Generally acquisitions are dangerous and studies have shown they may even detract value. But PGC has so far proven otherwise. I don't think we should take their track record of purchasing companies at reasonable prices and integrating them well for granted. So I would much rather they make the right acquisitions, rather than rush the due diligence or make non-free cash flow per share accretive acquisitions.
The other problem with acquisitions is funding. They could fund small acquisitions with cashflow and debt. But we're interested in the medium to large acquisitions that are transformative. If they raise capital to make a large acquisition, this might put a lid on the price for a prolonged period (as per the 2015 acquisitions). If they take on debt to make a large acquisition, this probably increases earnings but decreases financial security. As a long term shareholder, I'd lean towards medium acquisitions funded by a greater mix of cashflow and debt rather than equity. Small acquisitions won't move the needle while large acquisitions are both riskier and potentially more rewarding.
PGC Price at posting:
81.5¢ Sentiment: Buy Disclosure: Held
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