I don’t spend much time on Polish microcaps but several unrelated people told me to check out Spyrosoft. Spyrosoft stood out as it had characteristics of one my favorite IT services companies: Reply Spa (a future deep dive). I then had a chance to listen to the Founder/CEO Konrad speak on a YouTube video and the business model, culture, and overall approach jumped off the page.

As a result, I’ve dug-in and I think I’ve found a nice little gem that could 3x over time. Now there is one very important caveat: Spyrosoft made a strategic decision to try and re-list onto a larger exchange to make it easier to raise capital, incentive employees, and gain more credibility. This was not deemed feasible given the current market environment so Spyrosoft has since said they are looking for a partner. What does this mean? Well, Spyrosoft could become a take-out which would be a decent short-term return but would eliminate the long-term compounding I would be looking for. This is still a TBD and things could change.

Spyrosoft has very limited volume so is very much a personal account or “PA” idea. Spyrosoft stands out for being an IT services upstart with a unique organizational design accompanied by a passionate and entrepreneurial management with skin in the game.

History Part 1

Spyrosoft was founded by Konrad Weiske (CEO) and 3 co-founders Wojciech Bodnarus (CFO), Sebastian Lekawa (Board of Directors), and Andrew Radcliffe (CEO of Spyrosoft UK) in 2016. Spyrosoft was bootstrapped with £200k of capital and two offices. An office in Bournemouth, UK, did sales to mid-sized UK companies whilst an office in Wroclaw, Poland, focused on delivery and benefited from access to engineering talent from the local Wroclaw University of Science and Technology.

Konrad grew up in communist Poland, studied I.T. and held various consulting and project management roles at larger companies like Siemens, Nokia, Vodafone, and Microsoft. Konrad eventually became an Executive Board Member at intive, a Polish IT-Services company that reached PLN100m in revenue. Konrad admits that whilst he was a good programmer, his interests always lied with the “people side”. When private equity acquired intive, Konrad wasn’t pumped with PE’s strategy. He was in his late-30’s and had saved enough to try to forge his own path.

Konrad had a specific vision and organizational design in mind from Spyrosoft’s inception (more on this next). Konrad saw himself as someone good at sales and leadership but knew he had to plug gaps in his abilities so sought out a CFO, CTO, and an additional partner. The co-founders were all former colleagues or clients and collectively own 83% of the business. Before going deeper into the history, it is worth understanding Spyrosoft’s organizational design.

Organizational Design

Konrad had a very specific vision for Spyrosoft’s organizational design.

Interview with Konrad on Xquadrant - Aug 2021

“I had a solid plan of what I wanted to achieve and it was quite detailed and it was really under the assumption that the company is going to be relatively big. So I had the target organizational structure for example even when the company was just five people. When we had five people, I already knew what I would be doing when we have 100, 500, 600, 700 people. So we had a clear strategy, a clear goal.”

Spyrosoft’s strategy is to be a decentralized “platform” for IT services entrepreneurs. Rather than hire senior consultants and engineers, Spyrosoft’s approach is to seed entrepreneurs in order to incubate standalone “daughter and sister” companies. In a typical scenario, Spyrosoft finds an ambitious executive who has an entrepreneurial bent. Spyrosoft then forms a new subsidiary which is majority owned by Spyrosoft (typically 50% to 80%) and minority owned by the entrepreneur. Alternatively, Spyrosoft is willing to acquire a controlling interest in an existing business and plug-them into Spyrosoft’s platform.

Konrad at the Microcap Leadership Summit - Oct 2023

“This is not actually a company. We are a group of companies. What we have created is a plug and play platform, to which we connect new companies and new people who want to do something we are not already doing. The goal is to provide complementary services to serve our customers end-to-end”.

The typical entrepreneur is someone in Spyrosoft’s existing network who is in their 40’s who brings experience, a network of clients, and a network of potential hires, who can leverage Spyrosoft’s platform and their entrepreneurial energy to grow their business. They may be disenchanted with their corporate employer and want to pursue a more entrepreneurial path.

Cofounder Andrew Radcliffe on a Podcast - Feb 2024

“So we collaborate with people wanting to run their own business. We look to our network, and we understand if they have an idea and they’re really driven to create a company, then we work with that person to help them fulfill their dream. But also, they add their competence to the Spyrosoft Group. So our motivation is really based on ambition and the desire to really achieve success together.”

Spyrosoft backs this entrepreneur with back-office support like HR, Finance, and Legal, and provides an operational and financial safety net via loans if needed. Importantly, while Spyrosoft will provide advice and help facilitate cross-sales, decentralization is a core principle at Spyrosoft. Spyrosoft lets entrepreneurs run their business as they see fit, even if Spyrosoft disagrees with a particular strategy.

First Page of Spyrosoft’s 2022-26 Strategy Document

“Our business model is based on decentralization and a clear distribution of responsibilities amongst the companies. This approach allows for rapid scaling of the group achieved both with organic growth of each company and adding new entrants to the group”

Konrad making the point that even if they degree with a subsidiary CEO’s approach, the principle of decentralization overrides that.

Konrad Weiske on Xquadrant - Aug 2021

“So sometimes, to be absolutely honest with you, I think I would do that differently but I’m not really telling them that. Even if they fail, well then it’s their decision unless it is something terribly stupid, but it never happens. So we give them this opportunity and then they join us. Otherwise I don’t think they would have ever joined”

From the perspective of an acquiree or an entrepreneur, Spyrosoft allows them to build their own business, have real equity, but have the backing and support of a larger group. At a minimum, this provides welcome relief from back-office tasks but ideally, Spyrosoft can help these subsidiaries find new clients, find collaboration opportunities, and grow faster than they could have by themselves.

Interview with CEO of Better Software Group (acquired 2022) on benefits of being part of Spyrosoft

In Spyrosoft’s structure, BSG is an individual business unit complementing the group’s competence in the media area. Through this cooperation, Spyrosoft began to explore a little-known niche. We entered this cooperation with our clients, our realisations, and our portfolio, which broadened the range of services offered by the entire group. For BSG, working with Spyrosoft is an opportunity to expand its network and sales channels. Being a part of an international group also means access to specialists and competencies that the frontend company lacked, including dev-ops, UX, and back-end competencies.

Pros & Cons of Spyrosoft’s Model

There are several reasons why this model is attractive relative to the traditional approach of hiring senior and middle managers on the payroll.

• Alignment. The CEO of the subsidiary is extremely aligned from both a revenue and cost perspective. Spyrosoft doesn’t need to worry about motivation, incentives, cost management, execution, or attrition as the CEO’s livelihood is based on all of the above.

• Scalability. Growth is not constrained by Spyrosoft’s managerial bandwidth. Rather, growth is based on whether Spyrosoft can attract new entrepreneurial CEOs. In that regard, Spyrosoft’s CEO looks to be committed to the decentralized model, even when he disagrees with a subsidiary CEO’s approach, which is critical if Spyrosoft wants to continue scaling.

• Diversification. While individual subsidiaries face customer and industry concentration, when it all rolls-up to Spyrosoft, the revenue is diversified by geography, end-market, and customer. This is in contrast to more centrally managed IT services startups who generally scale off the back of a single large customer.

• Agility. Because Spyrosoft is a collection of entrepreneur-led boutiques, it does not need a big salesforce and MBAs to execute on projects. Rather, the subsidiary CEOs are intimately involved in the projects which translates into a leaner more agile team with better execution.

Cofounder Andrew Radcliffe (Feb 2024)

“Our structure inside Spyrosoft all the way up to the board members is very very flat. Our organization chart is upside down. It all starts with a project and a customer and then working our way up from that, a project team, they report into a project manager, who reports into a business unit engineering director who reports to a board member and that’s it. So very very very flat structures.”

With any deliberate organizational design, there are always trade-offs.

• Equity. Spyrosoft takes the risk but gives up anywhere from 5% to 50% of the equity to the entrepreneur to “acquire” this alignment.

• Scalability. While Spyrosoft can scale the number of boutiques, they are structurally disadvantaged when it comes to winning larger contracts relative to more centralized competitors who can better coordinate resources.

• Margins. Spyrosoft has focused on secondary markets to avoid competition and has been open to expanding internationally into new markets without pursuing critical mass. This approach makes it harder to scale centralized capabilities, meaning margins will be structurally lower to peers.

History Part 2

Shortly after founding, Spyrosoft created a JV in Germany called GOD GmbH, a German boutique focused on the auto sector. By 2018, Spyrosoft had reached 100 people and created a dedicated automotive software division. By 2019, Spyrosoft opened more “daughter companies” in Germany, Croatia, and the US and more offices in Poland. Some of these subsidiaries were empty shells set-up as placeholders until Spyrosoft could identify the right person to run them.

In 2020, Spyrosoft went public on the junior NewConnect market in Poland. By 2021, Spyrosoft had centers in India, Romania, and Argentina. By 2022, Spyrosoft grew to 1,000 people and transferred their listing to the main Warsaw exchange.

Since 2022, Spyrosoft has started using M&A as a growth lever to its plug-and-play approach.

• In April 2022, Spyrosoft acquired a 60% interest in Better Software Group for PLN20m, a Polish IT Services player focused on the media sector (this business has since won a PLN150m contract with the BBC).

• In June 2024, Spyrosoft closed on its acquisition of a 57.5% stake in Codibly (terms not disclosed), a Polish IT services company with 82 people focused on custom software for the renewable energy and electric mobility sectors.

• In Nov 2024, Spyrosoft acquired Carimus, a North Carolina-based IT Services firm with 40 people for PLN16.4m delivered over 2.5 years and additional Spyrosoft shares tied to Carimus’s 2027 performance. Carimus focuses on brand strategy, UX design, web and mobile development, and IT consulting.

From 2020-25, Spyrosoft has compounded Revenue, EBITDA, and EPS by 40%, 23%, and 22% cagr, respectively, whilst share count has only grown 1% cagr. This growth rate is reminiscent of Reply’s early success. Reply went public in December 2000 at EUR32m of revenue, which is roughly the revenue Spyrosoft was doing in 2021. Over the next 5 and 10 years, Reply grew revenue 35% and 28% cagr, respectively.

Business Overview

Today, Spyrosoft has 20+ offices and subsidiaries across the world and 2,000 employees.

Offices

• Argentina - Buenos Aires

• Denmark - Copenhagen

• Croatia - Zagreb, Osijek

• Germany - Stuttgart, Brunswick

• India - Chennai

• Norway - Bergen

• Poland - Wroclaw, Cracow, Warsaw, Bialystok, Szczecin, Lodz

• Romania - Timisoa

• UK - London, Manchester, Bournemouth, Newcastle, Edinburgh

• USA - Ann Arbor, Pittsburg, Raleigh

Capabilities

Capabilities by Subsidiary. Spyrosoft is primarily focused on custom software development, consulting and smaller systems integration projects. They do not have the scale to do large-scale systems integrations and do not participate in any meaningful way in BPO work. Spyrosoft does not have a proactive sales outreach effort. Rather, the subsidiary CEO’s source clients and often bring pre-existing relationships when they join which leads to referrals over time. Spyrosoft often leverages its consulting capabilities to drive up-sell of custom software projects.

Per H2 2025

“We don’t have a sales division per se. As you know, we have a number of subsidiaries which are quite diversified in terms of the segments they deliver to the services they provide. So the people that run those companies, the business units they have are responsible for sourcing clients. We support them of course by delivering a number of leads, references for business with marketing initiatives of course outbound marketing conferences that also generate new leads for us. We have a partnership with technology companies as well. So our approach is different from others because we don’t really have sales people per se. Our sales are based on consulting really. So we are actively looking for AI consultants in the US because that’s our main thrust rather than sales people. That’s how we are different from our peers who work under the old-fashioned sales model with a large group of salespeople.”

Examples of projects include the design and implementation of data platforms, web applications, mobile applications, data science systems, and business intelligence systems.

Some of Spyrosoft’s larger brands include:

• Spyrosoft Solutions. Focuses on embedded software in verticals like Industry 4.0 (IOT), Healthcare and Life Sciences (i.e. software for medical devices) and automotive.

• Spyrosoft Synergy. Focuses on Robotics and computer vision used for applications like production line and automation. An example is robots to help service offshore windmills.

• Better Software. Focuses on video-on-demand and streaming platforms. This has a large contract with the BBC in the UK.

• Spyrosoft E-Commerce. Focuses on helping customers build out e-commerce platforms.

• Spyrosoft Connect. Focuses on ERP, particularly Salesforce and CRM

• GOD. Joint Venture focused on the automotive sector.

• Unravel. An in-house design agency focused on user research, user design, and UI prototyping.

Impact of AI

It is important to address what the potential impact of AI will be. AI is a clear risk to the IT services sector with front page articles on the FT and WSJ all pointing to AI driving significant pricing pressure as customers demand more for less.

My house view is as follows. Firstly, AI is most likely to disrupt the low-end of the IT-services value chain, specifically managed services and BPO-type work as a lot of these labor-intensive services will be replaced entirely by AI. We have already seen this with the rise of AI-native customer support start-ups which have rightly decimated the stocks of Concentrix and Teleperformance as they represent an existential risk.

There is an obvious flip side to this. Companies that still run on legacy on-prem or in many cases mainframe-based systems need to modernize their infrastructure. Data has to be cleaned-up and organized and to the extent “meat and potatoes” companies want to build in-house models, leverage AI, do change management, migrate customer support to AI, etc. they need help which is not readily available in-house. So on the systems integration and consulting side, I expect there to be a wave of new projects in the next 5 years as traditional enterprises rush to get their data and infrastructure in order to defend themselves against AI-native upstarts and specialist and agile boutiques like Spyrosoft are best positioned.

We are frankly already seeing this trend with “forward deployed engineers” which is another way of saying “IT Consultant”. Palantir pioneered this model after realizing that embedding an engineer into the end-customer allows Palantir to get a deeper understanding of customer pain points which in turn allows Palantir to design and implement the software to maximize ROI. This is in effect what an IT consultant like Spyrosoft does and because Spyrosoft is at a small scale versus an Accenture with $1m headcount, it can navigate this AI wave with agility rather than an Accenture or Cognizant which has to make an elephant dance.

Spyrosoft has been relatively quiet on the impact of AI. Their results speak for themselves but they have explicitly said revenue directly related to AI (does not include using AI for coding, etc.) was still in the single digits.

Customers and End-Markets

Spyrosoft is generally targeting mid-sized enterprises. They consciously stay away from mega clients and in fact, the locations they originally chose for offices were mid-sized cities rather than larger capital cities, although they are now opening offices in London and Manchester (2024) to support a large contract with the BBC. As a result, they’ve traditionally side-stepped competition from larger services players like EPAM and the Indian players. Spyrosoft has c.300 customers implying it generates approx. USD125k/customer. This makes sense. EPAM is the largest nearshore player and about 25% of their customers are in the $0.5m to $1m range. Spyrosoft’s model works best for smaller projects and in addition, Spyrosoft is targeting mid-sized cities so their average project sizes fall under what EPAM would target. They may bump heads with Endava where 80% of clients generate GBP1m in revenue.

BBC (c.15% of 2025 Revenue)

In 2024, Spyrosoft’s Better Software subsidiary (60% stake acquired 2022) was awarded a multi-year contract to help the BBC with their digital-first strategy. Better Software is acting as an on-shore staffing provider supplying architects, DevOps specialists, and QA testers. The total contract value is £75m of-which Spyrosoft’s share is £33m from 2024-27 with an option for 2 annual extensions. The other supplier is Accenture for £42m who is supplying the near-shore labour component.

Better Software had extensive prior experience creating media platforms across Europe, which gave it credibility against other bidders. The BBC accounted for 5% of revenue in 2024 and is trending towards 15% in 2025. There is risk that this contract gets significantly reduced in 2027 as renewals are dependent on government budget approvals and procurement processes. With that said, this award is a major win for a relatively small player and could lead to more success with larger contracts with other media customers.

Customer Vertical

Spyrosoft is unusual for a relatively small player for having diversified end-market exposure. Players of similar size are typically concentrated to a single industry (often financial services). This is due to Spyrosoft’s decentralized model which is reliant on multiple boutiques that have specialized expertise rather than achieving scale with a single vertical.

The original focus verticals were Financial Services, Geospatial, Media and Automotive. Over time, the number of verticals has expanded. The two areas of concentration are automotive and media. In 2024, Spyrosoft saw the loss of a large auto contract which resulted in a 27% half-year revenue headwind in H2 2025. That same year, Spyrosoft landed the BBC contract allowing Spyrosoft to grow-through this headwind (12% F2024 growth). As part of this, Spyrosoft had to restructure its German operations. Spyrosoft now believes the auto business has been stabilized.

Auto and Media are collectively 35% of Spyrosoft’s revenue and likely just a handful of customers, so Spyrosoft does have some customer concentration. Beyond that, the revenue is diversified. Spyrosoft has said priority verticals for growth are Defense, Security, Aerospace, and Advertising/Marketing tech.

Geography

Geographically, Spyrosoft primarily services developed Europe and the US. Within Europe, Spyrosoft has been able to develop a customer base of mid-sized enterprises with the occasional large-enterprise win. Spyrosoft is trying to expand into the US and the Gulf States. While I would normally be skeptical of a Polish IT-services company managing global operations, Spyrosoft’s decentralized model means it isn’t necessarily “managing” them. Rather, the beauty of the model is that Spyrosoft just has to make sure that it gets the initial subsidiary CEO right allowing that entrepreneur to build a business in a market they already know well. As long as Spyrosoft does not do transformational M&A, the risk of a mistake is also manageable as Spyrosoft can simply part ways with an individual subsidiary CEO. The reduction in DACH revenue relates to the reduction in auto revenue.

Below are some examples of projects Spyrosoft has completed:

• Ordinance Survey is UK’s Mapping service. Spyrosoft worked on analytical systems to model underground geospatial data as well as develop applications allowing consumers like runner and cyclists to engage with the data.

• Benefex is an employee well being software company. Spyrosoft helped Benefex create a module that helps drive greater employee engagement.

• Simply Health is an Insurance Company. Spyrosoft helped Simply Health manage storage and data retention to reduce cost exposure to its CRM vendor.

Recruitment, Training, and Delivery

As I’ve described, Spyrosoft’s organizational design is to back experienced executives to run their own boutique on a decentralized basis. In fact, Spyrosoft has said 50%+ of new hires come from referrals, likely people a subsidiary CEO already knows from a prior role.

Unlike EPAM or large players like Accenture or Cognizant, Spyrosoft’s model is not predicated on hiring junior talent and building a bottom-pyramid to manage margins. As a result, Spyrosoft’s unused bench is just 2% of its workforce as opposed to EPAM which runs 20%+.

The bench spiked to a still reasonable 6% in 2023 owing to softness in the IT Services market. Having such a small bench makes it difficult to go after larger projects. On the other hand, large projects are not Spyrosoft’s core focus and it certainly has not hampered Spyrosoft’s growth.

Employees in high-cost markets like the UK and US have customer facing roles such as Project Managers, UX Designers, Scrum Masters, Business Analysts, etc. Employees at those subsidiaries than collaborate with nearshore subsidiaries for software development and testing. The vast majority (60% to 80%) of employees sit in near-shore locations like Poland.

Given Spyrosoft’s relatively nascent reputation, they are happy to win new logos on price, build trust, and land-and-expand over time. As a result, their target EBITDA margins are 11% to 14% despite focusing on higher-end custom software and despite having a nearshore model.

