The Spring 2010 issue of Columbia Business School investment newsletter “Graham & Doddville” is available. To download the Spring 2010 Issue, please visit Graham and Doddsville
An excerpt from the Spring 2010 issue:
Feature Interview: Glenn Greenberg, Founder and Portfolio Manager of Brave Warrior Capital, “A Brave Concentration on Value”
G&D: What are some of the characteristics you look for in a high-quality business?
Glenn Greenberg: There are a number of models of what could be an investible business. For example, the Ryanair model is similar to the Geico model in my view, which is to take a big fragmented business that is commoditized, where one company is so much lower cost that they are in a position to gain market share. So as the market grows, the company grows much faster. Their costs are so low that when other people are barely earning acceptable rates of return, they’re still earning very acceptable rates of return. When the industry is having good times, they’re having great times. That’s one model.
Another model is the Lab-Corp model. It was terrible business in the early 90’s, when there were 7 or 8 national lab companies all of whom could perfectly well perform a blood test. But it’s quite a different thing when there are two national lab companies and reimbursement is coming from 3rd parties who are interested in the lowest cost and who make contracts with LabCorp and Quest and basically force people who use other labs to make a higher co-pay. Suddenly, you can’t just get into the business. It’s the model of a maturing business that’s growing, but not fast enough to attract new competition, and where new competition would have a difficult time getting scale and getting reimbursement. So there’s natural barriers to that business, very high returns on capital, very high profit margins, very high free cash flow generation, some opportunities to do fold-in acquisitions, where once you buy another lab you can kick out almost all of the costs.
An excerpt from the Spring 2010 issue:
Feature Interview: Glenn Greenberg, Founder and Portfolio Manager of Brave Warrior Capital, “A Brave Concentration on Value”
G&D: What are some of the characteristics you look for in a high-quality business?
Glenn Greenberg: There are a number of models of what could be an investible business. For example, the Ryanair model is similar to the Geico model in my view, which is to take a big fragmented business that is commoditized, where one company is so much lower cost that they are in a position to gain market share. So as the market grows, the company grows much faster. Their costs are so low that when other people are barely earning acceptable rates of return, they’re still earning very acceptable rates of return. When the industry is having good times, they’re having great times. That’s one model.
Another model is the Lab-Corp model. It was terrible business in the early 90’s, when there were 7 or 8 national lab companies all of whom could perfectly well perform a blood test. But it’s quite a different thing when there are two national lab companies and reimbursement is coming from 3rd parties who are interested in the lowest cost and who make contracts with LabCorp and Quest and basically force people who use other labs to make a higher co-pay. Suddenly, you can’t just get into the business. It’s the model of a maturing business that’s growing, but not fast enough to attract new competition, and where new competition would have a difficult time getting scale and getting reimbursement. So there’s natural barriers to that business, very high returns on capital, very high profit margins, very high free cash flow generation, some opportunities to do fold-in acquisitions, where once you buy another lab you can kick out almost all of the costs.
