end of an era..

I have been following M2 for a while and today I was say to see an end of an era. Please notice that the following is only my speculation.

The formula which has supported M2's growth is not hard to understand. Good customer service, remain capital light and scoop vulnerable competitors at low valuations, which was 2-2.5x EBITDA. Now, every one of these was broker.

First, this acquisition adds 500+ employees. It is easy to say that Primus guys are customer service oriented. However, it is a very great risk to bet on absorbing a much bigger entity without affecting its own culture, not to mention to change the culture at Primus. Second, from now on, M2 will need substantial capex to sustain its growth. In the future, it is hard to how the market will valuate M2. Will it be based on EPS or EBITDA? However, the main issue is that M2's ROIC will substantially reduced. That does not bode well for M2. Lastly, M2 bought Primus at 4.5x ebitda after cash. I am not expert, but compared to price M2 used to pay, this is definitely not a bargain. It says 2 things: First, M2 was unable to buy small shops at a discount price; Second, M2 was willing to pay up for empire building. No matter how management explains this, the fact is that Primus and M2 are totally different businesses. I think it would be a wonder if it works well.

Fan