In my view, the relatively low margins are an appropriate trade-off. As Spyrosoft’s reputation grows and as it becomes easier to land and expand, pricing should increase over time so margins may normalize from the lower-end of the 11% to 14% range towards the higher-end as Spyrosoft scales. As I will detail in my “Economics” section, Spyrosoft still achieves reasonable Revenue/head and EBITDA/head.

Competition

There is no structural moat for a small IT services player. Spyrosoft does not have a cost advantage relative to any players and does not have the breadth and depth of Accenture. Rather, the moat comes from Spyrosoft’s organizational design. It’s unique decentralized plug-and-play model gives Spyrosoft an advantage recruiting entrepreneurial IT services executives to come join. Having a portfolio of small entrepreneurial boutiques allows Spyrosoft to be agile, closer to the customer, and ultimately deliver better execution to the end-customer. While individual subsidiaries will have customer concentration, at the group level, there is adequate diversification which will get better over-time.

Economics

Contracts. The nature of Spyrosoft’s work (consulting, custom software, smaller systems integration) means Spyrosoft is primarily selling T&M contracts on relatively short-duration (<1 year) projects. Spyrosoft did say as of Q2 F2025 that classical “team extensions” or staffing were 15% of revenue, although that seems low given the BBC contract (c.15% of revenue) should primarily be Team Extensions so I suspect management meant 15% excluding BBC. Either way, Spyrosoft is primarily doing a project rather than simply providing engineering headcount.

Revenue. Out of the 2,000 employees, somewhere between 60% to 80% are in near-shore centers so excluding UK (roughly <200 employees) and US. Revenue/Head for Spyrsooft is USD72k for Spyrosoft, roughly 8% lower than Endava at USD78k and 13% lower to EPAM at USD83k.

This discount is consistent with what Konrad has publicly said. Spyosoft has a weaker reputation to established players like EPAM, operates in more secondary or tertiary markets, and is using price as a lever to help drive growth and get the referral flywheel going.

Konrad at the MicroCap Leadership Summit in 2023

“When it comes to our customers our work is our advertisement and we quite often are happy to work for lower rates, if we think the customer is worth it, because we know they they will recommend us to somebody else. So we lower the prices and we just do what we do best because we know this customer has a huge potential.”

EBITDA. When you look EBITDA/Head, unsurprisingly, Spyrosoft is below direct peers. A large part of this is simply scale. With that said, at an EBITDA/Head of USD9k, Spyrosoft is just 22% below EPAM and running at a ballpark similar rate to Endava pre-COVID despite Endava being significant larger, so while Spyrosoft is discounting their price, is sub-scale, and operating in secondary cities, their overall profitability levels are fine.

Capex and Working Capital. Capex was slightly elevated between 4% to 9% of revenue but has normalized to 3% of revenue the last 2 years. This is driven by the opening of new offices. Nothing stands out about working capital. They run approx. 60 days A/R and 30 days A/P, standard for the industry. Reply for example stands out given it operates in Italy where customers are slow to pay (120 days A/R). Spyrosoft’s net-cash is roughly 5% of their market cap, and I don’t expect them to take on any meaningful debt.

Shares. Strategically, Spyrosoft previously said they wanted to move their listing to a major US or European exchange around 2027. The main reason is to make it easier for Spyrosoft to reward and incentivize their non-CEO employees around the world with employee share plans and potentially raise capital. Moreover, the founders have approved a stock option plan (c.5% dilution over multiple years) for key employees (not including the founders themselves) to encourage non-CEO employees to get aligned with Spyrosoft’s overall strategy. Spyrosoft has historically had c.1% dilution and I would expect 1% to 2% type dilution going forward.

As I mentioned, this changed after a strategic review which concluded that this would not be feasible in the near-term. Per the March 2026 announcement.

“When we announced our previous strategy in 2022, we indicated that after 2026 the company may debut on an international stock exchange,” said Konrad Weiske, CEO of Spyrosoft S.A. “But since then, our business environment has changed significantly, along with valuations of foreign companies, as well as the faster pace of changes in our industry connected at least with the rapid growth of AI and the tense geopolitical situation. After conducting an analysis, we concluded that currently, in terms of flexibility and potential valuation factors, the preferred option for the company and its shareholders will be to obtain a strategic investor from the private market which ultimately could take a controlling stake in the company. We assume that this should occur within the next three years, and thus within the execution of our new strategy.” As of now, obtaining a strategic investor is the main direction for the group’s further growth. A potential IPO on a major international stock exchange, contemplated previously, remains under consideration but is no longer the primary path.

For shareholders, this creates some uncertainty. To the extent Spyrosoft earns a strategic investor but remains public, it could give Spyrosoft stronger financial backing and access to capital setting the stage for multiple years of compounding. On the other hand, the founders own 83% of the business and could basically facilitate a sale or take-private at a less than compelling valuation, likely still above today’s share price, which at a worst case would mean a healthy but short-lived return.

Management & Capital Allocation

The 4 co-founders all have skin in the game.

• Konrad Weiske (CEO) - 31%

• Wojciech Bodnarus (CFO) - 25% (held in spouse’s name)

• Sebastian Lekawa (Board of Directors) - 25% (held in suse’s name)

• Andrew Radcliffe (CEO of Spyrosoft UK) - approx. 2%

• Free Float - 17%

The UK CEO was previously a client of intive when he was the Head of Development of the Ordnance Survey (UK mapping service) and owns c.2% of the listed entity, but likely has a higher share of the UK subsidiary specifically (Spyrosoft owns 81% of its UK subsidiary). The Polish co-founders have their compensation disclosed which is just a base salary of roughly USD200k with no bonuses. The incentives are purely based on their large equity interest in Spyrosoft.

There is clearly some M&A risk as the co-founders don’t have a significant M&A track record. The M&A they have done thus far has been small. Management has spent in total roughly PLN24m (excl. Carimus) of-which Better Software was the largest at PLN20m. Better Software was a smashing success given the award of the BBC contract. Otherwise, the acquisitions are small and more acqui-hire in nature.

I think the risk is favourably biased as Spyrosof’s reason for M&A is to bring in smaller entrepreneurs who want to “plug and play” into the Spyrosoft platform in a VC-like way rather than acquire something bigger like Reply in a PE-like way.

Per H2 2025 Call

“Three [M&A] priorities. One, clients in the US and production, delivery of services. That’s our top number one priority. Second priority, something we could do but we are not doing but because we are not knowledgeable enough. So if you find a company that is great about Microsoft dynamics. Then I think we could talk third priority. Sebastian talked about our opportunism. If the fit is right, we will invest. And so these are our goals. But what we are not going to do? I think, is we are not going to invest all the money we have and get a bank loan to buy one big company and have a big merger, spectacular merger, that’s not something I would expect us to do. But when it comes to companies in India for instance, we will be looking at bigger companies with hundreds of stuff. But in the US, in contrast, dozens of staff, we want to open up new markets instead of uh touching up our EBITDA to seem bigger.”

Per Q4 2024 Call

“We have a small but a very agile M&A team which is capable of reviewing dozens of companies a month. We have the appropriate process. We have the appropriate people. We cooperate with external companies. that are on the lookout for such companies. There are several such entities below 10 but more than two or three and those entities are looking for such targets. We also have an internal team that is looking for companies for instance in the German market where we can also go for asset deals. We have several such teams, internal teams, external robust external providers and then the preliminary selection is done. But it’s not that the process is fully outsourced. We do it internally because it’s our key strategic decision to be made. I think we’re doing this in the right way. And just to show you that we we’ve been able to avoid mistakes. I believe this is one of the company’s secrets.”

Overall, small deals of <20 people are effectively the same as hiring a new subsidiary CEO. It is too soon to tell whether Spyrosoft can add value with larger M&A deals but based on what they’ve said so far, there is limited risk of Spyrosoft doing a very large deal, They are likely to focus primarily on “acqui-hire” and tuck-in type deals in-line consistent with Spyrosoft’s overall business model.

Growth

Given Spyrosoft’s size, the overall industry growth is less relevant. The overall IT services market is expected to grow MSD to HSD and Spyrosoft should be able to comfortably exceed this given it focuses on the higher-growth custom software and consulting sub-segments and more importantly, as it continues to scale-up and form or acquire new subsidiaries.

Spyrosoft also had an explicit 2026-26 strategy which lays out its medium term ambition of reaching 3,000 consultants, 33% revenue cagr, and 11% to 14% EBITDA margins which would imply 2026 revenue of PLN1bn (new strategy to be announced 2027). Given the loss of the auto customer in F2024 (mid-teens headwind) and overall softness in the IT services market in F2023, Spyrosoft has grown below the 33% rate the last 2 years, but grew 29% in 2025 and is trending towards the mid-20% growth in 2027.

Longer-term, there are several tailwinds. First, as Spyrosoft gains a stronger reputation in the market, it should get a better referral flywheel. Second, Spyrosoft’s services are currently underpriced relative to peers but the discounts it offers subside over time. Finally, Spyrosoft will very likely find new entrepreneurs and acqui-hires and which could further accelerate as Spyrosoft’s model becomes better known amount peers. Spyrosoft’s Carimus acquisition, for example, was a US acqui-hire and more of these types of deals could follow.

I think a growth rate in the high-20% range in the next 2 to 3 years followed by a mid-teens rate thereafter is achievable and below what Spyrosoft is explicitly targeting. The governor is not managerial capacity, but rather, Spyrosoft’s ability to source and attract entrepreneurs or acquire small boutiques onto Spyrosoft’s platform.

Key Assumptions

My assumptions are fairly straightforward and laid out below.

I conservatively assume Spyrosoft becomes a mid-teens grower by 2028. I do not give them the benefit of the doubt on margins, but rather, assume they become a normalized 10% EBIT and 12% EBITDA margin business, on the middle-end of their guidance of 11% to 14%.

Given Spyrosoft’s model, minority interest in relatively high and ticked up meaningfully to 33% of EBIT in 2024, likely helped by the BBC contract. It is trending around 22% of EBIT as of H1 2025. I model it flat at 33% of EBIT going forward declining to 30% over-time.

Spyrosoft is benefiting from a Polish R&D tax credit meaning it currently pays very minimal tax, but I normalize taxes at 18% of revenue. I also assume 1.5% share dilution. These assumptions drive a 19% EPS cagr during my forecast period.

Valuation and Quality Score

I value Spyrosoft very simplistically. Spyrosoft currently trades at 15x 2026 and 13x NTM P/E. Given there are always risks associated with buying a Polish business (vs. developed market business) and a microcap, I assume a relatively modest exit P/E multiple of 12x. The main risk to this multiple is AI disruption.

Assuming 15% EPS growth, 90% FCF conversion, and a 12x exit multiple, I arrive at an IRR of 21% and an intrinsic value of 950 zloty, more than double’s today’s share price.

Of course, I feel that the exit multiple is grossly understated and that there is potential for Spyrosoft to compound well beyond the 2030s. By the mid-2030s, even after compounding mid-teens Spyrosoft would still be a sub-USD700m revenue business, or in other words, still a small boutique.

Conclusion

Spyrosoft has a unique organizational design, which should be able to scale rapidly. While their track record is short, it has been impressive so far. I believe Spyrosoft looks a lot like what Reply looked like back in 2000 when they first IPOd. Reply ended up being the best performing stock in Italy for many years running. I believe Spyrosoft has a similar potential making it a very attractive investment at today’s price.

freee is a Japanese provider of cloud accounting and HR software to Japanese SME’s. freee’s software was built as a single integrated system on a common database using modern architecture allowing for greater efficiency and a “single source of truth” across multiple modules, which freee calls “Togo Flow”. This has allowed freee to expand from its accounting routes into HR, payroll, expense management, sales management, etc. with seamlessly integrated modules. Today, Freee holds ~56% share of cloud SME but cloud holds <40% of the SME market implying Freee has just 17% of the total SME market (with an ambition to 30%). As of June 2026, freee had 694k paying customers on the Platform at an ARPU of ¥62.7k. freee IPO’d Dec 2019 near ¥3,000, ran past ¥12,000 in the 2020–21 SaaS bubble, then fell to a 52-week low of ¥1,831 before recovering to ¥3,345 today.

Investment Case

What is the Moat?

Architecture. freee works on a single database across multiple business functions including HR, payroll, and finance. Because invoices, salaries, expenses, forecasting, and planning all run on a single database, freee can drive efficiency and automation and in-fact, freee is best-placed to leverage the agentic capabilities of AI. Having a seamless integrated architecture also makes customers stickier as customers need to migrate from one to multiple databases if they were to switch to a modular vendor. Having an integrated system also means there are fewer customer issues and to the extent an issue arises, freee has access to all the modules so can resolve them quickly. Case in point, AI chat support handled over 90% of customer inquiries end-to-end.

Packaged Philosophy. freee offers a single solution to all customers and does not do bespoke customizations. While this strategic decision may result in less adoption from large businesses who require customization, it also means freee’s R&D is scalable to every customer it acquires which speeds up innovation. To compound this R&D advantage, freee overspends on an absolute and relative basis on R&D, upwards of 25%+ which is higher than competitors.

Culture. freee runs an entrepreneurial, product-led culture led by founder Sasaki, a Google alum that built the company with digital-first acquisition and engineers at the center which has allowed it to innovate faster and attract talent. Competitors are often more “traditional”, bureaucratic, and often lag in innovation. Case in point, freee productized an open-source MCP server within months of the AI agent wave. freee has ranked in the top 10 of Great Place to Work Japan for eight consecutive years.

Bull Case

Despite concerns over AI, freee is now at a point where profitability will inflect.

Large Penetration Opportunity. Cloud accounting is <40% of the Japanese SME market versus 80% in Australia/NZ and 60%+ in the UK/US. While freee holds 50%+ share in SME cloud, cloud has significant room to take share of the total market. The migration from on-prem to cloud provides freee with a structural growth tailwind. Based on MM Research’s annual survey, cloud share of accounting-software users has climbed from 13.2% in 2017 to 26.3% in 2021 to 38.4% in 2026 — roughly +2.8 points per year, a ~13% CAGR. MM’s data is for the total market but the SME market is even less penetrated so has more room to run.

Opportunities for cross-sell and up-sell. freee’s single database approach is inherently sticky with monthly churn sitting at 0.5% (for corporates, higher if you include sole proprietors who use it for tax filings) despite freee playing in the higher-churn SME space. As freee gains a toehold with new customers and as freee develops new modules including AI-native modules, it can drive cross-sales: HR attaches at 50% of those that sign-up for accounting and those with the full line-up can generate 6x the ARR versus accounting-only customers.

Rule of 40. Since going public, freee has invested heavily into R&D and S&M running at or below breakeven. freee is now in a position to start driving significant margin expansion. freee explicitly targets rule of 40 on an adj. EBIT basis (to be fair, this used to be adj. FCF) by FY2028. Rough math, at 20% normalized EBIT margins on next year’s revenue of roughly ¥52bn (a margin rate at-which freee believes it can grow 20%), freee is trading at ~15x normalized EBIT which falls to a single digit EBIT multiple within 2 years with plenty of runway for both double digit top-line growth and a doubling of margins.

Untapped Pricing. Untapped pricing is most evident by the fact that freee pushed a major pricing revision in July 2024 for the main Accounting for Corporates module where base fees rose 38–127% with no discernable increase in churn. In fact, monthly churn is 0.5% today (for corporates), the lowest its ever been, illustrating the stickiness of the solution and the power of freee’s model.

AI Beneficiary. To leverage AI, you need clean and auditable data which favors freee’s single database architecture which allows agents to confidently “act”, something that already happens naturally as an action in one area (say payroll) automatically updates another (finance). Companies on competing solutions have to invest heavily on upfront data clean-up and database integrations, which could potentially create an excuse to simply switch to freee. freee-mcp was launched March 2026 and exposed freee’s 380 public APIs to AI models. AI chat support now supports 90% of customer inquiries end-to-end. Further in Feb 2026, freee launched several AI-powered apps including end-to-end AI bookkeeping, ChatGPT tax filing, AI-OCR, and AI expense automation. These modules are only feasible because freee has access to clean customer data via its single database architecture.

Bear Case

freee has to move upmarket to expand. freee has had to compete against Yayoi (legacy on-prem, focused on sole proprietors) and Money Forward (cloud-based but modular) but freee also benefited from mom-and-pops using no solution at all (Excel, paper). As this low hanging fruit goes away, incremental share will be harder.

freee has product gaps in the mid-market. As freee move up market, it will run into OBC, the established mid/large-player with a true ERP that can handle inventory and logistics. freee’s capability gaps have meant their larger-customer wins have been limited to services businesses. freee has tried to close this gap with the 2026 acquisition of Logikura, which was rebranded freee inventory management. Gaining real traction may imply a heavier than expected R&D lift.

AI could have the opposite impact. While I expect integrated systems of record on modern architectures to be an AI beneficiary, it could also have the opposite impact. SMEs may be more empowered to try building in-house custom solutions. Competitors may be able to revamp or modernize their systems quicker to catch-up to freee. My view is that freee’s verticals (accounting, payroll, HR) are not natural verticals to vibe-code. Moreover, freee’s competitors are not necessarily “innovative” to the extent as freee suggesting freee will be the fastest to leverage AI for both internal efficiency and new AI-native products.

Valuation

There is plenty of precedent for sticky systems of record to achieve Rule of 40. In fairness, freee cited the prior rule (based on FCF) too restrictive in terms of growth and contract terms so switched it to Rule of 40 on EBIT in FY6/26, which in my view is fair at this stage of the growth evolution but also points to poor planning.

Assuming a 20% adj. EBIT margin, freee’s EBIT should be in the range of ¥11bn today and ¥15bn+ within the next 5 years implying freee is will trade at a single digit EBIT multiple in the next 2 to 3 years. Even if growth slows, freee has room to potentially double EBIT margins. For context, freee has run S&M expenses past 50% of sales with a significant portion of this spent on Google ads so to the extent growth comes down, S&M scales down alongside it. My view, however, is that high-teens growth is sustainable for 5+ years with nearer term growth in the mid-20%’s.

Assuming you are paying 15x normalized EBIT and you underwrite to a 15x exit-multiple and 15% EBIT growth, it is not hard to get to a 20%+ IRR (~5% FCF yield + 15% FCF growth). The upside scenario is 15% top-line growth combined with EBIT margins going from 20% to 30%+ over-time which, with multiple expansion, could drive returns as high as 30%. The bear case is a “disruption” scenario, and it’s hard to see unless we truly do see barriers to entry and switching costs erode significantly as a result of AI. I arrive at an intrinsic value of ¥7,705 leaving plenty of upside, even after today’s move.

Industry Primer: Japanese Cloud Accounting Software

Japan has a massive albeit shrinking SME base. SMEs account for 99% of all enterprises and a massive 70% of employment. With the aging population, new business formation is weak with the new business growth at 3.8% with the implied business closure rate higher than that. This new business formation is roughly 1/3rd of US/UK levels. To put some context, approx. 67k businesses closed in 2025 and not due to failure: most closed due to demographics. An interesting stat: the average company President in Japan is 61 years old.

