Growth through aquisitions

[ahnuld]

I was taking a look at Consoldiated graphics (CGX) and trying to figure out their business. It seems that the only real way they grow is by acquiring as many new printing businesses as possible. It seems pretty hard to predict future earnings and sales growht as its all dependant on the quality of the businesses they can buy. It also strikes me as intuitively weaker that a company can only grow through buying other companies, and that this isnt nearly as good as organic growth.

I remember graham warned about serial acquirers, but what are the actual differences between organic and acquired growth?

[PRE]

Acquired growth is typically less valued than organic due to the possibility of not paying a +EV multiple. Generally, when valuing a company with an acquisition sprinkled in here or there, it's best to ignore it and see how performance would have done without it (and likewise project future performance solely on organic growth; it's just too tough to do).

The big exception to this rule is when valuing a company with a great track record of acquiring businesses. I work in an area that focuses on companies dependant on acquisitions and the reason why we're good at what we do is because we do a better job of projecting accretive growth (it's a big edge since it's so tough to do). I would suggest looking at the EBITDA multiples the company has paid for acquisitions in the past and try projecting that forward. Also analyze past acquisitions and analyze when the deals became accretive, if there are any good or bad trends with the deals, and the chances of this continuing. I probably wouldn't own a stock like this unless I could get a very good feel for management's experience, and this typically means having to speak with them.