Foolish takeaway
Aggregators can get away with rolling up businesses for many years with very few investors noticing that the quality of the company is steadily deteriorating and their earnings aren’t growing as fast as it may appear.
Given the companies regularly state the benefits of acquisitions include factors such as cost-benefit synergies through reduced headcount and overheads, increased purchasing power, reduced competition, and potential cross-selling opportunities, then, in theory, net profit and earnings per share should grow at a higher rate than revenues over the long term. As you can see in the examples above, both G8 and Slater & Gordon have been unable to translate growing revenues into faster-growing earnings for shareholders.
Something to watch for.
GEM Price at posting:
$3.32 Sentiment: None Disclosure: Not Held
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