For freee, this demographic environment cuts both ways. Every small business needs accounting and HR software. On the one hand, new business formation is weak so there is no structural tailwind of new businesses to adopt innovative cloud-accounting software. On the other hand, due to demographics, automation is key to achieving higher labor productivity and the need to automate has only gotten more intense due to new regulations (Invoice System, e-books). freee does point to the fact that the average age of business owners is getting modestly younger and that new incorporations (even if it gets offset by closures) is growing with the newer cohort more likely to adopt cloud-software.

TAM

freee sizes the market in roughly similar terms to the census: 4.5m sole proprietors, 1.8m small businesses (1-19 people), and 0.3m mid-sized businesses (20-1,000). The TAM in revenue is 8% sole proprietors, 30% small, 45% mid, and 17% large businesses. freee calls small and mid “corporate” but I use the term SME throughout the report.

freee’s traditional strengths has been in small but it is pushing into mid. Within this, cloud is roughly <40% of the SME market. Another 15% of this market still has no software at all. Within cloud, freee has an estimated 56% share which backs out to roughly 17% of the total SME market. IDC estimates cloud penetration in accounting to be in high-20’s in Japan (including Enterprise), 50%’s in the UK/US and 70%/80% in Australia/NZ indicating Japan had one of the lowest penetration rates in the developed world.

The Regulatory Demand Drivers

Japan’s Invoice System (effective Oct 2023). To claim a consumption-tax input credit, a business must now retain a qualified invoice from a tax-registered vendor. This regulation sharply increased back-office work to both issue and collect invoices. freee estimates collecting, sorting, bookkeeping and checking 50 pieces of evidence takes 2 hours, which software can cut by 80%. This change has driven increased software adoption by SMEs previously using manual processes. freee grew S&M to 69.4% of revenue in FY23 and 66.7% in FY24 (vs 53.9% in FY22 and 50% in FY26) to run an invoice-system marketing blitz.

Electronic Books Maintenance Act (effective Jan 2024). This regulation made electronic storage of electronic transaction data mandatory following a 2 year grace period (enacted Jan 2022), basically banning paper-only records. Combined with the invoice system, this helped drive penetration, especially for freee’s AI-OCR document capture feature (documents photographed or emailed in are digitized, classified and stored compliantly).

Work-style Reform Legislation. Japan has made several regulatory changes related to paying overtime and these rules started with large corporates but have moved down to SMEs. From April 2023 the 50% overtime premium (for hours above 60/month) was extended to SMEs, forcing SMEs to actually track hours and calculate premiums correctly.

Business Overview

freee was founded by Daisuke Sasaki in 2012 (current CEO and Director) under the mission to “Empower Small Businesses to Take Center Stage.” Sasaki’s background traces to Google where he led search-ads for Google in Japan. Before going into each product, it is worth repeating the architectural underpinnings of freee.

Database Design. freee uses a single database or shared master which it calls “Togo Flow”, for all of its modules. This single source of truth means change to one area seamlessly updates others. freee offers 380 public APIs allowing third parties to query the data. there is an additional app store that connects freee to banks, credit cards, and online-seller accounts which in-turn allows freee to automatically capture transactions into their system from these accounts (i.e. a corporate credit card) positioning freee as seamless system of record where expenses charged to the corporate card get automatically processed.

freee’s original heritage was accounting software but today, freee has roughly a dozen core products across accounting, HR, payroll, expense management, and financial services, which all run on the “Togo Flow” database.

freee Accounting. freee Accounting was launched at founding in 2012. The software covers financial accounting, receivables/billing, invoicing, and expense settlement. freee Accounting automatically produces the ledger, financial statements, tax returns and even MD&A. freee has recently added AI enhancements including AI-OCR (document reading) and as of Feb 2026, an end-to-end feature that automates collection, classification, bookkeeping, verification, finalization all the way through to tax filing, with humans only required to check the edge cases. freee has not disclosed official adoption rates of the end-to-end solution.

freee HR. In the US, payroll (say Paycom, Paylocity) and accounting (Intuit, bill.com) are separate but freee does both. freee HR, launched 2014, bundles payroll, time & attendance, social-insurance and year-end tax, all on a shared database. Logged overtime auto-posts into freee Accounting and auto issues the revised pay slip. Workstyle reforms and the associated rules around tracking overtime pay and meeting labor compliance is a structural demand driver.

Invoicing, ordering and billing. freee Invoice (launched Dec 2022) lets small corporations issue Invoice-System-compliant invoices. freee Order Management centralizes order operations. freee A/R & A/P handles receivables and payables.

Tax filing (corporate and individual). freee Tax Return (launched Oct 2016), lets companies file taxes without an accountancy firm, and its 2022 acquisition of Mikatus added additional capabilities around cloud tax/accounting/payroll system used by accounting firms. For self-employed tax, freee built a hybrid AI-plus-human “Automated Data Entry Plan” and a “freee Tax Filing” ChatGPT app.

Electronic signing (freee Sign). freee entered e-contracts via “NINJA SIGN by freee,” rebranded freee Sign, essentially a DocuSign for Japan.

Company establishment, project management and other verticals. Modules include company-establishment support, project management, employee benefits, employee healthcare, and freee Reservation for businesses like salons and trainers. More recent additions include freee for Medical (March 2026) and freee Inventory Management (via Logikura acquisition), aimed at healthcare and retail/distribution.

Financial services (cards and financing). freee Card Unlimited is a corporate card (launched Jan 2022) which offers credit lines up to ~¥50mn underwritten off real-time freee Accounting and bank-balance data, with usage synced back into the books. It is the fastest-growing driver of Transaction ARR (transaction ARR is still <5% of total ARR). freee also offers invoice financing/factoring — expanded via the FY6/26 acquisition of FREENANCE from GMO Creators Network — plus loan-support consulting and a new bank-transfer payment service.

The portfolio balance of card advances have grown from ¥1.0bn (June 2023) → ¥2.3bn (June 2024) → ¥4.0bn (June 2025) → ¥7.2bn (June 2026). freee fronts the merchant settlement and collects from the customer, so the book turns quickly but sits on freee’s balance sheet.

freee carried ¥1,063mn of provisions at June 2026 against receivables of ¥1,537mn and card advances of ¥7,158mn — roughly an 8% allowance against the total receivables book. freee does not disclose loss rates for the card business specifically. It is a concern that a software company carries a credit book, but at ¥7.2bn (~12% of assets, <5% of ARR), this is manageable risk

In terms of revenue mix, while not explicitly disclosed, we know that roughly 40% of freee Accounting users also use HR and another 10% have adopted the card (the second most common cross-sell). Based on this, we can roughly estimate that the mix by module is 50% accounting, 20% HR, 5% card and 25% everything else (mostly accounting related). Within small businesses and sole proprietors, the HR attach rate is a lower ~20% but higher amongst medium- to large businesses.

AI Integrations. In March 2026, freee launched freee-mcp, an open-source MCP server that makes the platform accessible to AI models, which had 18k users as of June 2026. Agents can now run on an authoritative dataset to spot things like opportunities to automate entire processes (i.e. automate bookkeeping tasks with agents), identify efficiency opportunities (multiple departments are using the same supplier but are currently unaware) or detect anomalies in the books. A competitor may have to have multiple mcp integrations potentially across multiple vendors leading to data issues.

freee has done 2 to 3 small bolt-on deals per year, normally to acquire a very specific capability.

When freee does M&A it typically integrates everything onto freee’s stack and forces existing customers to migrate onto freee rather than carry a separate database/product. M&A is designed to acquire capabilities, not customers.

Customers and Sales Channels

As of June 2026 (FY6/26), Platform ARR of ¥43.6bn is broken as:

• Corporate ¥34.8bn — 80% of ARR across 275k corporate customers

  • o/w Mid-segment ¥16.8bn — 38% of ARR

  • o/w Small business ¥18.0bn — 41% of ARR

• Sole proprietors ¥8.8bn — 20% of ARR across 420k customers

Geographically, freee is 100% Japanese and management has not expressed an interest trying to expand oversees which makes sense as Japan has unique business regulations and customer behaviors and usage patterns relative to almost any market (US may be able to expand to Europe but much harder for Japanese SaaS).

The sales approach differs by channel. For sole proprietors and small businesses, sales is done via direct online marketing supplemented by online webinars. As you get into the mid-segment, sales moves to a hybrid of online and in-person sales. freee’s field sales teams are based in offices in Tokyo, Kansai, Kyushu, and Chubu.

Indirect sales accounts for another 20% of sales, primarily via accounting firms but also local banks and retailers like Softbank and NTT. Accountants are an important channel as sole proprietors and smaller businesses often outsource accounting function to an accountant rather than do it themselves so selling via accounting firms can be a means to reach these smaller businesses.

As part of this accounting firm strategy, freee has modules specifically designed for accounting firms including document collection, bookkeeping, checking, tax-filing, and management support. Commissions are directionally 20% of ARR with those performing better on metrics like churn getting higher commissions and vice versa. Accounting firms benefit from synergies interacting with their end-customers data if that customer is also using freee.

Japan has roughly 82k licensed tax accountants across 30k offices (2021 census). freee counts ~5.5k freeee certified-adviser firms equal to 18% of accounting offices and counts 81 of the top 100 firms. freee is arguably behind on the accounting channel side compared to competitor Money Forward which generates a much higher percentage (perhaps up to 50% as they disclose 80% of the top 100% accounting firms use the Money Forward products) via the accounting channel, but there are some trade-offs. Accountants are not systems-integrators and may not think strategically about cross-selling HR and other modules, limiting the ability to drive cross-sales. For freee, cross-sales to existing customers are 1.7x more efficient to acquiring a new customer.

Competition

Money Forward

Money Forward is freee’s most direct competitor. Similarly founded in 2012, Money Forward is also a cloud-native (albeit modularized versus integrated) solution with similar functional coverage across accounting, HR, expense and invoicing. Each module has its own database and is designed to work as a standalone solution, linked together via APIs. Functionally, this is worse, but practically, it allows customers to migrate to cloud one module at a time without doing a large migration and also means accountants are more likely to recommend Money Forward versus freee where the accountant may be hesitant to also hand-hold their end-customer through an HR software migration.

Money Forward targets the same SME-sized businesses as freee, particularly those preferring a modularized solution. Money Forward’s background is actually as a personal-finance management app and this background makes it particularly strong in budgeting as well as credit card and bank integrations. Money Forward’s consumer app has 18.3m app users and strong brand awareness that has translated to strong B2B awareness, which has translated to 442k customers (vs. freee’s 694k). You can roughly back-out that freee has 55% and Money Forward ~35% share of the SME cloud accounting market.

Given Money Forward’s retail heritage, Money Forward looks to have a strong UI and mobile apps and they look to be stronger with sole proprietors. freee looks to be stronger with SMEs. freee is also known to innovate faster as evidenced by quick releases of AI-powered products, something Money Forward has only recently started to do via product announcements although it is unclear if real features have shipped. Evidence points to Money Forward losing incremental share. With that said, both companies are cloud native with strong functionality so are likely to continue splitting the SME market ~2/3rd and ~1/3rd going forward.

Yayoi

Founded in 1978, Yayoi is the incumbent in the sole proprietor and small-business (<20 employees) market with an estimated 63% share and 2.5m+ registered users on an on-prem system. Yayoi’s customer base tends to be older sole proprietors and accountants who have used the system for decades and have chosen not to upgrade to a modern system. Yayoi was owned by ORIX but was sold to KKR in March 2022 for a reported ¥240bn. Two-plus years on, freee reports no discernible change in the competitive landscape, pricing or product from Yayoi. In my view, Yayoi’s share will gradually decline with incremental share likely significantly lower to both Money Forward and freee.

OBC

OBC, a subsidiary of listed OBIC, is the mid-market leader with a real presence in enterprise. OBC is larger than freee, holding 40% of the total accounting-software market. OBC also has a modular-based architecture. OBC has traditionally offered an on-prem product but its Bugyo Cloud franchise is migrating these clients to a cloud-based system. OBC’s strengths include strong reseller reach and heavy brand advertising of ¥700–800m a year. OBC is also known to have superior handling of physical-goods and inventory workflows, areas freee historically lacked but on the flip side, their system “heavier” and less suitable for SMEs.

In order to beef up its physical goods and inventory workflows, freee acquired logistics platform Logikura in April 2026 and rebranded it to freee Inventory Management. Logikura is a cloud-based inventory and warehouse-management software (stock tracking, receiving/shipping workflows, warehouse ops) aimed at small distributors and e-commerce sellers — precisely the physical-goods workflow layer freee lacked. Logikura was a relatively nascent business with FY25 revenue of ¥175.9mn. After closing March 2026, Logikura was rebranded freee Inventory Management and folded into the integrated lineup so inventory movements post into freee Accounting on the shared master.

Global Players

QuickBooks, Xero and Sage have no meaningful Japan presence. Japan’s local environment is unique in terms of business culture, language, and regulatory and tax complexity. The main foreign operators are large enterprise players like NetSuite and SAP, not SMB cloud vendors. freee benchmarks itself against Xero and Intuit but views overseas expansion as difficult for the same language-and-regulation reasons that keep those players out of Japan.

Moat

As I described in the Investment Case, freee’s moat is underpinned by architecture, its packaged philosophy, and its culture.

In fairness, Money Forward is a formidable competitor. Money Forward is seeing faster growth off a lower revenue base with comparable churn statistics so while cloud is secularly growing, there is no clear preference for modular cloud versus integrated cloud: both are doing well.

However, when you compare this against Yayoi and OBC, you can see the moat shine through. Both businesses are growing at half the rate with far lower growth in terms of paying customers, suggesting even lower incremental share. In both cases, the software is not cloud-native.

Interestingly, freee’s growth is coming despite being on the high-end in terms of pricing, which is indicative of the feature-rich products freee ships. This is all happening whilst churn is actually falling.

Economics

freee sets lists prices on its website and does not have individually negotiated rates for most SMEs. Larger customers serviced by field-sales have access to enterprise pricing, but there isn’t significant price adjustments. The rate card has four components. Below is a breakdown per the actual customer lists disclosed on the website.

Below is a breakdown of how that price list has translated to subscription and transaction ARR. Transaction ARR is <5% of total ARR.

The July 1, 2024 price revision of freee Accounting for corporates was the first major increase in six years, motivated by a widening gap between the product’s value and its price as multiple features including Invoice-System and Electronic-Book-Maintenance-Act features were added. The prior Basic plan at ¥3,980/month annual moved to the new Starter at ¥5,480/month annual — a 37.7% increase. Some tier transitions were steeper. The realized figure added ¥1.7bn to ARR all while churn remained stable.

Gross margins have averaged a healthy 82% over the last 5 years. Below is a summary of the operating expenses.

In terms of R&D, assuming you expense capitalized R&D, freee spends roughly 26% of revenue on R&D versus 20% to 25% for Money Forward and likely a much smaller ratio for Yayoi (not disclosed but they ran at 30%+ EBIT margins when they were public). Importantly, that R&D spend is potent as every new feature is available to all customers with limited customizations. Both freee and Money Forward have very similar economics today while Yayoi unsurprisingly is operating at a much higher margin whilst not reinvesting into S&M or R&D.

freee’s financial-services revenue is captured in Transaction ARR, most of it from the freee Card Unlimited corporate card. freee does not disclose the take-rate on card balances or the default rate, but the card monetizes through processing and usage-volume fees that annualize into Transaction ARR. The financing side was expanded via the FY2026 acquisition of FREENANCE (factoring), and freee’s adjusted-FCF definition explicitly excludes fluctuations in advances paid for the card business and purchased receivables for factoring.

freee does not explicitly disclose an LTV/CAC but on FY6/26 actuals — 0.5% monthly corporate churn, 1.0% blended, and an 81% gross margin — the corporate cohort works out at roughly 7.5x with a 27-month payback, against 3.3x blended. This is attractive especially as corporate is growing more than double sole proprietors. Segment ARR growth guidance is Mid 25%, Small 20%+, self-employed 10%

Based on a healthy LTV/CAC and stable churn despite significant price increases combined with Yayoi already operating at 30%+ EBIT margins at maturity, it is not hard to see freee comfortably normalizing to 30% EBIT margins and 40% over time, in line with their stated goal.

Management

freee has an entrepreneurial and product-led management with diverse and international backgrounds in contrast the more “traditional” backgrounds of executives at peers. The co-founder and CEO, Daisuke Sasaki, previously led search marketing for Google in Japan. The CFO, Ami Tsuboi, appointed April 2024 came from McKinsey and previously worked within freee’s data analytics, Sales Operations & Enablement and business/corporate planning teams. While individual compensation plans are not disclosed, PSUs are tied to internal ARR growth, customer counts, and achieving explicit rule-of-20 metrics of 20% revenue growth at 20% FCF margins. Management has significant skin in the game with 20% ownership of the company. In the latest FY6/2026 results, freee announced a share repurchase of up to 2.4m shares (offset by 1m shares contribution to the employee share purchase plan) via open market purchases.

Key Assumptions

You can decompose growth into customer growth and ARPU, with ARPU driven by penetration and pricing.

From FY18 to FY26, customers compounded at 25.1% a year and blended ARPU at 11.8%, driving subscription ARR of nearly 40% CAGR. There are a few drivers.

1. Cloud taking share from on-prem. Cloud has gone from 13.2% of sole-proprietor in 2017 to 38.4% in 2026 — roughly 2.8 points a year, with no sign of saturation. As demographics necessitate efficiency and as the average new business owner trends younger and using other developed markets as comparable where penetration can be more than double, this trend should continue driving secular growth in the market

2. New customer growth. While there are concerns that freee will have to move up-market and compete against other competitors, the inverse argument is that freee’s capabilities have now caught up so much that growth amongst larger mid-sized businesses could accelerate. The corporate cohort grew 18.4% last year to 234k and carries twice the ARPU at lower churn.

3. Pricing, new modules and cross-sell. ARPU has compounded at 11.9% a year. Pricing has shown to be a proven lever as the June 2024 massive increases demonstrate. New module growth should also continue and to the extent its a cross-sell, drive S&M leverage. Further, as freee’s average customer size increases, attach rates also increase. HR attaches to at 40% of accounting customers for corporate.

I believe consensus estimates are reasonable and the shares are cheap off consensus.

Revenue. I assume growth of low-20% scaling down to 10% by the 2030’s. If you assumed the accounting market just grew 2% and cloud penetration went from 40% to 60%, that itself would drive 6% growth so when you layer historical customer growth in the 20% and ARPU growth in the 10%’s, getting to mid-teens is very achievable.

Margins. Important thing is that you don’t need significant revenue growth for the investment to work. Rule of 40 is now measured on adjusted operating margin and I take management’s rough guidance of hitting 15%+ by FY6/28. From there the margin climbs to 22% by FY6/30 — the low end of the company’s own FY2030 model — and to 28% by FY6/37.

Tax. freee still has some tax-loss carry forward but tax rates should normalize to ~30% by the 2030s once freee reaches normalizes run-rate profitability, Japan’s statutory rate.

Free cash flow, which was negative in FY6/26 on one-time working-capital and consumption-tax items, converges back to roughly 90–95% of adjusted operating profit from FY6/29 helped by negative working capital.

Dilution. Shares grow 0.8% a year, but the newly announced ¥5.0bn buyback (up to 2.4mn shares, 4% of the company, running to February 2027) more than offsets that in FY6/27. Management framed the buyback as opportunistic given a “significantly undervalued” share price, not as a standing policy.

