The most successful executive capital allocators in history naturally get to a point in their careers when, after decades of rolling their snowball, they’ve deservedly earned their mark, immense wealth, and fawning adoration in the investment community: Warren Buffett, Henry Singleton, Mark Leonard, John Malone, Tom Murphy, the Rales brothers, among others.
The revered are invariably North American. Yet lurking in Sweden is a high-performance conglomerate with a track record spanning almost three decades so stellar you could frame it in the investment hall of fame next to Teledyne.
The company’s name is Lifco. It’s a classic investment saga and as pure a capital allocation tale you can get: From 1998 to 2019, under Fredrik Karlsson’s stewardship, the company ballooned earnings 100-fold through pure deal-making with just a handful of employees, preaching at the altar of decentralization. It pulled this off from a modest head office in the back of an industrial building in the quaint Swedish 25k-population town of Enköping.
Originally founded in 1946 as a central purchasing entity for medical equipment in Sweden, Lifco’s real history ignited in the 1990s. After a short stint as a division of the publicly traded Getinge Group, it was spun off to shareholders in 1998. Two years later, following a rocky stretch, Carl Bennet, Getinge’s majority owner, took Lifco private under Carl Bennet AB. The deal was a bargain. He paid EUR30mn for the business, divested its food remedy segment, and recouped his entire investment. More assets were sold off and subsidiary managers replaced, leaving Lifco with its dental products distribution business.
Fredrik Karlsson, a spry 30-year-old at the time, ascended to CEO of Lifco amid the spin-off from Getinge. Now under Bennet’s ownership, Karlsson became his apprentice.
Jan Wallander, who steered Handelsbanken through the 1970s and 1980s and wrote the book “Decentralization – Why and How to Make it Work”, pioneered the Swedish model of decentralization. He advocated for lean headquarters and pushing decision-making authority down to the front lines, close to the customer. Percy Barnevik, at the helm of ABB during the late 1980s and 1990s, was the first to earnestly adopt this blueprint, fracturing ABB into 65 business units, each led by 65 managers and individual P/L responsibility. This ignited the Swedish ethos of genuine delegation. Under his ownership, Carl Bennet craved the same for Lifco, transforming it into a capital allocation machine. Karlsson’s mandate shifted from turnaround specialist to serial acquirer and CEO appointer.
“From Carl [Bennet], I learned the power of simplicity. I was too academic when I was young. And when you are over-educated, you are inclined to do everything yourself because you think you are that good. But he emphasised that one should not go in and interfere after you have given people responsibility.” —Fredrik Karlsson, from this interview
Aside from merging with its sister company, Sorb Industrier, in 2006, Lifco’s strategy from the end of the 1990s can be boiled down to private market arbitrage, acquiring predictable niche companies on the cheap and never striving for home runs. Early on under Bennet’s wing, Karlsson realized it was probably a bad idea to stick to a smaller vertical like dental distribution since the roll-up path would eventually turn expensive and yield middling results. So Karlsson, flanked by his right-hand man, Per Waldemarson (Lifco’s current CEO), began buying industrials too. Today, Lifco’s +260 company portfolio splits like a jumble into sector-agonistic B2B businesses, encompassing everything from excavator attachments, specialist orthodontist supplies, ship compressors, electrical equipment, coffee machines, auto trailers, and beyond. Dental distribution has dwindled to under 25% of the mix.
Karlsson’s move, multiplying the M&A runway many times over through diversified verticals, was a triumph. Between the spin from Getinge in 1998 till 2019, when Karlsson left Lifco, the company compounded operating earnings by a startling 18.4% per year while paying a dividend. From 2014, when Bennet took Lifco public for the second time, to 2019, the stock cranked out a 32% compounded annual return including dividends (paying out roughly one-third of earnings annually). And it has continued to be a home run under Waldemarson, delivering a full compounded total shareholder return from 2014 till today at 28% annualized on the back of a 20% EBITA CAGR, dividends, no change in share count, and a doubling of the multiple. Bennet’s stake (50.2%) is today worth a staggering SEK75bn ($8bn).
Today’s sprawling diversity of the Lifco constellation veils the fact that what Karlsson did at Lifco boils down to something as prosaic as buying predictable moats at cheap prices over and over again. Capital was relentlessly directed to acquire the cheapest, most predictable private companies in Lifco’s orbit. Lifco zeroed in on market-leading SMEs with enduring customer relationships in steady-growth industries, unburdened by customer or supplier concentration. Targets typically delivered mission-critical, proprietary offerings that claimed low wallet share with customers, breeding lock-in effects with pricing power. For manufacturers, Lifco required limited in-house production and flexible working capital. Project-based operations were almost taboo, ill-suited to a decentralized, trust-driven regime. Lifco never invested in turnarounds or companies in flux. Hot, fast-growing industries were screened out. This was a risk-averse cult, putting Buffett’s “catastrophe risk filter” above all, ruthlessly focusing on what little disruption could break the business.
The tiny headquarters had a handful of people, some telephones, and cost discipline. There was nothing fancy about Lifco’s M&A machine. Due diligence was quick, personal, and grounded in (un)common sense. Investment decisions rested centrally with the C-suite, supported by a small circle of acquisition managers. Bennet granted Karlsson and his team near-total autonomy, with board oversight kept to an absolute minimum.
