For a public compounder with a diverse portfolio, investors can't analyze each small deal. Therefore, stock performance isn't tied to individual acquisition multiples but to the long-term track record of growing earnings per share (EPS). This incentivizes a relentless focus on profitability over exit-driven strategies.

Progress's M&A model focuses on acquiring companies at a price that, after executing on cost synergies, results in an effective EBITDA multiple lower than their own public market multiple. This creates immediate value for shareholders through arbitrage.

Public serial acquirers like Constellation Software exploit a valuation arbitrage. They buy private niche businesses at low multiples (e.g., 5x EBITDA) which are then automatically revalued at the parent company's much higher public market multiple (e.g., 28x EBITDA), creating significant shareholder value on day one.

Lifco leverages a valuation gap between private and public markets. They acquire niche businesses at low private multiples (e.g., 7x EBITDA). Once integrated into the publicly-traded Lifco, the acquired earnings are immediately valued at Lifco's much higher public multiple (e.g., 18x EV/EBITDA), creating instant value through arbitrage.

A specific arbitrage opportunity exists with serial acquirers. When they announce a deal that will significantly increase future earnings per share, the market often under-reacts. An investor can buy shares at a compressed forward multiple before the full impact of the acquisition is priced in.

Lagercrantz follows a strict formula, aiming for 15% annual profit growth. This is achieved by growing one-third organically and two-thirds via M&A, which requires them to acquire roughly 10% of their own size each year. This provides a clear, quantifiable framework for their programmatic M&A strategy.

Acquiring smaller companies at a 5-6x EBITDA multiple and integrating them to reach a larger scale allows you to sell the combined entity at a 10-12x multiple. This multiple expansion is a powerful, often overlooked financial driver of M&A strategies, creating value almost overnight.

Bill Stone's M&A strategy relies on a simple yet powerful screening process. Potential acquisitions must demonstrate the ability to generate at least $250,000 in revenue per employee and show a clear path to achieving a 40% EBITDA margin post-acquisition. This disciplined filter quickly eliminates unsuitable targets.

To avoid chasing bubble-era valuations, they first vet stocks against M&A comps, then apply a second, absolute cheapness test (an 'owner earnings yield' over 8%). This second filter protects them from extrapolating irrational purchase multiples driven by low interest rates or market exuberance.