If you look at the key assumptions, the model basically breaks down to 1) whether growth can sustain into at double digits past the next 3+ years and 2) whether margins can increase. I think using a very conservative 20% EBIT margin implies you are paying a mid-teens multiple of FCF. I think 20% leaves the potential for a doubling of margins longer-term. Moreover, penetration rates are still low and freee continues to aggressively innovate without any signs of churn, suggesting that the growth rate should remain double digits for the foreseeable future. Cloud penetration alone can drive 6% total growth in the cloud accounting market before ARPU or new customer wins. As a result, I arrive at a conservative intrinsic value in the ¥7,705 range with plenty of upside optionality.

Background

Interpump Group is an Italian serial acquirer of niche fluid-power components. Interpump was founded in 1977 in Sant’Ilario d’Enza in Italy’s Reggio Emilia mechanical district. Since going public in 1996, Interpump has grown revenue by 8.4% (3% to 4% organic) and EPS by 9% CAGR whilst redeploying ~50% of FCF into M&A whilst sustaining a low- to mid-teens ROIC on total capital. Interpump has done ~40 acquisitions over the last 30 years.

Interpump has run itself as a decentralized group of ~120 operating companies — mostly bought at 4–8x EBITDA from family owners and mostly left un-integrated in a decentralized operating structure. Geographic sales breakdown is Europe ex-Italy (35%), North America (25%), Italy (16%), Far East & Pacific (13%), Rest of World (11%).

Fulvio Montipò (82), Interpump’s founder went from CEO to Chairman in 2023 but still owns 24% and is still involved with M&A. His stake and oversight drive Interpump’s long-sighted and conservative approach to acquisitions.

Interpump is organized into two segments:

1. Water Jetting (35% of FY2025 sales, 27.2% EBITDA margin) makes high-pressure ceramic-piston pumps — a niche Interpump helped create in 1977 by replacing steel pistons with ceramic. The water jetting portfolio has since broadened but Interpump continues to dominate the professional ceramic-piston pump market with roughly 50% global share.

2. Hydraulics (65% of sales, 19.6% EBITDA margin) makes power take-offs (PTOs) — the geared units bolted to a truck’s transmission that divert engine torque to drive auxiliary equipment, as well as cylinders, valves, hoses and orbital motors that power cranes, tractors and other heavy machinery. Interpump is the world’s largest PTO producer.

Investment Case

What is the Moat?

Interpump is a serial acquirer comprised of over one hundred unique businesses so there is no overarching moat like scale or network effects. However, there are some specific moats you can point to that apply to most of these individual businesses.

Niches. Interpump focuses on industrial niches where quality, reputation and the cost of failure outweigh price. For example, a ceramic valve may only account for <3% of the COGS but poor quality or failure can sideline a $150k excavator and damage the brand of the end-OEM. Interpump has built this reputation over 5 decades. Within each of the fluid power niches where Interpump plays, Interpump can hold 50%+ share within that niche. This niche focus is what drives 27.2% EBITDA margins in Water Jetting and 20% in Hydraulics.

Acquirer Reputation. Interpump’s origins are in the Reggio Emilia region, a manufacturing hub, where preserving a business, its reputation, its employees, and the local supply chain are sacrosanct. Within its home market, Interpump has cultivated its reputation as a preferred acquirer, often bidding on family businesses with zero competition. This reputation has expanded globally and has allowed Interpump to acquire family-owned businesses for 4x to 8x often as sole bidder.

“I believe that inside every company there is a history of thought, of hard work, of mistakes and of successes; I consider this a heritage not to be lost but, if anything, to be integrated. Whoever buys companies and colonizes them throws away that heritage, and the acquirer is left forever alone with his own thinking. If instead you preserve, enhance and integrate, your thinking grows every time you acquire a history.” — Fulvio Montipò, founder and Executive Chairman, Forbes Italia (June 2020) link

Third parties describe the same mechanism from the outside:

“Their M&A strategy in general is somewhat differentiated in that they refuse to buy troubled companies to turn them around, and they refuse to buy from private equity. Their aim is to find family led, niche businesses and help them to transition to a larger platform for growth. Since they do not integrate and aggressively cut costs they are seen as a ‘good buyer’ and are often the only bidder in the process. For investors that know Judges Scientific in the UK, it is a very similar mentality.” — Columbus European Equity Fund, holding update (August 2021) link

What is the bull case?

Cyclical Upturn. Hydraulics is 65% of sales and the end-markets are cyclical: trucks, agricultural equipment and construction machinery. Water Jetting (35%) is more stable. Since 2023, Interpump faced weak end-markets exacerbated by de-stocking post the COVID-driven inventory builds. Agriculture demand collapsed ~30% peak-to-trough. EU/US truck builds all declined, all whilst inventory was elevated. We are past this phase: Hydraulics organic growth inflected in Q3 2025 (+3.4%) and accelerated to +4.8% in Q4 2025 and +6.9% in Q1 2026. Book-to-bill is now above 1.1x. That recovery when combined with 40% incremental gross margins will drive double digit EPS growth to 2028.

M&A Engine is Coiled. M&A has historically driven roughly half of Interpump’s growth: 8.4% revenue cagr over 29 years against 3% to 4% organic growth. Management is picky with M&A but Interpump is in a strong position to deploy capital. Leverage is now 0.6x EBITDA and should turn to net cash by 2027 with accelerating organic growth. The stated cadence of bolt-ons is €50–80m of acquired sales per year implies 3% to 4% M&A growth, all easily fundable from existing free cash flow.

What is the bear case?

Margins vs. Share. Interpump made a deliberate trade-off between margins and share. During the 2023-25 downturn, EBITDA margins held around 22% versus falling to low-teens in prior cycles. This raises a few questions. First, did Interpump’s premium pricing strategy trade long-term volumes growth in favor of short-term price recovery? Second, to the extent volume share was lost, does it impact structural growth as Interpump’s products get spec’d in into a product whose lifecycle might be 7+ years? The current trading suggests no.

Centralized M&A. Interpump’s strength has been its discipline around M&A. A steady 4% to 5% inorganic growth, only a handful of large deals, with a strong valuation discipline and a willingness to step back. One of the risks is that this isn’t Constellation Software with an institutionalized process. Marasi (CEO since April 2023, previously head of Walvoil — the group’s largest hydraulics subsidiary — and group M&A lead from 2016) is a highly credible replacement, but it will take several more years for Interpump to prove that the M&A engine can be sustained or potentially accelerate.

What is the market pricing in? What is an attractive buy price?

Interpump is not “aggressive” with M&A choosing to redeploy roughly 50% of FCF and keep leverage <1.5x but they ultimately play in more capital intensive and cyclical end-markets. However, Interpump has a strong organizational model, holds a <3% share in a massive TAM, and is owned and operated by a long-sighted founder with skin in the game so at the right price, is compelling.

At €35 the shares trade at ~17x guidance-anchored NTM EPS (€2.05) and ~21.4x NTM free cash flow. The setup is similar to Judges: Interpump operates in cyclical end-markets but is trading at a reasonable range on what is arguably trough earnings with nothing baked-in for M&A.

Across a 14–20x FCF exit range, the market is implying only ~4.7–7.5% annual FCF-per-share growth from trough levels to earn a market-like 9% versus the company’s own 2028 plan, which implies ~14% EPS growth from the 2025 trough driven by a cyclical recovery. It should be pointed out that from 2010, the first year off the GFC trough, Interpump compounded EPS at a 13.7% CAGR through 2025.

On the base case, I assume 8% growth in FCF/share: 30% of FCF deployed into M&A at a 14% ROIC which adds ~4% inorganic growth on top of 4% organic growth. The distributable yield falls from ~5.2% on the full FCF base (€1.81/share, normalized at 75% of 2027E EPS — a through-cycle conversion assumption) to ~3.9% in year one. At a 16x exit, these assumptions drive a 10.2% IRR and €36 intrinsic value at a 10% discount rate — roughly today’s price.

On the bull case, I assume 11% growth in FCF/share: 50% of FCF reinvested into M&A at a 14% ROIC adds ~7% inorganic growth on top of 4% organic. The distributable yield is ~2.9% in year one, but the M&A drivers faster compounded growth. At an 18x exit, this drives a 13.2% IRR and €45 intrinsic value at a 10% discount rate.

On a bear case, I assume 4% growth in FCF/share, a 14x exit, and no M&A, implying Interpump is basically a mature and cyclical industrial business. With nothing reinvested, the full ~5.4% (year-one) FCF yield is distributable. That implies a 6.8% IRR and €28 intrinsic value at a 10% discount rate — roughly 20% below today’s price.

To earn a 15%+ go-forward IRR on the base case, the entry price needs to be roughly €25 — 30% below today’s price or ~13.6x the normalized FCF/share. That entry carries its own margin of safety: even on the bear case. That is the level at which to size up aggressively into what I view as a long-duration steady and conservative compounder.

Organizational Structure

Background

Interpump thinks of itself as a “Federation” of 120 businesses.

The head office is small. Montipò (82) is the Founder and Executive Chair and is still involved with M&A. Marasi (49) is CEO. Otherwise, there is a CFO, a Deputy Chair (Giovanni Tamburi, the anchor investor), and a General Counsel. Below them sit six General Managers (similar to Sector CEO concept at Judges Scientific/Halma), a structure that was introduced around 2014. GM’s each oversee a few dozen subsidiaries, more as an advisor rather than a hands-on manager.

The CEO, Chairman and 6 GMs meet monthly to review a running screen of dozens of potential M&A targets and review the operating metrics of the six groups. To compare to Judges, Judges has three Sector CEOs mentoring 25 MDs on 4–6-week visit cycles. Interpump has ~6 GMs overseeing ~120 companies or ~20 each, roughly the same scope.

Below these GMs sit the subsidiaries themselves, each responsible for their own business. Subsidiary and GM bonuses run 30–50% of fixed pay, tied to sales, EBITDA and net-working-capital with stock options tied to sales, EBITA and net financial position. If there is criticism, similar to Judges, there is no explicit ROIC target despite having an acquisitive strategy. The alignment is driven by the Founder/Chair’s 24% ownership.

What underpins the model?

Decentralization. Similar to many serial acquirers, Interpump runs a decentralized organizational structure with an Italian-level respect for preserving heritage and locality. Executives are kept-in place, brands preserved, local supply chains unchanged, and IT systems left alone. Like Judges, Interpump understands that pursuing aggressive synergies creates short-term benefits but inhibit long-term scalability: integrations make acquirers less appealing to sellers and add bureaucracy. Montipò has articulated this philosophy as follows:

“I believe that inside every company there is a history of thought, of hard work, of mistakes and of successes; I consider this a heritage not to be lost but, if anything, to be integrated. Whoever buys companies and colonizes them throws away that heritage, and the acquirer is left forever alone with his own thinking. If instead you preserve, enhance and integrate, your thinking grows every time you acquire a history.” — Fulvio Montipò, Forbes Italia (June 2020)

Reputation. Related to the above point, in Interpump’s home market of Reggio Emilia, sellers are extremely sensitive to buyers who will disrupt the localized supply chain. Interpump has spent five decades demonstrating it does not restructure what it buys and has extended this reputation oversees. That is why family owners across Europe accept 4–8x EBITDA, often as the only bidder. Moreover, 90%+ of deals are internally sourced with the majority closing without any real competition.

Niches. Many of individual sub-TAMs where these businesses play are just a few hundred million euros, where the subsidiary can hold up to 50% share, which is why these small niche businesses Interpump acquires typically already have 20%+ EBITDA margins.

Acquisition Strategy

Given M&A is the core of the thesis, it is worth outlining the process in detail.

Who runs M&A. Sourcing, relationships and final negotiation was previously run personally by Montipò. Sourcing has now been pushed down to the GMs but Montipò is still involved. This isn’t Constellation Software. There is no corporate-development machine but rather a small support team. Marasi ran group M&A from 2016 until taking the CEO role in 2023 so is highly credible. He led Inoxpa, GS-Hydro, Hydra Dyne and White Drive (largest deal in Interpump’s history).

The M&A approach. Interpump does not buy from private equity and in almost all cases, sources the deal direct. Interpump sticks to their stated range of 4x to 8x and largely ignores broader market multiples. Interpump also does not buy turnarounds, choosing instead to focus on businesses with succession in place with Marasi stating “we are not a private equity or a financial institution, we are an industrial group”. While there are no ROIC thresholds, an 8x EBITDA translates into a mid-teens after-tax IRR assuming MSD growth and few synergies.

Typical Seller & Structure. The typical seller is a family owner. Historically, there were many family owned businesses in Emilia-Romagna, Italy’s rustbelt, searching for a permanent where Interpump was a natural fit. Interpump views control and consolidation mandatory but has flexibility to acquire below 100% and buy out minorities over time For example, Interpump’s Padoan deal was 65% ownership with the residual getting bought starting 2030. In 2025, the group carried €85.0m of contracted minority-buyout commitments. Interpump does use treasury shares as part-payment when shares are high, example being the Reggiana share consideration. While Judges is stingy with equity as policy, Interpump can be opportunistic.

Integration. “Soft does not mean integration does not take place.” Management claims 3–4 EBITDA points of improvement in acquired companies within 2–3 years through improvements in purchasing, production practice, and pricing. The one area where there is in fact some synergies versus a purely autonomous approach is how Interpump treats shared production resources.

Shared Resources. While Judges is trying to develop the concept of shared resources modelled off Halma (i.e. joint offices in China or a shared distribution center), Interpump’s approach to shared resources is more deliberate. Per CEO Fabio Marasi, “from an organizational point of view, we are highly decentralized… from an industrial point of view, many important companies within Interpump are highly integrated in terms of manufacturing process.”

Interpump standardizes the equipment used by its decentralized network of subsidiaries on general purpose machine tools that are fungible across ~120 companies so that capacity can move where its needed. For example, Interpump reallocated machine tools during the 2018 delivery crunch, GS-Hydro production moved to Italy, and White Drive’s German activities into its Polish plant. While you can argue this interferes with the “autonomous decentralization concept”, this fungibility means subsidiaries that need access to capacity can access it in short-notice whilst those with slack don’t get hit on margins, which ends up being a win-win in almost all cases.

High Level M&A Record

Over the last 29 listed years, Revenue compounded 8.4% CAGR, EPS 9.2%, CAGR, and depending on the starting date, the 10-year CAGRs have ranged from HSD to low-teens. Roughly two-thirds of growth has come from acquisitions with through-cycle organic growth 3% to 4%.

Over the last 10 years, Interpump generated ~€1.4bn of FCF of-which €0.3bn went to dividends, $0.2bn to buybacks, and with M&A absorbing the balance which includes the largest deal ever, White Drive (€275.4m). Roughly 50% M&A and 50% returned with net-debt stable to lower and typically <1x. Interpump has done roughly 40 deals since the 1996 IPO. Interpump is more conservative and returns more cash as compared to Judges 100%+ in M&A (which includes higher leverage).

The cadence has been steady but lumpy. 2020 was a near-standstill as buyer-seller gaps widened, and a quiet period around 2018 raised investor questions. We are currently seeing a period of smaller deals bought at attractive multiples and the balance sheet is now primed for M&A. Management is opportunistic and the record back it up: the “cheap” acquisitions (Bertoli 3.2x, Hidrover 4.4x, White Drive 5.2x) cluster around someone else’s distress. About a quarter of recent deals are subsidiary-sourced tuck-ins, and the put/call architecture generates a continuous stream of minority buyouts— an embedded pipeline of capital deployment independent of new deals.

By management’s estimate, of the 40 deals, they’ve faced two seller fallouts but zero catastrophic acquisitions

Interpump did have a forced rights issue during the GFC. In 2009, Revenue declined –19.2% (–28.3% like-for-like), EBITDA margin fell to 13.7%, and a net-debt covenant was breached at 2.4x leverage, which forced two years of skipped dividends and a rights issue at €2.50 (~4.6x prior-year EPS). This experience made Interpump permanently more conservative with their capital structure (no hard limit but generally <1.5x)

Interpumps’ businesses are not capital-light like Judges Scientific where scientific instruments are built to order. Rather, Interpump’s products require vertically integrated manufacturing and working capital as the components themselves go into OEM products including trucks, excavators, and agricultural equipment. ROIC (fully taxed at 29%) has ranged between 12% to 15%.

Business Overview

Interpump is a serial acquirer of niche hydraulic and pneumatic components businesses. After listing in Milan in 1996, Interpump bought its way into hydraulics through PZB (1997), Hydrocar (1998) and Muncie (1999), which made it the world’s largest PTO producer. In 2005 it sold the Cleaning division (€48.0m gain) and spent the proceeds on Hammelmann, swapping a consumer business for an industrial pump platform.

The cylinder acquisitions of 2008–09 (€81.8m of cash out in 2009 alone) landed in the teeth of the financial crisis and forced the rescue rights issue — the group’s one near-death experience and the reason leverage is now always conservative (generally <1x). The 2010s brought valves (Galtech 2012, Hydrocontrol 2013, Walvoil 2015), hoses (IMM 2014 through GS Hydro 2018), flow handling (Inoxpa 2017), planetary gears (Reggiana Riduttori 2019), e-drives (Transtecno 2020). Finally White Drive (2021, €275.4m) completed the mobile-hydraulics range with orbital motors and steering (more on this later).

Water Jetting (35% of FY2025 sales; 27.2% EBITDA margin)

A plunger pump also known as a positive-displacement pump has ceramic coated pistons which can reciprocate at high-pressures, from 100 bar for a pressure washer to 3,000 bar for an industrial system that requires pressurized water.

Interpump’s Water Jetting segment makes all of the above components used to pressurize water. The core product is the professional high-pressure plunger pump, sold to industrial pressure-washer OEMs and the professional cleaning trade. Interpump supplies these pumps via several subsidiaries and brands: Interpump, General Pump (US) and Pratissoli. Adjacent products include ultra-high-pressure systems for descaling, surface preparation and cutting in refineries, petrochemical plants and shipyards, stainless-steel pumps, valves and mixers for food, cosmetics and pharma process lines, and severe-service valves.

The pump business is the original 1977 company stemming from Interpump’s original innovation around ceramic (vs. steel) pistons. Hammelmann (Germany, 2005) was the pivotal industrializing deal and took Interpump from bare pumps into engineered ultra-high-pressure systems sold as projects. Inoxpa (Spain, 2017) diversified the segment into process industries, and Alfa Valvole (2024) added severe-service valves. Geographically, Water Jetting is the group’s most US-exposed franchise (40% to 50%).

While this business is anchored to GDP growth, secular growth opportunities include robotized and automated cleaning systems, hygienic process skids for food/pharma (Inoxpa), and severe-service valves.

The main competitors include Italian-listed Emak (the closest listed comparable) which is roughly one-third Interpump’s segment size; Annovi Reverberi (another Italian rival), Cat Pumps (private, US), and URACA and KAMAT (private, German) who compete with Hammelmann in ultra-high-pressure industrial systems. In reality, Interpump plays in small niches with limited overlap across multiple product categories with competitors specific to each niche.

Hydraulics (65% of FY2025 sales; 19.6% EBITDA margin)

Hydraulic components basically apply pressure to confined fluids to transmit high amounts of force in all direction which is how a hand-sized piston can lift ten tons. Electric actuators cannot match the force density of hydraulics which is why hydraulics are exclusively used in heavy applications around digging, lifting, tipping, steering, and crushing.

