Last weekend, I had two posts on how I view management teams quoting Buffett (long story short: it’s quite rare for an operating CEO to quote Buffett, and it always raises some red flags for me / I have to check very carefully that they’re following Buffett’s actions and not just paying lip service to sucker me in!).
SCI bought Stewart at 12x and squeezed out almost the entire EBITDA base in synergies! Not sure if there is the same margin gap here but just a thought
I haven't dove too deeply in to that, but Stewart's EBITDA margins were in the low 20s at the time (Versus SCI in the mid to high 20s). Today, CSV's EBITDA margins are ~30%, which I think is slightly above SCI's. So I'm not sure you have the same operaitonal synergies
That said- synergies in that deal were just over 10% of target sales. If you had a similar amount for CSV, you'd be looking at ~$40m in synergies, so all in CSV would do ~$150m in EBITDA. At today's prices, you'd be paying ~8x synergized EBTIDA.... roughly in line with historical multiples (including the Stewart deal).
Maybe CSV is worth paying up for; they are very good assets. But I think the underwriting is starting to get aggressive.
True, I totally see the margin point. CSV margins are very much in-line with SCI already. Although I would point out that SCI said it was able to get $100 mln in synergies from Stewart by 2016 ($55 in back office, $25 in purchasing and $20 in revenues synergies), so it was around 20% of target revenues at that time.
Why didn't you tell us you can see the future / are a Tesla insider?
I'm sure that Mel will do whatever is best for Mel :-)
Great post. It seems they are well valued and I think the recently floated idea that synergies brings them down to a 7-8x EV/EBITDA was reaching.
SCI bought Stewart at 12x and squeezed out almost the entire EBITDA base in synergies! Not sure if there is the same margin gap here but just a thought
I haven't dove too deeply in to that, but Stewart's EBITDA margins were in the low 20s at the time (Versus SCI in the mid to high 20s). Today, CSV's EBITDA margins are ~30%, which I think is slightly above SCI's. So I'm not sure you have the same operaitonal synergies
That said- synergies in that deal were just over 10% of target sales. If you had a similar amount for CSV, you'd be looking at ~$40m in synergies, so all in CSV would do ~$150m in EBITDA. At today's prices, you'd be paying ~8x synergized EBTIDA.... roughly in line with historical multiples (including the Stewart deal).
Maybe CSV is worth paying up for; they are very good assets. But I think the underwriting is starting to get aggressive.
True, I totally see the margin point. CSV margins are very much in-line with SCI already. Although I would point out that SCI said it was able to get $100 mln in synergies from Stewart by 2016 ($55 in back office, $25 in purchasing and $20 in revenues synergies), so it was around 20% of target revenues at that time.