ideas for your own research:

1. The Unshakeable Rails: Railroads

• Why: Railroad networks are vast, established, and prohibitively expensive (and politically difficult) to replicate. They are the most efficient way to move heavy, bulk goods over long distances, a need unlikely to be replaced by technology soon.

• Potential Candidates (US/Canadian Listed):

  • Union Pacific (UNP): Dominant player in the western two-thirds of the US, known for operational efficiency.

  • Canadian National Railway (CNI): Operates across Canada and into the US, offering geographic diversification.

  • Canadian Pacific Kansas City (CP): Formed via merger, creating a unique network spanning Canada, the US, and Mexico.

  • Note: BNSF, another major railroad, is owned by Berkshire Hathaway.

2. The Gatekeepers of the Sky: Airports

• Why: Prime locations near major cities are essentially impossible to duplicate. While often state-run, some private or publicly-traded entities exist. Air travel remains fundamental for long-distance passenger and cargo transport.

• Potential Candidates (US Listed, operating internationally):

  • Grupo Aeroportuario del Sureste (ASR): Operates airports primarily in Mexico and Latin America.

  • Grupo Aeroportuario del Pacífico (PAC): Another operator of airports in Mexico and the Caribbean.

  • Note: Finding pure-play, publicly listed airport operators in North America is challenging due to government ownership models.

3. The Sweet Spot: Enduring Chocolate Brands

• Why: Certain brands hold immense nostalgic and perceived quality value. While snack trends evolve, core chocolate demand remains remarkably stable.

• Potential Candidates (US Listed):

  • The Hershey Company (HSY): Iconic American brand with strong domestic market share and brand loyalty.

  • Mondelez International (MDLZ): Global giant owning brands like Cadbury, Toblerone, and Oreo, offering broad diversification.

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In the last few months though, there have been higher level perturbations stirring the otherwise murky waters in which the Atlas ship sails. I’m not one to mix politics with investment thesis and I honestly wouldn’t give much credit to any of these tailwinds because of that. However, the headlines supporting the housing industry supply crunch’s future cannot be ignored, much like the siren’s song. I’d rather be involved in a growing business that operates with tailwinds over 1, 5, 10 year periods than the opposite.

Manufactured Housing Funding

• The 2024 Federal Budget proposed a new Homebuilding Technology and Innovation Fund, allocating $50 million to scale up and promote innovative housing technologies, including modular and prefabricated homes

• The Canada Mortgage and Housing Corporation's Apartment Construction Loan Program earmarked at least $500 million in low-cost financing for new apartments built using prefabricated or innovative homebuilding techniques

• The federal government announced over $600 million in funding for homebuilding innovation initiatives, including:

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Follow the Money

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