Interpump’s Hydraulics segment supplies the pneumatic components used in heavy vehicles and agricultural and construction machinery. These components are typically sold to OEMs and/or bodybuilders that install these components on a heavy vehicle chassis. Interpump is well known globally within this niche and has the broadest independent catalog of mobile-hydraulics components across multiple subsidiaries. Interpump is #1 globally in PTOs and strong in cylinders, directional valves, hoses and fittings, planetary gears, orbital motors and steering, tanks and e-drives.

The Hydraulics sector was assembled entirely via M&A. Interpump entered in 1997–99 through PZB, Hydrocar and Muncie acquisitions which collectively made it the world’s largest PTO supplier. The Italian cylinder makers came in 2008–09; the valve hub in 2012–15 (Galtech, Hydrocontrol, then Walvoil in 2015); hoses and fittings in 2014–18 (IMM through GS Hydro); planetary gears and e-drives in 2019–20 (Reggiana Riduttori, Transtecno); and orbital motors and steering in 2021 (White Drive, the largest deal ever — covered below).

Interpump does not break out revenue by product but to give a sense of size (revenue as of the acquisition date):

1. Walvoil €145m in 2015

2. Reggiana €88m in 2018

3. White Drive €195m in 2021

Customer mix is roughly 60% small and mid-sized bodybuilders/OEMs and 40% large OEMs. Customers are often on multi-year contracts. Products are typically spec’d-in by the end-customer or OEM, after-which Interpump earns the sale for the life of that vehicle model or product. There is limited customer concentration with the largest group-wide customer at <2% of sales.

The main competitor is Parker Hannifin’s Diversified Industrial segment ($13.7bn, FY Jun-2025) which is ~7x larger than Interpump’s entire group but within the PTO niche, Parker Hannifin is the #2 brand behind Interpump. Others competitors include Danfoss Power Solutions (€4.1bn), and Bucher Hydraulics (CHF 626m). Interpump’s advantage is the breadth of its product range and its reputation for strong application-specific engineering established over decades which translates to 20% EBITDA margins.

White Drive Motors & Steering (2021)

On 1 October 2021 Interpump paid €275.4m in cash, its largest acquisition ever, for the three companies of White Drive Motors & Steering, which were carved out of Danfoss. White Drive had plants in Hopkinsville (Kentucky), Parchim (Germany) and Wroclaw (Poland) and did €195m of 2021 sales and ~€53m of pro-forma EBITDA (27% margins). Interpump paid roughly ~5.2x for White Drive in what looked like a great price for a high-margin niche supplier of orbital motors, hydraulic steering units and valves.

An orbital motor is a compact hydraulic motor that turns slowly but with enormous torque, so it can spin a wheel, an auger or a conveyor directly, without a gearbox. It is what drives the wheels of a skid steer, the reel of a harvester or the rotation of an aerial lift. Management described orbital motors and steering as the last major product line missing from Interpump’s mobile-hydraulics catalog.

White Drive was only available for sale because of a regulatory remedy. When Danfoss bought Eaton’s hydraulics business, the European Commission cleared it conditional on divesting exactly these operations allowing Interpump to be one of the only credible approved buyers allowing it to acquire the asset at just 5.2x EBITDA.

While the face multiple looked attractive, post-acquisition Interpump stepped into the 2023–25 market collapse. Management disclosed that its revenues “fell by almost 40%” in 2024, forcing a restructuring of the German plant — “while we may not be fond of restructuring story, we know how to execute them when necessary” (CEO, FY2025 call link). White Drive looks to be turning: the agriculture market inflected upward in late 2025 which in turn has driven the recovery in the Hydraulics segment.

Suppliers & Technology

Production is vertically integrated — machining, assembly, and testing is done mostly in-house. Importantly, Interpump’s one centralized directive is for subsidiaries to use standardized machine tools wherever possible with castings, forgings, steel, aluminium and copper alloys done in-house. The standardization is strategic: machine tools are fungible across ~100 companies, so capacity moves to where the group needs it. Capex to fund these tools peaked at €164.9m in 2023 (7.4% of sales) as capacity was added into the boom, and fell to €98.8m (4.8%) in 2025. IT on the other hand is federated by philosophy — no group ERP is imposed with a lean central data layer extracting monthly with full P&Ls from every unit.

The production footprint, especially for pumps, is 40%+ domestic. As a result, Interpump did see a ~€6m in Q1 2026 alone (≈1.1% of quarterly sales) of Section 232 tariff costs which it says it fully passed through. The good news is that Interpump’s relative position versus a Chinese supplier is arguably superior given the higher tariffs. Moreover, production sites aquired as part of White Drive (Hopkinsville) gives Interpump a brownfield option to migrate production to the US if need be but for now, Interpump has sufficient pricing power to pass-on tariff costs.

Competition & Moat

As I described, Interpump does not face a single competitor across multiple product categories. Rather, it is in reality competing against different competitors within every niche. Nonetheless, the major players are summarized below.

The moat within any niche is based on specialization, reputation and track record. A malfunctioning motor or value can sideline a $150k piece of farming equipment which is why OEMs don’t “cheap out” on small cost components that directly impact performance. The moat is aided by being “spec’d-in” which creates switching costs through the life of every end-product. Interpump will say that its culture and organizational structure adds to its moat. Interpump’s subsidiaries are autonomous so can be nimble responding to client needs or service requests unlike large integrated conglomerates like Parker Hannifin.

Economics

Water Jetting. On the Water Jetting segment, the end-customer is typically an OEM manufacturing an industrial pressure washer or some type of industrial equipment going into food, pharma or severe service. Sales are not “spec’d in” per se as the average product cycle might only be 1 to 2 years versus 7 to 10 years on the Hydraulics side. In Water Jetting, Interpump benefits from high-margin after market demand which accounts for roughly 1/3rd of segment revenue. Interpump’s components might cost $100 to $200 and account for <10% of the end-product’s costs which in-turn allows Interpump to earn gross margins that are likely in the 40% to 60% range depending on product and EBITDA margins consistently in the mid- to high-20’s.

Hydraulics. On the Hydraulics side, Interpump is selling to OEMs and body builders and the components themselves are higher priced at $1k to $3k albeit often <3% of the end-products costs. While Interpump is spec’d in allowing it to earn captive revenue for the life of a product, this also means longer contracts and lower-gross margins, likely in the 30% to 40% range. All-in, higher volumes offset by lower margins allows Interpump to earn 20% EBITDA margins. Products sold to distributors who serve the aftermarket are likely higher-margin but makeup a smaller portion of sales, like <10%.

Consolidated. Taken together, Interpump can generate low-20’s EBITDA margin and sustain these margins through a downturn by leveraging pricing and keeping costs in-line. Interpump does need relatively high levels of inventory as these are not build-to-order products. Net working capital has averaged 30%+ of sales which in turn means FCF conversion stands in the 70%+ range which moves closer to 100% during downturn but falls during periods of strong growth. Capex is 5% to 7% of revenue and as discussed, Interpump tries to standardize equipment to make capex as fungible as possible.

Working Capital & Capex. Over the last decade (2016–25), net working capital has averaged 38% of sales and has drifted structurally higher — from ~36% in 2015–18 to ~41% in 2024–25 — with inventory doing all of the climbing: stocks rose from ~27% of sales to ~33%, the deliberate cost of a never-out-of-stock service model, of preserving local supply chains at 120 un-integrated subsidiaries, and of post-COVID buffer building, while receivables and payables have largely offset each other. Capex averaged 5.5% of sales but ran in a clear cycle: 4–5% through 2016–20, stepping up to 6–7.4% during the 2021–24 capacity build and White Drive integration, then back to 4.8% in 2025 as spending normalized. The pattern that matters for the unit economics: each incremental euro of revenue absorbs roughly €0.40 of working capital, which is why FCF conversion collapses in booms (19% of net income in 2022) and spikes in downturns (over 100% in 2020 and 2025) — Interpump banks its cash on the way down, not on the way up.

Cyclicality. In terms of cyclicality, in 2009, revenue declined -28% like-for-like and EBITDA –46% to a 13.7% margin. In contrast, in 2022, revenue fell –5.4%, but margin held at 22.7%. More recently, following the post-COVID destocking cycle, 2024-25 revenue fell -7% while margins remained stable at ~22.0%.

Growth Algorithm

TAM. US fluid power is a roughly $30bn TAM of-which 2/3rds is hydraulics. The major hydraulics markets include construction, agriculture, material handling, heavy trucks, and automotive. Germany is the largest market within Europe at roughly $10bn of-which half may be hydraulics. The Europe market more broadly is int he $15bn to$ $20bn range. Triangulating the markets, the global tam is in the $50bn range of-which Interpump occupies a small <3% share within individual niches. Water Jetting is a far smaller and specialized market, perhaps <$3bn where Interpump could have a more meaningful 20% to 30% share.

End-Markets. Heavy duty trucks, agriculture, construction machinery, and power washers are tied to GDP growth and industrial production and Hydraulics can be cyclical with US heavy-truck retail for example cycling between 200k to 550k. While Interpump calls out secular growth runways within niches, in aggregate, Interpump grows in-line with GDP. Water tends to be less cyclical and benefits from 1/3rd of demand coming from replacement.

Cycle. Near-term, after a 7 seven-quarter downcycle averaging –12% organic for Hydraulics ended in Q3 2025, end-markets are finally inflecting. The decline was exacerbated by inventory de-stocking which in turn should drive HSD+ organic top-line growth through to 2028.

M&A. I assume anywhere from 30% to 50% of FCF being redeployed back into M&A at a mid-teens ROIC which in turn drives 4% To 7% inorganic growth. The stated cadence of €50–80m of acquired sales per year at 4–8x EV/EBITDA adds 3% to 4% to revenue although Interpump does do larger deals like White Drive opportunistically.

EPS. When you look at the prior 2010 trough, EPS grew 13% cagr. A longer 30-year view suggests 9% EPS cagr. While M&A will determine at least half the longer-term growth, it is clear that on an organic growth runway there is room for EPS to grow at-least HSD/LDD near-term to 2028 before M&A.

Key Assumptions

The model assumes Hydraulics revenue is flat in 2026, grows 7% in 2027 and 2028 on the cyclical recovery, and 4% thereafter; Water Jetting grows 4% throughout. Margins build off 2025 actuals at incremental EBITDA margins of 30% for Hydraulics and 40% for Water Jetting, and capex runs at 6% of sales. No M&A is baked into the operating model — that optionality is handled in the valuation. I am relatively conservative in my pace of margin recovery in Hydraulics with upside if they can revert back to a high-teens margins.

Valuation — What Is a Sensible Buy Price

All three cases work off the same base: €35 share price, a normalized FCFE/share of €1.81, set at 75% of 2027E EPS (€2.41) — a through-cycle FCF-conversion assumption that looks through the 2026 inventory unwind rather than crediting it, a 10-year hold, and a 10% discount rate for intrinsic value. The cases differ only in how much FCF is redeployed into M&A, the resulting growth, and the exit multiple.

On the base case, I assume 8% growth in FCF/share: 30% of FCF deployed into M&A at a 14% ROIC adds ~4% inorganic growth on top of 4% organic FCF/share growth, driven by a near-term recovery and a stabilized organic growth rate of 3% to 4%. At a 16x exit, these assumptions drive a 10.2% IRR and €36 intrinsic value at a 10% discount rate — roughly today’s price.

On the bull case, I assume 11% growth in FCF/share: 50% of FCF reinvested into M&A at a 14% ROIC adds ~7% inorganic growth on top of 4% organic. At an 18x exit, this drives a 13.2% IRR and €45 intrinsic value at a 10% discount rate.

On a bear case, I assume 4% growth in FCF/share, a 14x exit, and no M&A, implying Interpump is basically a mature and cyclical industrial business. That implies a 6.8% IRR and €28 intrinsic value at a 10% discount rate — roughly 20% below today’s price.

To earn a 15%+ go-forward IRR on the base case, the entry price needs to be roughly €25 — about 30% below today’s price or ~13.6x the normalized FCF/share and ~10x 2027E EPS. That entry carries its own margin of safety: even on the bear case. That is the level at which to size up aggressively.

$IP.MI / $IPGYY / $IP

Investment Case

What is the Moat?

References, Brand, Reputation, Track record. Warehouses are typically mission critical to driving a customer’s sales, customer experience, and margins and there are significant upfront costs which is why customers choose to outsource to companies like IDL with a demonstrable track record backed by strong references. IDL is a European leader with blue chip references like Amazon, Danone, and Carrefour. To give a hard example, IDL was invited into Amazon’s first French tender in 2017 because of its strong e-commerce references and now runs Amazon operations in six countries, which in turn, act as the reference for every other e-commerce warehouse across Europe.

Labor Management. A warehouse’s operating costs are 50% labor and IDL operates in unionized labor markets like France where it is difficult to scale labor up and down, part of the reason why customers prefer outsourcing. IDL scale and expertise give it a durable advantage. Permanent staff are pooled across clients with opposite seasonality — management describes pairing a Kingfisher-style summer DIY peak with a Toys-R-Us-style Christmas peak so the same workforce stays productive year-round, something captive warehouses cannot easily replicate. To the extent there are gaps in demand, roughly 28% of the workforce is temporary and can flex down.

Technology Expertise. IDL is deliberately Warehouse Management System (WMS) agnostic: it develops on Manhattan, Reflex, Generix, or the client’s own system, rather than push proprietary platforms. That flexibility wins tenders — roughly half of clients insist on keeping their own systems — and by management’s account it is how IDL won IKEA’s e-commerce logistics across Northern Europe on IKEA’s in-house Astro system. On automation, IDL can work with a diversified robotics bench (AutoStore-class cube storage, Scallog/Knapp-class goods-to-person robots, autonomous mobile robots (AMRs)) with experienced field engineering staff who can design sites, benchmark vendor claims, and preserve flexibility. These skills are clearly becoming more valuable with the rise of AI robotics. The result: about 30% of IDL’s sites are automated (company disclosure) against roughly 10% of warehouses industry-wide (peer-primer estimate) and this ratio should trend higher over time.

It is important to note that 3PL’s are a capital-light business. While 3PLs often lease the actual warehouse on behalf of a client, those leases are co-terminous with a client contract. A 3PL’s role is akin to an IT consultant but rather than advise and manage technology, they advise and manage logistics.

What is the bull case?

Long runway for double digit organic growth driven by 1) outsourcing and 2) automation. Approx. 50% of warehouses in Europe are still in-sourced (management’s estimate; the penetration data of Armstrong & Associates (A&A), a logistics-market research firm, points the same direction). However, increased use of warehouse management software, automated picking and packing systems, and more recently robotics means even large companies like Danone can’t retain and develop this type of expertise in house. These secular forces drive 4-6% growth for the 3PL market (2-3% volumes plus 2-3% outsourcing, per management’s decomposition) and even faster growth for leaders like IDL that have proven references. Revenue compounded 17.9% a year over the last five years (2020-25), grew 16.0% like-for-like in 2025 and 17.2% in Q1 2026, against 2026 guidance of 11-13%.

The US represents huge optionality. North America is 19% of revenue growing 30-40% like-for-like, built on Kane (bought for $240m, roughly 1.0x sales, in 2022) plus the Nespresso and Jagged Peak entries before it (more on this later in the report). The US 3PL pool is $323bn with 12.7% outsourcing penetration basically doubling the total addressable market (TAM), competition is thinner than Europe’s with fewer credible players, softer client pressure, better margins — but ID Logistics is at roughly 1% share. The challenge will be exporting IDL’s proven European references and expertise into the US market and doing the right tuck-in deals.

The margin J-curve. Start-up losses are expensed as incurred, so a company launching 25-27 sites a year carries a structural drag, but this unwinds arithmetically: If launches hold steady while revenue compounds mid-teens, the mature-to-ramping mix shifts and the 4.4% group margin grinds toward 5%+ — each 10bp is ~€4m of EBIT, ~6% of net income. In other words, IDL’s look-through earnings are 20%+ higher on a normalized basis.

E-commerce outsourcing is re-accelerating. E-commerce is the most warehouse intensive as warehouses take the place of stores, and also absorb much higher return rates. Leaders like IDL are well suited to provide the automation-heavy, 100% accuracy, high-throughput requirements e-commerce demands. After a massive pull-forward in e-commerce during COVID, we saw a post-COVID normalization period. The US Census series maps the arc: e-commerce penetration rose from 11.2% of retail in 2019 to a 16.3% spike in Q2 2020, stalled around 14.6% through 2021-22, then resumed climbing to 16.9% by Q1 2026 — still growing ~2.5x as fast as total retail. IDL’s e-commerce share of revenue peaked around 28% in 2021 before settling near 25%. Then the lull — from spring 2023 Hémar observed “a fall in consumption volumes never seen before” (interview, translated). The recovery is now in the prints, +16.0% like-for-like in 2025 and +17.2% in Q1 2026, with large e-commerce clients accelerating outsourcing again.

What is the bear case?

Amazon is technically a competitor. Amazon has sold logistics for two decades: Fulfillment by Amazon (2006) stores and ships marketplace sellers’ goods; Multi-Channel Fulfillment ships that same inventory for orders placed off Amazon; Buy with Prime (2022) put Prime fulfillment on brands’ own sites; and Supply Chain by Amazon (announced September 2023) bundles logistics end-to-end — factory pickup, cross-border freight, customs, bulk storage, replenishment, delivery — “across all sales channels.” The direction of travel is from small marketplace sellers toward ever-larger brands, and in May 2026 it reached its logical end: Amazon launched Amazon Supply Chain Services (ASCS), an umbrella opening its freight, distribution, fulfillment and parcel network “to businesses of all types and sizes” — Procter & Gamble, 3M, Lands’ End and American Eagle signed up first — pitched explicitly as doing for supply chains what Amazon Web Services did for cloud computing. 3PL share prices fell on the announcement. With that said, it is important to note that Amazon offers shared network capacity on Amazon’s playbook, not a dedicated single-client site, and the brand hands over its channel data. Most large brands and retailers will never hand their supply chains to their fiercest competitor. The Key Risks section takes this apart properly.

US Expansion is Risky. At a high-level, a mid-sized French player trying to land large references in the US is a difficult ask and fits and starts are to be expected. The strategy has three legs. First, buy a platform with references: Kane, at $240m and roughly 1.0x sales, with its management retained to run all of North America. Second, follow existing European clients across: Canada opened in 2025 behind a long-standing global e-commerce client, and the 2020 Nespresso US operations takeover followed a European client into America the same way. Third, keep hunting M&A. Evidence of success thus far: North America is 19% of revenue and has compounded roughly 28% a year like-for-like over the last three years (+12.8% in 2023, +39.3% in 2024, +31.9% in 2025, per company releases), a New Jersey wine-and-spirits site launched in July 2026, and Kane’s leadership has stayed put. However, IDL has yet to obtain a large named US reference win.

European Market May Mature. Europe is already 50% outsourced and while there is still significant room to grow, there is likely a natural ceiling, perhaps in the 65% range, resulting in less of an outsourcing tailwind (offset by low penetration in the US). For example, France’s revenue fell 4.0% in 2023, its first real down-year, and management caps French like-for-like growth in the mid-single digits. Larger players like DHL Supply Chain and KNIN are growing LSD. Some of this is offset by newer markets including Poland and Iberia which keep compounding as well as a return of e-commerce penetration, which in France sits at ~12% of product retail versus ~17% in the US (FEVAD, the French e-commerce federation / US Census). Inflationary cost pressures have historically pushed higher rates of outsourcing.