Unlike other serial acquirers in deep verticals like vertical market software, Lifco didn’t keep a database. And unlike vertical acquirers with limited runways, such as AddLife (Karlsson resisted external pressure to spin off Lifco’s dental business when AddLife spun off from AddTech), Lifco was an accumulator that needed to be more paranoid about what it was buying the more heterogeneous the target. Lifco couldn’t draw on intelligence within the organization to appraise a target like an AddTech would do. Nothing was automated. Lifco had criteria but no written playbook to delegate down. And since Lifco was sector-agnostic, while the vast majority of deals were sourced from brokers and the remainder from group managers, there was little warming up to potential targets over years of coffee dates. Lifco never hired consultants to have them explain what it was buying.
Opportunity cost drove every decision. For each deal Lifco closed, it would think about what deal would slide along the desk the following week in another vertical and wouldn’t give a hoot about its market price. If a broker quoted an 11x EBITA offer, Lifco still countered at 7x because that was the opportunity cost. Year after year, it bought only companies meeting its bid. Like Berkshire, Lifco didn’t negotiate. Multiples paid stayed firmly in the 5-8x range.
The Lifco system (more details to follow) proved massively successful and remains so today. But by early 2019, a pay package dispute ended the partnership between Karlsson and Bennet. Karlsson’s right-hand man, Waldemarson, assumed the helm at Lifco. After a two-decade run, Karlsson was now a free and wealthy man.
He wasn’t unemployed for long, though. It should be no surprise that Karlsson went on to set up his own acquisition vehicle, partnering with Tomas Billing, then-CEO of Nordstjernan, a foundation-owned investment firm. Armed with a vision, reputation, and thick rolodex, the duo raised a full SEK2.7bn in just three weeks, overshooting their initial SEK1bn expectation, and set Röko in motion. Among the backers was Peter Sterky, CEO of Trift Capital, who joined Karlsson and Billing on the board.
In its debut year, Röko sealed six acquisitions. The second year brought four more, pushing into Denmark and the UK. Then came nine acquisitions in 2021, moving into the Netherlands, alongside two new board additions bringing the total to five. By 2022, Karlsson and Billing geared up to accelerate the M&A engine, returning to original investors to ask for more money. Everyone increased their commitment pro rata, netting another SEK1.1bn. In the summer of 2023, Röko then raised another SEK700mn through a rights issue with 96% of shareholders participating and an oversubscription of 220%. Trust was plentiful. From 2019 to 2023, Röko amassed SEK4.5bn in total capital. Since inception through today, Röko has deployed >SEK8bn across 29 platform acquisitions (34 including add-ons), with 14 rooted in the Nordics and the balance scattered across the UK (8), Netherlands (4), Germany (1), Belgium (1), and France (1).
Röko went public in March of this year as a promised liquidity event for the initial investors at the offering price of SEK2,048 per share, or a SEK30bn market cap. Of the 144 initial shareholders, 69 sold portions of their holdings in the offering. The company received no proceeds. Karlsson and Billing, whose net worths each surged past SEK3bn, along with deputy CEO Johan Bladh (more on him later), sold no shares and locked up theirs for three years. Other directors and executives faced a one-year lockup, while remaining initial shareholders got 180 days, which just expired this September.
Röko mirrors Lifco’s decentralized structure and acquisition process but on a smaller scale. Yet its portfolio and incentive system diverge in two key ways, as Karlsson emphasizes, boldly dubbing Röko a “refinement of Lifco” with a more “structured mindset”:
- While Lifco targets moaty B2B businesses across diversified cycles, Röko earmarks roughly one-third of its capital to branded B2C businesses with higher growth potential and shorter track records, leveraging Billing’s experience working closely with founders and visionaries from Nordstjernan. Karlsson frames Röko as “70% Lifco, 30% Nordstjernan.” This VC-like tilt contrasts sharply with Lifco’s insistence on a decade of consistent financials before pulling the trigger, typically buying companies that are >30 years old. So far, Röko’s B2C bets include a Danish clothing brand, a golf equipment retailer, and a Norwegian beauty brand, among others. Time will tell if these belong in the durable camp or whether Röko will increasingly be burdened by impairments and distraction from 100% capital deployment. As the underlying returns on capital employed will show in a minute, it does seem like Röko has been slightly more trigger-happy to get the ball rolling.
- Röko’s focus on younger, growth-stage companies shapes its ownership approach too. While Lifco almost always acquires 100% of targets, sparingly keeping earnouts and frequently bringing in a headhunted, hardworking, and perhaps malleable youngster in the early-30s of age to replace the CEO to groom for group manager roles, Röko takes majority stakes and always keeps existing management on as non-controlling shareholders of the acquiree. Oftentimes, the acquiree’s second-tier managers also buy into the NCI stake. Non-controlling interests vary by acquiree — Röko owns 59% of Addedo, a software consultancy, and 85% of TECCON, an electrical product developer — but include call and put options on the NCI, meaning Röko has a right to buy the NCI and the seller has the right to sell the same NCI, typically with a five-year expiration and a deal consideration tied to trailing earnings multiples. (This contingent liability, btw, is recognized at fair value on the balance sheet and should be included in enterprise value calculations, which data providers do not pick up on.)
By first-level thinking, these models feel similar, with ample skin in the game and aligned incentives with the subsidiary managers. But it should not be underestimated how profoundly different these ownership models actually are, perhaps setting up very different incentives down the organization.
To clarify, let me first outline Lifco’s operating model and incentive structure once an acquiree enters the conglomerate: