Invest in Durable Brands | The Acquirer's Multiple®

During their recent episode, Taylor, Carlisle, Ben Beneche discussed Invest in Durable Brands. Here’s an excerpt from the episode:

Tobias: Durability is something that I’m particularly interested in. But how do you think through durability? What are the indicia of durability?

Ben: So, look, it’s those two ideas I mentioned are the two that really count to us. So, it’s really putting yourself in the shoes of the customer. The only way we feel you can create durable value in the world today is pretty much through having real value for the customer and then, it comes back to these ideas of scarcity or scale is something better. So, you’re willing to pay more for it over time. That’s in the eye of the beholder, but a buck in bag, I don’t know, my wife would probably suggest it’s worth quite a bit of money. [chuckles]

Tobias: Exactly what you have to pay for it.

Ben: I don’t agree on the value that she ascribes to it, but again, there’s a market for it. They carefully nurture that brand. Hermès famously, a few years ago, had a very successful line that was made out of cloth and sold for a few hundred bucks. It was incredibly successful. Instead of pushing the foot on the accelerator and selling more of them, they cut the line, because it was diluting the brand. So, you want management teams who really understand what they’re sitting on and nurture that advantage they have over the long-term instead of profit extracting today.

The same goes for the scale advantage, whereas the idea of scarcity is something better, scale is something cheaper. Everyone knows the example of Costco. I’m not going to talk about valuation there, but the reality is the company runs at, what was it, 12% or 13% gross profit margin. That’s probably close to eight points better than even Walmart, but much better than most other people. They’re not profit maximizing. They’re reinvesting over the long-term and preserving that value proposition.

So, when we’re thinking of durability, we’re thinking of companies who have that advantage and then have a stewardship team, a management team, who are nurturing that advantage. That looks a little bit different in different sectors. I think the hallmarks of seeing that, I don’t think there’s a screen that can really give it to you. It takes a degree of experience in individual industries to get that insight. But that’s really what we’re looking for.

Now, a history of having done it for a long time is great. Everyone’s familiar with the Lindy effect. If something has lasted for a while, it’s likely to last going on into the future, that’s also great. But we focus more on those first principles more than anything else.

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