Margin Volatility. 3PLs can have opaque and heterogeneous contract structures with different mechanisms to fund capex, deal with cost overruns and surges, and index for inflation, which lands with a lag. While IDL has a long track record of execution, there will inevitably be the occasional contract issue over a book this long. Any issue may be made worse by customer concentration — the top three clients are roughly a quarter of revenue. The counterweights: minimum-volume bands, renegotiation rights, and the day-one contract-KPI tracking installed since 2016.

What is the market pricing in, and what is an attractive buy price?

At €352.50 the shares trade at ~32x NTM earnings (€11.0) and ~40x NTM free cash flow per share. Across an 18x to 30x FCF exit grid, the market implies roughly 9-13% annual FCF-per-share growth for a 9% return — the bear-to-base corridor, meaning today’s price already pays for a decade of low-teens compounding.

Using a 15% hurdle, the base case (13% growth, 24x exit) requires entry at ~€257, and a margin-of-safety case (8% growth, 18x) requires ~€148; today’s price delivers ~10.9% on the base case. The 52-week low of €296.50 back-tests to ~13%. ID Logistics is firmly in the “compounder” camp amongst European investors so only earns its hurdle in major market drawdowns or a growth wobble — and our job is to know the business well enough in advance to act inside one.

Converted into an intrinsic value range at a 9% market-style discount rate, the same scenarios are worth roughly: bear ~€230, base ~€410, bull ~€725 per share. At €352.50 the market sits between bear and base.

Industry Primer: Contract Logistics

What do 3PLs do?

Contract logistics companies — also called third-party logistics (3PLs) — design, implement, and run warehouses. The service spans receiving inbound goods, storage and inventory management, picking and packing orders, shipping, co-packing and light assembly, and returns processing. Warehousing used to be simple enough that nearly everyone did it in-house; e-commerce made it exponentially harder. Preparing pallets for a hypermarket tolerates 95% accuracy; preparing single items for consumers requires effectively 100%, plus live inventory data, same-day cutoffs, seasonal peaks, and 25-30% return flows. That complexity — detail picking, automation, specialized WMS functionality — is what pushed retailers and brands toward specialists, and it is why the outsourced share of the market keeps rising.

Why do companies outsource?

Cost. A 3PL pools labor across clients with opposite seasonalities, runs temporary-labor mixes individual companies cannot, and — bluntly, in the French case — pays warehouse staff outside the client’s own union agreements; labor is ~50% of warehouse cost.

Complexity. Automation, e-commerce functionality, and returns engineering now require engineering teams only scale players can carry — a company running one national warehouse cannot justify sixty automation engineers.

Flexibility. An outsourced warehouse converts fixed cost and social risk into an indexed contract that can flex within volume bands. It is kind of like moving from on-prem to SaaS but outsourcing significantly more operational headaches in the process.

How big is the market and how fast is it growing?

Start at the top: A&A estimates the world spent ~$12.96 trillion on logistics in 2025 — about 11% of global GDP — a figure that covers everything: freight and transportation (the majority), warehousing, and inventory carrying. Within that, what shippers actually paid to third parties — global 3PL revenue — was ~$1.30 trillion, roughly 10% penetration of the total cost pool: US $323bn (12.7% penetration), Europe $230bn (10.3%), France $29bn (10.4%).

The ~50% insourced figure quoted earlier is a third, narrower denominator: it is management’s estimate for the warehousing/contract-logistics layer alone — a ~€200bn global pool, its boundary admittedly fuzzy — where Europe is around half outsourced. With the contradiction between 10% and 50%: the first measures penetration of all logistics spend including transport, the second only the warehouse layer where IDL competes.

GXO’s investor materials cut it the same way and serve as the secondary source: “Our total potential addressable market across North America and Europe is approximately $430 billion, including the $130 billion of logistics spend that is currently outsourced and the opportunity for another $300 billion of spend that is currently insourced” (GXO Information Statement, July 2021) — a contract-logistics pool roughly 30% outsourced, with the insourced ~70% explicitly framed as the opportunity which makes sense given GXO’s geographic mix between Europe and the US.

There are two structural drivers. The first: warehousing has become too complex to run as a sideline. Automation hardware, e-commerce order profiles, returns engineering and WMS integration now demand specialist engineering teams that only scale players can carry. Recessions historically accelerate first-time outsourcing as companies convert fixed warehouse cost into an indexed, flexible contract. The second is a related trend which is e-commerce penetration, the most warehouse-intensive form of retail: warehouses replace stores and absorb 25-30% return flows. The US Census series shows the grind — 11.2% of retail in 2019, a 16.3% COVID spike in Q2 2020, a 2021-22 stall around 14.6%, then a resumed climb to 16.9% by Q1 2026, still growing ~2.5x as fast as total retail.

How do the contracts work?

Two families of contract structure exist, and they allocate risk oppositely.

Open-book (cost-plus) contracts, dominant in the UK: every cost passes through to the client, who pays an agreed management fee of roughly 3-10% of costs, with gain-share mechanisms splitting efficiency improvements (i.e. to incentivize efficiency, if you find an investment, process change, etc. that drives efficiency, the 3PL shares in that gain). Low risk, inflation-proof, capital-light, but generally lower margin.

Closed-book contracts, dominant in France and most of Europe and the US: the 3PL commits to a fixed price per task — so much per pallet received, per order picked, per parcel shipped — built up during the tender into a tariff list of 50-80 line items, valid within minimum/maximum volume bands, indexed to wages and input costs. The 3PL keeps efficiency gains between renegotiations, so margins can exceed open-book but the 3PL also has to absorb more operational issues.

ID Logistics is essentially a closed-book operator (with UK-style cost-plus only where local custom demands it). It is important to note that for major errors that make a contract uneconomic, while rare, when it does happen it is generally in the customer’s interest to correct the error and renegotiate as uneconomic contracts may mean the 3PL will provide lower service levels.

In both structures, the 3PL’s fee is a sliver of the supply-chain costs it manages, i.e. if supply chain costs are 10% of opex, a 3PL’s costs would be 3% to 7% of that 10%. A rival offering to halve the fee saves the client perhaps <1% of warehouse costs; if that rival then runs the warehouse even a few percent less efficiently, the saving is gone within the year. Fee discounts cannot compensate for operational inferiority, which is why tenders are won on references and design, and why price is rarely the differentiator.

Contracts generally follow a J-Curve for closed-book whereby there is an initial absorption period with full run-rate margins not being achieved till year 3 leading to understated margins for higher-growth players like IDL. To the extent IDL can find efficiencies over time, margins can exceed projections meaningfully by years 4/5/6.

Who are the players?

DHL Supply Chain leads globally (€17.8bn revenue, 6.5% EBIT margin in FY2025); GXO is the listed pure-play consolidator ($13.2bn, 6.7% adjusted EBITDA margin, +3.9% organic); Kuehne+Nagel and DSV run contract-logistics divisions beside freight forwarding; CEVA (CMA CGM) and a long tail of nationals and regionals fill out a market where, in most countries, the top ten hold less than half the share. ID Logistics ranks in the global second tier (#42 in A&A’s top-50 by gross revenue) but first-tier in its home market and in growth: it is the fastest-growing sizable pure play in the industry, and the only one compounding revenue mid-teens organically.

Business Overview

ID Logistics reports two segments:

• France (€985.3m revenue, €42.8m underlying EBIT, 4.3% margin in FY2025), and

• International (€2,751.7m, €122.4m, 4.4%) — eighteen countries beyond home, led by Iberia, Poland, Germany, the UK, Benelux, the US, Brazil and, since 2025, Canada.

International contains both mature national franchises earning French-style margins and ramp-heavy new countries that each take five to six years and seven or eight mature warehouses to absorb their ~€0.5-1m of annual fixed country costs. The group runs ~450 sites; no contract exceeds 5% of sales but the top three clients are roughly a quarter of revenue.

The company does not name the top three. What can be pieced together: the top three were 25.9% of FY2024 revenue across 66 contracts, with one client above 10% (company IFRS 8 disclosure, cited in broker research). Brokers believe the >10% client is Amazon. Carrefour is almost certainly a second — the financial press headlines IDL as the company that manages “les entrepôts d’Amazon et de Carrefour dans 19 pays” (Boursorama, May 2026). The third cannot be identified from public sources; the long-standing FMCG and retail names — Danone, Groupement des Mousquetaires, Auchan, Nespresso — are the candidates.

France (26% of revenue; 4.3% margin)

France is the original founding geography where IDL provides dedicated-site contract logistics for a blue-chip client base — mass retail (Carrefour, Auchan), fast-moving consumer goods (FMCG: Danone, Nivea), cosmetics and premium brands (Nespresso), e-commerce pure players (Amazon), healthcare — plus Colisweb, a French last-mile specialist acquired in 2022 (€24m enterprise value plus an earn-out that was largely reversed) that delivers by appointment in two-hour slots, including heavy items up to 1,800kg. France is the source of significant references which help IDL expand both domestically and overseas.

The business was founded in 2001 and built up gradually but deepened significantly with the 2013 acquisition of CEPL for undisclosed terms (leverage was 1.7x EBITDA after the deal), which brought the mechanized, small-item skills that later powered the e-commerce franchise.

The price can be bracketed, not confirmed. Net financial debt rose from €8.9m at end-2012 to €86.6m at end-2013 (1.7x EBITDA) in a year when operations generated cash, implying an all-in outlay — equity plus assumed debt — of roughly €80-90m, or ~0.4-0.5x CEPL’s ~€180m of revenue (broker figure). The €28.6m of ex-CEPL warehouse disposals booked in 2015 lowered the effective price further. An inference from the balance-sheet delta, not a disclosure.

France’s margin (4.3%), for its part, is structurally capped rather than cyclically depressed: the market is mature, labor is among the most expensive and most regulated in Europe, and the client mix leans toward mass retail, which pays the thinnest margins. What France offers instead is stability — its cohorts are old, its productivity gains compound, leading to relatively stable margins every year.

The main issue is macro: French consumption volumes, which fell in 2023 for the first time in Hémar’s telling, cap like-for-like growth in the mid-single digits. Historically the segment has delivered roughly 5-6% a year — from ~€684m in 2018 to €985.3m in 2025, with the cycle visible inside it (-4.0% in 2023, +5.0% in 2024, then a +13.5% rebound in 2025). Going forward, management expects France to normalize back to mid-single-digit like-for-like growth (roughly +3-5% in the 2026 framing; Q1 2026 printed +4.9%).

International (74% of revenue; 4.4% margin)

IDL built out its international business primarily organically by leveraging existing client relationships. IDL’s strategy has been to enter a country only when a client contract anchors it. It has then added to this with M&A to “acquire references” — Logiters (2016, €85m EV) made it an Iberian leader and added healthcare; GVT (2021, €67.7m) built Benelux; and Kane (2022, details below) created the US platform; Spedimex (2023, €74m EV, paid 70% in IDL shares) made it Poland’s leader in fashion and e-commerce logistics.

Country-level revenue is not fully disclosed. The URD gives four zones (FY2025): France €985.3m (26%), Europe ex-France €1,773.2m (48%), North America €699.8m (19%), rest of world €278.7m (7%). Within Europe ex-France no country split is published; broker estimates put Brazil at 5-6% of group revenue and the US at ~19-21%, with Iberia, Poland, Germany, the UK and Benelux the bulk of the European remainder (broker estimates). Market positions are a partial proxy: #1 in France (~9% share), #2 in Spain (~10%), #1 in Poland (>10%), ~top-10 in Germany (broker estimates).

Within international, Iberia and Poland are mature franchises; the US and Brazil are compounding at 30-40% like-for-like; Canada, the UK and Germany are still absorbing country fixed costs. The segment’s 4.4% margin already matches France despite that mix — the arithmetic case for group margins grinding higher as cohorts season.

International matching France’s margin despite being less mature is a mix effect. The segment nets mature franchises earning above-France margins — Iberia, Poland, and a structurally richer US market — against ramping countries still absorbing fixed costs. In 2023, when a lighter launch calendar diluted it less, International printed 4.7% against France’s 4.2%.

The transformative deal: Kane Logistics (2022)

In February 2022, IDL agreed to buy 100% of Kane Logistics — a US contract-logistics pure play founded 1930, owned since 2019 by Harkness Capital — for a $240m enterprise value in cash, against $235m of 2021 revenue: roughly 1.0x sales for a business growing 20% a year. Kane had twenty hubs across Pennsylvania, Georgia, Ohio, Illinois and California.

The logic: the US was the industry’s largest and most profitable pool, ID Logistics’ prior footholds (Jagged Peak 2019, the Nespresso operations takeover 2020) were platforms without scale, and Kane’s management — who had run Jacobson under Norbert Dentressangle a decade earlier and therefore knew the model — wanted an industrial buyer rather than another fund (note Norbert Dentressangle eventually became the core of GXO’s 3PL business and was where prior GXO CEO Malcolm Wilson rose-up).

The company financed Kane plus Colisweb (the last-mile acquisition described in the France section) with a €400m syndicated loan and let leverage peak at 2.6x pre-IFRS16 at closing, back below 2x within the year.

From Kane’s $235m of 2021 revenue — which landed on top of IDL’s own pre-Kane North American base of roughly €80-100m (Jagged Peak was ~$80m of revenue at acquisition, plus the Nespresso operations; broker estimates — the segment was not separately disclosed then) — the North American business reached ~€710m by FY2025, roughly triple Kane’s acquired revenue in euro terms — 19% of group revenue — with like-for-like growth compounding through it: +12.8% in 2023 (when the US was 14% of revenue), +39.3% in 2024, +31.9% in 2025 and +40.6% in Q1 2026. Kane’s CEO still runs the region and the acquisition has been undoubtedly a success.

While the growth has been impressive, IDL is still a relatively small player in the US without a marquee reference like Nike or Amazon. Recent wins include a New Jersey wine-and-spirits site announced in July 2026. Management has been explicit in saying they are looking for additional tuck-in deals.

Suppliers & Technology

The inputs are labor, leased space, and increasingly automation. IDL rents warehouses back-to-back with contracts meaning if the client terminates, the lease typically also terminates. Equipment is often also leased back-to-back with a client contract. Labor is really the main input. IDL has to hire and maintain the labor and is protected from having to rapidly scale down permanent labour with minimum volume bands. Thereafter, roughly 28% of staff are temporary, letting sites flex.

Automation was the main trend over the last 10 years and AI and the potential for AI-powered robots has only accelerated this trend. IDL thinks of itself as a technology integrator rather than an owner of software or hardware. IDL has relationships with major automation equipment suppliers (AutoStore-class cube storage, Scallog/Knapp-class goods-to-person robots, AMRs), charges the equipment to the client, and differentiates on the engineering judgment of what actually pays back.

Management is openly skeptical of automation bought for its own sake, noting many clients never see the ROI and that flexibility (adding or removing capacity mid-contract) is what vendors must now deliver.

About 30% of its warehouses are automated, against roughly 10% for warehouses globally. The WMS strategy is flexible: no in-house system, full fluency in Manhattan, Reflex, Generix and clients’ own systems — the flexibility that, by management’s account, won IKEA’s e-commerce across eight Northern European countries against DHL and KNIN, both wedded to proprietary platforms.

AI has so far been used for labor planning, slotting, and digital-twin site design. However, once humanoid robots become viable, it is easy to see how experts like IDL will be brought in to select vendors, program robots, and manage a non-human labour fleet, expertise which IDL can apply across multiple customers and sites, but the hype is ahead of reality today.

Competition

The freight-forwarding and parcel giants. Nearly all of them carry in-house 3PL divisions with global footprints, but for most, contract logistics is not the core focus — the strategic logic is synergy with forwarding, parcel and ocean businesses.

• DHL Supply Chain is the clear leader (€17.8bn revenue, 6.5% EBIT margin in FY2025). They are known to have strong references and be very capable but with the normal big-company issues: slow, lots of silos, lack of flexibility, and as a result, growth tends to mirror rather than exceed market growth.

• KNIN has been retreating in contract logistics (it sold the bulk of its UK book to GXO in 2020) as 3PLs are seen as a completely different skillset to freight forwarding (managing shipping containers), again disproving that synergies actually exist.

• DSV is digesting Schenker; CEVA (CMA CGM) acquires aggressively where ocean tie-ins matter. None of them treats warehouse operations as its main event, which is precisely IDL’s opening.

• IDL competes head-on with all of these players but its pure play status and reputation gives it a competitive advantage, especially in Europe allowing it to win heavyweight contracts from the likes of Amazon, Carrefour, and Ikea.

GXO — the closest pure-play. GXO is the direct comparable and the head-to-head competitor in every large European tender. GXO runs 200+ French sites, it is the strongest player in the UK (nearly half of its revenue: $6.3bn of $13.2bn in FY2025 per its 10-K) and top-tier in the US. In my view, there is not necessarily any huge differentiation between GXO and IDL across Europe with GXO clearly having a lead in the UK.

At a company-wide level, the structural differences are contract mix and posture. GXO runs roughly 45% open-book (given its UK exposure) while IDL runs an essentially closed-book model. GXO also operates a multi-tenant arm (GXO Direct) that IDL deliberately avoids as low-stickiness.

When comparing margins, GXO capitalizes contract start-up costs where IDL expenses them (see Unit Economics), which flatters comparative margins during growth. GXO has also, likely a function of scale, grown in the MSD with MSD/HSD ambitions, below what IDL has consistently achieved.

The real share-donors. The competitors IDL and GXO actually takes revenue from are the long tail of small 3PLs — Arvato, FIEGE and Culina-type national players and thousands of local operators. There is a large fragmented middle that increasingly loses on exactly the dimensions tenders now weigh: contract governance, automation and WMS engineering depth, and multi-country references. Every point of that share shifts to the scaled specialists, and IDL’s growth premium over the market is mostly this transfer.

The verdict: ID Logistics is the growth outlier in an “established players” plus “very long-tail” structure. DHL Supply Chain (4.8x IDL’s revenue) is the reference giant; GXO (3.3x) is the listed consolidator whose organic growth (+3.9% in FY2025) runs slower to IDL’s pace; and KNIN and DSV run contract logistics as divisions with in-house-WMS models that are not the core focus. Against all of them GXO and ID Logistics compete as the pure-play specialists.

The Moat

The moat is the same four components introduced in the Investment Case — references and track record, dedicated-site switching costs, IT-agnosticism, and labour management expertise. Against GXO or DHL Supply Chain the moat is roughly at parity — all three carry the references, the switching costs and the technology depth, and tenders between them are decided on design, price and site leadership rather than on moat. The significant moat is against the regional champions and small players losing share, who can match none of the four at scale.

Unit Economics

During a 12-18 month tender and implementation phase, ID Logistics and the client co-design the site, agree on volumes, and convert the total cost — labor, lease, equipment, energy, overhead allocation, margin — into a tariff per task: so much to receive a pallet, store it, pick a line, pack a parcel, process a return. The client is invoiced monthly on volumes executed; minimum/maximum bands bracket the tariffs’ validity; indexation clauses reprice wages and inflation annually.

If volumes go outside the bands, the contract renegotiates (management claims about five failed renegotiations in five years). Because temporary labor is 28% of the workforce, simplistically, the lower band might be 28% below projected volumes meaning if volumes fall short, IDL can protect margins by cutting temporary labor and if volumes fall short by more than 28%, IDL’s margins contract structure protects it.

Roughly 60% of costs are variable. The J-curve is the model’s signature: all start-up costs are expensed as incurred (training, temp-heavy ramps, productivity gaps against tender assumptions), so a new site loses money for 12-24 months, breaks even in year two, and reaches the mature 4-6% EBIT band in year three.

GXO accounts for this differently: its 10-K states that the company “capitalizes direct and incremental costs incurred to obtain and to fulfill a contract in advance of revenue recognition, such as certain labor, third-party service and related product costs,” recognizing them as contract assets “amortized to Direct operating expense... over the contract term” (GXO 10-K FY2025, significant accounting policies). IDL expenses the same start-up costs as incurred, so during growth phases like-for-like margins understate IDL relative to GXO — a comparability point, not a quality one.

Sizing it: the company does not disclose start-up costs, so this is an estimate. At 25-27 launches a year and a first-year loss in the €1-2m range per site, expensed ramp costs run roughly €35-40m a year — about 1% of revenue and roughly a quarter of underlying EBIT. Restating underlying EBIT GXO-style — adding back each year’s expensed start-up costs and charging a five-year amortization of the current and prior cohorts instead:

The margin differential is small — inside roughly 10-30bps in either direction, and only +4bps on 2026E — because the launch cadence is steady: with a flat cohort, the five-year amortization of prior launches nearly equals the current year’s expense, and in 2023, a lighter launch year, amortized accounting would actually have lowered the margin by 11bps. Capitalization flatters most when launches accelerate — which is exactly when GXO-style accounting is least comparable, and exactly what would happen if IDL stepped up its growth. The bigger point stays with the look-through arithmetic: the ~€40m expensed each year is the cost of growth, and it is a quarter of EBIT.

A detailed breakdown:

• Labor ~50% (of which ~28% of total workforce is temporary)

• Leases and equipment rentals (IFRS16 moves these into EBITDA — hence 15.5% EBITDA against 4.4% EBIT; the 11-point wedge is mostly depreciation of leases and client-charged automation).

• The lease liabilities sit on IDL’s balance sheet, but they are co-terminous and back-to-back with the client contracts, so the obligation is economically the client’s commitment rather than IDL’s speculative exposure. The residual risk is a client bankruptcy mid-contract — and even then, landlord contracts commonly contain provisions for that case, and a well-located warehouse is re-lettable.

• Energy and consumables, then country overheads form the rest.

Cyclicality

New contracts

Outsourcing itself is countercyclical: downturns put cost pressure on customers who then look to convert a fixed warehouse cost into an indexed, flexible contract— management’s experience is that cost pressure accelerates first-time outsourcing. But decisions slow even as the logic strengthens, so wins lag the cycle: 2009-class recessions stopped tenders industry-wide. COVID added a distortion of its own: the e-commerce pull-forward produced +7.1% revenue growth and a margin rise in 2020 as launches surged, then several years of normalization — but in a normal cycle, new tenders accelerate leading to an acceleration in growth coming out of the recession.

Existing sites

Revenue on running sites tracks the physical volume of goods handled, which is less volatile than the value of goods, and minimum-volume bands floor the first leg of any shock — though in a downturn volumes run nearer that floor. The 2023 consumer-volume decline — the first Hémar had ever seen — is the live example of the potential cyclicality: France printed a -4.0% revenue year while International compounded through it.

Key Risks

The risks below mirror the bear case at the top of the document, with Amazon first because it appears in the case three times over.

1. Amazon — client, competitor, and precedent. Amazon is the only name in the book that is simultaneously a top-tier client, a declared competitor, and the industry’s insourcing cautionary tale.

Amazon as client. The top three clients are roughly a quarter of revenue and Amazon is one of them (perhaps ~8-10% of revenue). The relationship began with the 2017 French tender and now spans six countries, built on the operations Amazon structurally does not want in its own standardized network — oversized, hazardous, low automation fit — and on record site-opening speed (Milan, under two months). Management caps the exposure deliberately.

Amazon as competitor. The two-decade escalation — Fulfillment by Amazon (FBA, 2006), Multi-Channel Fulfillment, Buy with Prime (2022), Supply Chain by Amazon (September 2023) — culminated in the May 2026 launch of Amazon Supply Chain Services, which packages freight, distribution, fulfillment and parcel “to businesses of all types and sizes” (first sign-ups: Procter & Gamble, 3M, Lands’ End, American Eagle) with an explicit AWS-for-supply-chains framing; FreightWaves read it as largely a rebrand of existing arms under one console, but 3PL share prices fell on the news.

Amazon can plausibly run logistics 3-6% cheaper on modern, non-union infrastructure and could let AWS/E-Comm profits subsidize the offer. However, it is worth noting that the contracts it has outsourced to the likes of IDL are based on heavy/bulky operations because they do not naturally fit Amazon’s network. It is also very unlikely that Amazon will begin building out the sales team, engineering team, and dedicated integration teams to go after entire non-Amazon sites, IDL’s bread and butter. Most clients would be reluctant to depend on a competitor to that extent.

Amazon as precedent. There is real risk that Amazon uses IDL to learn the heavy/bulky category, build its own facilities in the same industrial parks, then take the operations in-house. Amazon contracts might run 3 to 5 years so there is real risk. With that said, the reference benefits Amazon brings are invaluable and worth the risk of losing 8% to 10% of revenue over time.

2. The US fails to scale beyond mid-tier clients. As of today, IDL is still a relatively small player in the US. North America is 19% of revenue growing 30-40% but this growth is being driven off a small base and wins of mid-tier distributors rather than landmark new logos. With that said, IDL has had three years of 30%+ compounding, Kane management has been retained, Canada opened behind an anchor client, and the margin structure (US contract logistics pays better than Europe) means even moderate success is accretive.

3. A J-curve accident. The mechanism is documented by the company’s own history: when launch intensity outruns the mature base — 2016’s 31 launches — expensed ramp costs and tender-versus-reality gaps crush reported earnings before renegotiations catch up. Quantification: net income roughly halved in the 2016 episode (management account), and today a comparable shock to the 4.4% margin — say 60bp — removes ~€22m of EBIT, a third of net income. The counterargument: the company institutionalized the lesson (day-one contract-KPI tracking, more aggressive renegotiation posture, launch counts held at 25-27 against a base several times 2016’s size), and France’s 2025 productivity print shows the cohort machine working as designed.

4. European maturation. Europe is already ~50% outsourced against a natural ceiling perhaps in the 65% range, France’s 2023 (-4.0%) showed what a mature market’s down-year looks like, and the giants’ contract-logistics arms grow low-single-digit. Quantification: Europe including France is 74% of revenue; if its growth converges toward the market’s 4-6%, the group algorithm leans entirely on the US and margin. Counterargument: Poland and Iberia keep compounding, French e-commerce penetration (~12% of product retail) still trails the US (~17%), and inflationary cost pressure historically pushes outsourcing up, not down.

5. Key man and float. Hémar co-founded the company, chairs and runs it, and controls ~50.4% of the capital; the float is ~47%, the market cap €2.3bn, and the CFO (Yann Perot) has carried the finance function for over a decade. A succession event would test a stock priced for execution. Counterargument: the model is process-heavy and decentralized by country; Satin and long-tenured country managers exist; and the controlling stake is also the reason the company has never chased quarterly optics — no dividend, no buyback, every euro reinvested.

Management & Capital Allocation

Eric Hémar, a graduate of ENA, France’s elite civil-service academy left the Cour des Comptes for the transport ministry and then Geodis, whose logistics arm he ran before founding ID Logistics at 38 with Christophe Satin in 2001. Eric still chairs and runs the company and holds ~50.4% of it — a stake he increased in 2023 by folding his sub-holding position into IDL shares.

The capital-allocation record is straightforward. No dividend has ever been paid, no buyback run; every euro of operating cash and both equity events (the 2012 IPO, the €132.6m September 2024 raise) funded launches and seven acquisitions. Tuck-in M&A strategically makes sense as it is a way to gain references then build-off those references leveraging IDL’s greater scale, technology, and expertise.

The deal ledger below shows the pattern — small, reference-buying, self-sourced (never brokered, by management’s account), paid in cash except where a founder-seller was wanted as a shareholder (Spedimex’s founder took 3.2% of IDL). Multiples paid ran ~7-7.5x EBITDA in the 2010s (9x for Germany-quality assets, management noted then), and roughly 1.0x sales for Kane. Kane is the one larger deal but the results so far point to very strong success.

Deals stopped entirely 2024-2026 while the US digested. Hémar to Zonebourse (May 2026, translated) points at Canada, England, and the US for more tuck-in deals, which makes sense.

Returns on capital. ID Logistics earns mid-teens returns on the capital it actually employs and deploys substantially all FCF into that return. ROIC has run 14-17% every year since 2020: 15.2% (2020), 16.7% (2021), 16.0% (2022), 14.1% (2023), 15.2% (2024), 15.6% (2025). The trend is stable-to-rising: the dip to 14.1% in 2023 was the France down-year, and the model’s margin walk lifts ROIC toward ~16% in 2026E and the high teens by 2030E as cohorts mature.

ROIC on M&A (our derivation): the deal ledger sums to roughly €500m of enterprise value — Logiters €85m, GVT €67.7m, Colisweb €24m, Kane ~€225m ($240m), Spedimex €74m, plus Jagged Peak’s €17.2m. Over the same arc, International underlying EBIT built from €13.8m (2018) to €122.4m (2025): €108.6m of added EBIT, ~€76m post-tax at the same notional 30% — which, if credited entirely to the deals, would be a ~15% post-tax return on the ~€500m spent. Organic and acquired growth cannot be fully separated so the deals’ standalone return is lower than 15% while their strategic return is arguably higher. What can be said cleanly: none of the seven deals has been written off or exited, the entry multiples were disciplined (~7-7.5x EBITDA in the 2010s, ~1.0x sales for Kane), and the blended machine — buy references cheaply, then compound organically off them — has converted that outlay into an International segment earning €122m of EBIT while group ROIC never left the mid-teens.

Incentives: the family stake is the alignment; disclosed executive pay is modest. The detail, from a secondary compilation of URD data: Hémar’s total compensation was ~€1.2m for 2024, of which ~€700k fixed salary, up 14% year-on-year. The incentive driver is the stake itself: no dividend has ever been paid, so the founder’s payoff is entirely the compounding of the equity.

Growth Algorithm

There are several parts.

• TAM (3% to 4%). Logistics spending itself grows with nominal GDP — call it 3-4% (the cost pool is ~11% of global GDP, and A&A measured the 3PL market up 3.4% in 2024 through a soft freight year).

• Outsourcing (1% to 2%). On top of that sits outsourcing penetration: management’s decomposition makes rising penetration roughly half of the 3PL market’s 4-6% growth.

• Geographic Mix (1%+). Europe’s contract-logistics market (74% of revenue including France) grows roughly 4-5% a year, the US market roughly 5-7% (lower penetration, faster e-commerce), Latin America high single digits in nominal terms (our estimates, anchored on A&A and company market-growth figures). Footprint-weighted, IDL’s end-markets grow ~5-6% — but if IDL executes, the Geographic mix will turn more favorable over time.

• Share Gains (6% to 8%). Then IDL’s own share gains — a tender pipeline of 160-200 RFPs (requests for proposals) a year converted into 25-27 launches, which took global share from 0.2% in 2009 to ~1.1% by 2023 — add the rest, roughly six to eight points. This is where the regional prints belong: the US and Latin America compounding at 30-40% like-for-like against end-markets growing 5-7%, and Europe growing low teens against a 4-5% market, are share capture, not market growth.

The stack sums to roughly 11-14% top-line growth, which is where guidance (11-13%) and the recent prints (+16.0% in 2025) sit. Below the line, margin maturation from 4.4% toward ~5.0% as cohorts season adds two to three points of EBIT growth over revenue resulting in earnings compounding mid-to-high teens.

The e-commerce driver deserves its chart here, because it powers three of the five layers at once — market growth, penetration, and IDL’s share of wins (e-commerce is a third of the tender pipeline):

Management’s arithmetic, in its own words: “We set ourselves an objective of doubling our revenue every 5 years. A trajectory that should allow us to reach €4 billion of revenue in 2026” — Eric Hémar, Supply Chain Village (January 2026, translated) link — an ambition the 2026 guidance (11-13% like-for-like, 25-27 launches, margin consolidation at 4.5-4.6%) makes concrete.

M&A is episodic and additive. The end-result: revenue 15.7% CAGR 2012-2025; net income 23.4% CAGR 2012-2025 and 11.5% from 2015; underlying EBIT 15.3% from 2015.

Key Assumptions

The assumptions and the model summary in one place — teal italic marks the assumption inputs and estimates; everything else follows from them. The basis notes at the foot of the table carry the detail.

Valuation — and What Is a Sensible Buy Price

Reading the grid: the market implies ~9-13% FCF/share growth for a 9% return.

• The base case (13%, 24x) returns ~10.9% from €352.50;

• The bear case (8%, 18x) ~3.6%;

• The bull case (18%, 30x) ~18.0%.

I think a reasonable entry price is in the €257 range, comfortably clearing 15% but also assuming that a relatively high multiple will hold. The key pushback is that GXO, a larger more mature player has not sustained a mid-20’x multiple but has in fact seen significant margin volatility. A back-up-the-truck price may be closer to €213 which underwrites to a 15% IRR to a 18x exit multiple.

The 52-week low of €296.50 back-tested to ~13.1% — the market closed much of the gap to the hurdle price during a mere sentiment wobble. There may be opportunities given the relatively thin float. At €352 the shares pay ~11% for a business executing at its best — a fair return.

EPA:IDL, ENXTPA:IDL, EURONEXT:IDL, IDL.PA and $IDL. ISIN: FR0010929125.

The cause is temporary: Judges’ business is ultimately driven by academic and R&D spending which are powered by long-term secular drivers but a freeze in US academic and research funding has taken longer than expected to thaw. Moreover, a new business (Geotek) has introduced volatility year-to-year as revenues are dependent on one-time contracts where timing can materially impact revenue. The shares went from a 52-week high of £90 to £40. The question is whether the machine that compounded at 20%+ for two decades is broken, or merely in a temporary cycle.

Investment Case

Bull Case

• Proven record. Over the last 15 years, Judges has deployed 100%+ of FCF at a 24% ROIC on total capital whilst growing organically by 5% CAGR yet Judges is still at <£150m in revenue and continues to have a long runway to do small deals in niche, specialized, and fragmented markets at highly attractive valuations.

• Exceptional capital allocation. The Founder/Chair is disciplined, has a proven record, has skin in the game (~9% ownership), and has built a bench of like-minded executives — including two ex-Halma operators — around an entrepreneurial, decentralized culture that can scale.

• Cheap against normalized earnings. Judges is small enough to redeploy most of its capital at high-teens for the foreseeable future. The debate is what “normal” earnings are. 2026 is guided to 200–250p against a 373p peak in 2023, with two identifiable, arguably temporary drags — no coring expedition (more on this later) and a US academic spending freeze. At ~£44 you are paying ~16x LTM earnings which are arguably near trough for a business that historically traded above 25x.

• Short-term headwinds don’t touch the long-term thesis. Weaker R&D spending in the US and China, lumpiness at Geotek, and tariff exposure (85% of sales overseas, 28% to the US) are cyclical and don’t affect the core driver, which is M&A. US federal research funding has since been set at roughly prior levels, and similar to dynamics we see in bioprocessing, it is a matter of when funding thaws rather than if.

Bear Case

• The 2023-2026 experience proves Judges faces tough end-markets. Judges products are ultimately discretionary and funded by the whims of government funding rather than real need or profits. As the NIH chart shows, funding can be flattish for a decade and we are coming off a particularly strong 2013-23 period. While government funding can be immune from economic cycles, the sudden freeze and the slow thaw have demonstrated that Judges end-markets are more frail than originally expected.

• Operating leverage has inflated normalized margins. EBITA margin has gone 26.6% (2022) → 25.6% (2023) → 20.9% (2024) → 19.2% (2025) → high-teens (2026E). These are small businesses with fixed engineering and R&D bases; when volume falls, margin falls hard and prior margin performance was driven by “peak” secular growth. An alternative way to look at this is that Judges thinks and acts long-term so doesn’t cut critical R&D spending in response to shorter-term pressures.

• Geotek was the biggest bet and is the lumpiest asset. Geotek was the largest deal ever (~£80m with earn-out) at the highest multiple ever (~7x), and it is ~21% of EBIT concentrated in the least predictable business Judges owns. Coring revenue depends on episodic expeditions — none is likely until early 2027. More uncomfortably, the two largest deals before it, Scientifica and Armfield, both disappointed. The pattern that Judges executes well on £5m deals and less well on £10m+ deals has not yet been disproven.

• Key-man risk. Cicurel built this company over 20 years and personally led sourcing and diligence. He stepped down as CEO in February 2026. Tim Prestidge is well-credentialed but has three years at Judges and has never run it — and he takes over into the worst trading conditions in the company’s history. Mark Lavelle, the COO who drove the margin improvement since 2017, is also retiring. That is a lot of institutional knowledge leaving at once.

Valuation & Key Assumptions

In my view, the key driver is ultimately capital allocation. While the businesses have proven more cyclical to VMS or distributors, they do in fact benefit from longer-term structural drivers and the end-market exposure is globally diversified so this cyclicality is more than priced-in today. Judges delivered 275p of adjusted EPS in 2025 and guides 2026 to 200–250p. That is the trough, not the run-rate: guidance assumes no recovery in US academic spending through 2026 and no coring expedition. The company pays out roughly 30%+ as dividends (2025 DPS of 104.5p) and needs ~10% of earnings to fund working capital and capex, which runs above depreciation as it funds growth investment in recently acquired subsidiaries. Net debt is £42.6m, or ~1.2x EBITDA — comfortable.

With zero M&A, Judges is worth about 15x P/E — a GDP+ organic grower with high-teens-to-mid-20s EBITA margins, a sound balance sheet and an experienced team, but cyclical and lumpy end-markets. Spectris and Oxford trade at 15x–17x. On trough 2026 earnings of 250p it is ~£38, which is in the range of what today’s share price is pricing in. With a structural recovery in end-markets and again assuming no M&A, normalized EPS may be closer to 350p (which assumes a coring expedition) which at 15x earnings would imply £52.5, 15% upside to today’s price. In summary, the market is pricing in zero M&A and limited earnings recovery.

The real driver is M&A, and this is being ascribed zero value. Judges historically redeployed 100% of FCF at a 24% ROIC, with an average deal size of £6.4m. Assuming 5.5x–6.0x EBIT and the historic 30% dividend payout, Judges needs to redeploy roughly £300m over a decade (~60% of FCF) to grow earnings roughly 15% — three to four £4m–£6m deals a year near-term, rising to £8m–£12m in years six through ten, or, following the Constellation model, more deals rather than bigger ones. Those sizes remain small and achievable; Halma where Judges draws inspiration from deploys £200m–£300m a year, roughly Judges’ entire ten-year requirement.

Where that leaves the price. At ~£44 you pay ~16x LTM EPS and for a business that has historically traded at 25x+ and whose shares touched £90.60 within the last year. The base case doesn’t require heroics — it requires that 2026 is the trough and that coring and US funding normalize. If EPS simply recovers to the 2023 level of 373p on that same 15x, that is ~£56 before any contribution from M&A. The bull case then assumes 60%+ of FCF redeployed at 18% which drives a 15% IRR (basically equal to EPS growth) and a £68 intrinsic value (54% upside). That leaves plenty of additional upside as management has historically significantly over-delivered on these assumptions.

“The Group remains well positioned to continue its strategy of delivering growth in earnings via the selective acquisition of, at sensible multiples, strong niche businesses in the scientific instruments sector, coupled with long-term growth in cashflows from its existing portfolio of businesses.”
— Brad Ormsby, CFO, Judges FY2025 results (March 2026)

Background

Judges Scientific is a UK-based serial acquirer of niche scientific-instrument businesses. Its instruments serve testing and measurement applications at universities, R&D departments and labs across life-sciences/semis (~55%), geotechnical (~20%) and industrial (~25%) end-markets. Growth is driven by secular spending on education and R&D and is diversified by subsidiary — only 2020 (-12%) and 2024 (-8%) have seen meaningful organic declines. Revenue spans North America (28%), Europe (25%), China (14%), the UK (11%) and ROW (23%).

Judges reports through two segments: Vacuum (~£74m of 2025 revenue) and Materials Science (~£72m). Vacuum has been the steadier of the two; Materials Science — which carries the Geotek and academic-instrument exposure — is where the recent volatility sits, with segment EBITDA falling from £22.9m (2023) to £14.6m (2024) before recovering to £18.6m (2025).

The chart below tells the story in three parts: a strong run into 2023 (revenue +24% and +20% in 2022–23, margins peaking at 26.6%), a flat 2024, and a 2025 where headline revenue grew 9% to £145.8m while EBITA was flat at £28m and margins fell to 19.2% — masking an order book that deteriorated all year. Global Small Cap models a -5% organic decline offset by 7% contribution from M&A (normalized run-rate M&A spend at 60% of FCF at ~6x EBITA).

Judges began as an investment vehicle, Judges Capital, founded by David Cicurel (CEO from inception until February 2026, now chair) and Alex Hambro, and listed on AIM in 2003. The original plan was to buy small undervalued public companies, shake them up, and sell them to private equity. When the UK small-cap index nearly doubled from 2003–2005, that strategy became unviable, and Cicurel began looking elsewhere. He found one deal that stood out — FTT, a Halma-like fire-safety business that became Judges’ first acquisition.

David Cicurel, The Telegraph, December 2013

“It had £3m turnover and £750,000 operating profit, with 19 staff. It looked too good to be true. The owners were an engineer and a scientist, who were both looking to retire. They explained they had a dominating position in a tiny world niche and that the drivers of the business were regulation and globalization.”

After FTT, Judges pivoted to buy-and-build and has since focused exclusively on niche scientific instruments, completing 25 acquisitions since 2005.

Why Judges Is a Successful Serial Acquirer

Decentralization. Judges runs a decentralized organization. While it requires strong financial controls and may help hire a controller, it does not force ERP upgrades, does not target synergies, and tries not to meddle — a philosophy on full display in Judges’ video for prospective sellers. Instead it adds value through capital, mentorship, shared-use capabilities and back-office relief. Synergies can create short-term gains, but they undermine the serial-acquirer model over time: integration makes an acquirer less appealing to sellers and adds the bureaucracy that makes scaling M&A harder. Judges has been explicit that it will stick to its decentralized model.

“We empower subsidiary management teams with the autonomous running of their businesses. This has been a successful operating model for the Group, as management teams are given responsibility for their own destinies, as well as an environment in which they can thrive and share best practice.”
— David Cicurel, Judges FY2025 results (March 2026)

Attractive end-markets. Judges focuses on niches where a small company can lead its field. These businesses don’t benefit from scale and typically already earn 20%+ EBIT margins — ideal for the “accumulator” serial-acquirer strategy, where Judges buys established leaders and supplements growth by recruiting salespeople, opening distributor relationships, entering new geographies, and mentoring on working capital, R&D, S&M and G&A. An estimated 2,000 scientific-instruments companies exist in the UK alone, ~200 with £5m+ in revenue; they are typically founder-led and last 20+ years before the founder retires, providing a steady stream of targets Judges has historically bought at 3x–7x EBIT.

Strong capital allocator. David has skin in the game (9% ownership) and is disciplined — willing to step back from M&A entirely or lean in, depending on the environment. He has studied the greats — Berkshire, Halma, Constellation Software. A decade ago the thesis rested on David alone; today he has built a deep bench: Mark Lavelle as COO in 2017 (17 years at Halma, former head of M&A, retiring 2026), Tim Prestidge as Business Development Director in 2023 (14 years at Renishaw, 8 at Halma), Ian Wilcock as Group Commercial Director in 2024 (Renishaw, Experian, Danaher, Oxford Instruments), and Rik Armitage as Group Acquisition Executive (Oxford Instruments). Judges appeals to these operators because David’s culture empowers people without bureaucracy, because an entrepreneurial “mini-Halma” offers more organic and M&A runway than a large incumbent, and because AIM listing carries an inheritance-tax benefit (nil vs 40% above £325k) that appeals to some.

Organizational Structure

The foundation of any serial-acquirer strategy is its organizational structure. A roll-up like Berry Global or Couche-Tard must be laser-focused on integration and cost synergies; an accumulator or platform must instead be committed to decentralization, to attract sellers and scale the number of subsidiaries.

Judges runs a highly decentralized structure. Its six-person head office — CEO, CFO, COO, Group Business Development Director (GBDD), Group Commercial Director (GCD) and Group Acquisition Executive — oversees 25 subsidiaries, each with its own MD. The COO, GCD and GBDD act as “Sector CEOs,” each overseeing a cluster of ~15 subsidiaries loosely grouped by scientific specialty. Their job is to mentor MDs and optimize R&D, S&M and G&A — usually in pursuit of growth rather than cost savings.

Judges encourages higher R&D spending, in part because the risk can be diversified across subsidiaries; R&D typically rises from ~4% to ~6% of revenue, echoing Halma’s playbook. Because many targets were run by scientists, simple moves — hiring a Sales Director, doubling down on product development, funding forgone capital projects — can pay back in under a year.

Judges CFO — company website video

“The businesses we tend to acquire are generally retirement sales and consequently have been used to being in a slightly more low-risk environment because the owners are very keen to keep a successful business. When the businesses join Judges, we tend to take a higher-risk view of investment in the business, particularly when we look at R&D where we spend across the group 5% to 6% of revenue investing in new product development. New products generate revenue growth, so we have a good track record helping businesses grow since they join our group.”

Sector CEOs visit each company every four to six weeks and run week-long leadership workshops twice a year with MDs. Modelled on Halma, the workshops provide leadership training, foster a collaborative culture, and benchmark businesses on good/better/best metrics. The most obvious improvements are new salespeople or distributors, but they extend to reallocating resources and finding capital efficiencies. Judges is also building shared-use capabilities, encouraged but not forced.

Judges COO — company website video

“Occasionally there are initiatives that are too big for one company to do. So if you are a company with 12 or 15 people, it’s ok to send someone to the US or someone to Europe, but China is pretty scary. There are situations where we have a group of companies clubbing together and opening a small office in China between them, which any one of them may find too intimidating. They can share legal costs and accounting. Again, this is something we encourage but not force.”

Together, decentralization, proactive mentoring, shared-use capabilities and de-risked capital and R&D investment make Judges an attractive permanent home for sellers — and give it real levers to accelerate organic growth. If there is a criticism, it is that Judges may not be aggressive enough. It prefers MDs to stay long-term, paying a high base and a small bonus (perhaps 25% of salary on custom metrics), reasoning that most MDs are scientists motivated by the product rather than money. Halma, by contrast, pays MD bonuses of 150%+ of base and replaces managers who miss stretch goals (typically 20%+ EBIT margins and 10% growth).

Acquisition Strategy

M&A is the core of the thesis, so it’s worth detailing the process. M&A is led by the Chair and CEO with help from the executive team; the hiring of Rik Armitage gives Judges someone dedicated to it. Of Judges’ 25 deals, seven have been tuck-ins. The key advantage is that Judges is still small enough to buy very niche companies and often earn a high-teens return in year one. Over time it will need to source deals more proactively and build a funnel — precisely what the recent hires are designed to do.

The main negative is that many subsidiaries sell products that are capex to their end-customer, with no reliable stream of services or parts revenue, so sales can be lumpy and the risk of overpaying rises. Judges offsets this with a diversified portfolio (top three subsidiaries are 33% of revenue), which improves as it scales; the lumpiness also deters some private-equity buyers. Despite it, Judges has had only two years of negative total growth — 2020 and 2024 (potentially 2026).

Cicurel frames the discipline simply:

“Judges follows a strict acquisition discipline and is highly selective in relation to both the long-term quality of any potential addition to the Group and the acquisition multiple ultimately paid. We are trusted to act decisively and to complete deals under the initial terms agreed.”
— David Cicurel, Judges FY2025 results (March 2026)

Typical target. Founder-led niche instruments companies with high margins (20%+ EBIT) and strong organic growth (MSD+). Targets are often global leaders in their niche, and exports account for 85% of Judges’ revenue. For most products accuracy and quality matter more than price — some Judges vacuum instrumentation is used at particle accelerators like CERN — and products are typically sold to universities and R&D departments. Judges avoids turnarounds and synergy-driven deals. Because UK small companies file financials for tax purposes, we can more or less verify that Judges has stuck to its knitting.

Typical seller. Usually a founder — an engineer or scientist — looking to monetize or retire while finding a good home for the business. Private equity may lever up, cut costs or merge units; strategic acquirers may keep the IP but strip the company, moving manufacturing to China and R&D to India. Neither appeals to most founders. Judges invests in the business and prefers to keep all employees.

On why quality-at-a-sensible-price beats a synergy hunt, Cicurel has said:

“Our main concern is to buy a good company with a lot of staying power and sustainable profits which we can buy at a sensible price. If the company happens to have some synergies with other portfolio businesses, it adds to the plus side, but it is not usually the main motivation.”
— David Cicurel, Bluebox Corporate Finance interview (2018)

Typical structure. Judges pays 3x–7x EBIT, usually without complex structuring, primarily in cash. From 2014–2023 it issued just £3m of equity against ~£101m of total consideration (Geotek’s 2024 earn-out adds ~£18m in shares, at the sellers’ preference). Management is explicit about being as stingy as possible with equity. Some acquirers frame issuance in accretion terms — issue at 12x EBITDA to buy at 6x — but the goal here is a 15%+ IRR, so any equity issuance costs at least 15% versus 3%–8% for debt, and Judges thinks the same way. It is flexible on structure and can take a minority stake (e.g. Oxford Cryo) or acquire in phases (e.g. PE Fiberoptic) to enable a phased retirement.

Long-term multiple. Judges believes 3x–7x is sustainable; by volume the average deal has been 4.3x, by value (skewed by Geotek) 5.8x. The multiple hasn’t moved with the economy or interest rates. Small deals allow diversification, since succession transitions can be volatile. Judges will lever to 3.0x for the right deal — implying it could do a ~£100m deal for a £17m-EBIT business — but leverage has stayed below 1.0x for most of its history. For context, Halma deploys £200m–£300m a year on M&A across four to six deals, targeting £25m–£50m-EBIT businesses (about the size of all of Judges) at 10x–12x EBIT — perhaps a low-teens IRR before synergies. Judges only needs to deploy ~£300m over the next decade.

The multiple gap versus larger peers is where Judges’ small size pays off. Cicurel:

“We acquired Geotek at a multiple of seven, which was a fantastic deal. Especially considering one company in our sector regularly pays 12 times for businesses of this size. Another one recently paid 14 times prospective EBIT plus synergies plus an earn-out.”
— David Cicurel, Compounding Quality interview (April 2025)

Deal sourcing. The immediate opportunity is the UK, with ~2,000 potential targets (~200 doing £5m+ in revenue). Four deals a year would clear only 20% of the target list over a decade — before any overseas opportunities. Judges does look globally (it has done a deal in Switzerland) but the UK is the focus. The Chairman/CEO leads sourcing, though the new GCD should spread the load. Deals come via inbound interest, MD referrals of competitors or suppliers, board members and brokers; ~25% are tuck-ins. Many targets cluster around a region or university, letting Judges build a strong reputation among sellers.

Due diligence. Judges is known for a smooth process and a clean sale. Acquirers often make an offer before diligence, then cut it afterward; Judges absorbs diligence costs upfront despite closing only a minority of deals, building trust with sellers. (In 2008 it wrote off £300k of diligence expense when bank financing dried up.) It conducts scientific diligence using technical directors from expert subsidiaries — vacuums, electroscopes, cryogenics — and a network of consultants, often retired founders. Judges is highly picky, arguably too picky: David implies he bids on fewer than 25% of the deals he evaluates.

Succession. A flexible succession plan is one of Judges’ main value propositions to sellers. Judges takes on the succession risk but diversifies it across subsidiaries and keeps a backup plan — the founder stays a few more years, a senior employee steps up, a strong MD from another subsidiary takes over, or Judges recruits a new MD, with the Sector CEO as the ultimate insurance.

Financial Track Record

High level. Since 2010, Judges has grown organically at 5% CAGR and inorganically at 11%. A major appeal is inherent diversification. The three largest subsidiaries are 33% of revenue; the rest is spread widely, including by geography (North America 28%, Europe 25%, China 14%, UK 11%, ROW 23%). Judges had only three years of negative organic growth between 2006 and 2024 — 2014 (-3%), 2020 (-12%) and 2024 (-8%) and now likely 2026 (I model -5%) — and while we are in the midst of the worst cycle, the business is resilient.

Judges has used 100% of FCF for M&A, with debt low (under 1.0x on average). The payout ratio is skewed by a £13m special dividend in 2019 — a year with no M&A and a threatened dividend-tax hike under a possible Labour government; excluding it, the payout ratio has been 30%.

ROIC averaged an exceptional 24% including all goodwill through the decade to 2023. Pay 6x EBIT for a business growing 6% and you get a 17% pre-tax return plus 6% growth — a 23% pre-tax ROIC and a high-teens post-tax ROIC — and Judges tends to pay less than 6x and accelerate growth. ROIC on tangible capital is even higher, 39%, reflecting how attractive these businesses are: subsidiaries focus on design and development with manufacturing outsourced. The honest update is that returns have compressed with the cycle: ROCE was 23.4% in 2023, 16.3% in 2024 and 17.6% in 2025, and I model 13.6% for 2026. Whether 24% or ~16% is the through-cycle number is the single most important open question in this write-up. Separately, taxes were low pre-2021 thanks to SME R&D credits (for businesses under 500 employees); Judges crossed 500 employees in 2021, lifting the effective rate to 21–23%, and it is modelled at 25% going forward — a permanent ~2% headwind to EPS CAGR.

The table below shows management calculations.

M&A track record. Judges has done 25 deals for £178m of total consideration including earn-outs — a 5.8x value-weighted and 4.3x volume-weighted average multiple. Over the last three years the pace has steadied at two to three deals a year, and I expect the GBDD and GCD hires to accelerate it. There were slow stretches — 2005–2008 (macro and tight financing), and 2014 and 2019 (attributed to randomness) — which tend to be attractive times to buy the shares, as Judges builds cash and then deploys when better deals appear. About 25% of deals are subsidiary-led tuck-ins (three in the last two years). With Bordeaux and PE Fiberoptics, Judges built its stake over time by buying out partners — a mark of its flexible approach.

Subsidiary-level track record. For UK subsidiaries, Companies House tax filings are available; the data isn’t always exact but is directionally correct, and my derived revenue closely matches reported results. The tables below run through FY2024, the latest year with filings available.

All-in organic growth is 5%, but the subsidiary range runs from -1% (Scientifica) to 19% (CoolLED), averaging 9%. The three largest subsidiaries (33% of revenue) have averaged MSD. Organic growth was high-teens from 2006–2011 on a post-GFC recovery, volatile in 2014 and 2016 (European macro, strong sterling, discrete Armfield issues), and has averaged 7% since 2016 — including COVID. Management’s stated target is HSD organic growth, so once the lumpy post-COVID period passes, growth above 5% is plausible. Notably, the number of Sector CEOs has doubled while subsidiary count hasn’t, which should increase the number of growth opportunities identified.

The 2024 filings show just how wide the dispersion within the portfolio can be in a single year. GDS grew 14% to £15.9m — in a year the group shrank 8% organically — and is now the largest subsidiary. CoolLED remains the organic star of the portfolio (19% CAGR since acquisition, £10.2m at a ~30% margin), Heath Scientific keeps compounding (£10.3m at a 31% margin), Oxford Cryosystems held up well (£8.3m at 23%), and Korvus recovered sharply off a low base (+160% to £3.1m). Against that, Fire Testing Technology — Judges’ first acquisition — had a terrible year (-38% to £4.5m and a £0.8m loss, its first in my dataset — fire-testing lumpiness at its worst), PE Fiberoptics also swung to a small loss, and Geotek gave back most of its coring-boom revenue, as detailed below. Teer Coatings, acquired in 2024, contributed £7.0m of revenue and £1.5m of EBIT in its first year.

Margins. Judges targets 20%+ EBITA margins. Across subsidiaries owned before 2017, the average margin was 15.5% pre-2017, improving to 16.5% since — 17.5% excluding 2020, when some margins went negative under COVID lockdowns. (These are EBIT, not EBITA, margins from UK filings, since amortization data isn’t fully reliable; on an EBITA basis Judges is 20%+.) The improvement reflects Mark’s work as COO, and the margins exceed scaled players like Oxford Instruments (~15%) and Spectris (~13%), reflecting Judges’ niche focus.

Since Mark joined in 2017, subsidiary-level margins have trended higher — though 2024 dented the progress, with FTT and PE Fiberoptics swinging to losses and Scientifica giving back most of its 2023 gains; I read that as cyclical volume rather than a change in trajectory. He sees room for further gains over time, driven by culture and high-ROIC investment rather than cost-cutting. He had two years with the subsidiaries before COVID hit, and with two more HQ executives added, I expect margins to resume their upward trend. Tuck-ins help too: Aitchee was a key subcontractor for FTT (its biggest customer at acquisition), and four Judges companies are now among Aitchee’s top five customers — which is why Aitchee runs at low profitability, since most sales are related-party. Scientifica (8% of revenue, 5% of EBIT) and Armfield (8% of revenue, -2% of EBIT) are the underperformers, discussed below. EBIT is reasonably diversified, with the top three (Geotek, Quorum, GDS) at 46%.

Key Risks

US research funding is now the dominant risk — and it materialized in 2025. Both actual funding cuts and proposed funding cuts freeze US research spending and even when funding resumes, it can take time to normalize. Tariffs and a volatile funding environment have hit Judges hard. H1 2025 looked fine with orders up 4% and Geotek expected to go on a coring expedition but H2 2025 fell apart when order intake declined mid-teens with the US in particular declining 20%+. At the time, the US administration publicly proposed ~40% cuts to research funding. The NIH and NSF terminated a large number of grants between March and July; most were restored by September. But the uncertainty stopped customers spending — universities don’t commit to a £100k instrument when their grant pipeline might be cut in half. The result speaks for itself: 2025 adjusted EPS of 275p (-2.5%), and guided 2026 EPS to 200–250p, ~18% below 2025 at the mid-point, explicitly assuming no US recovery during the year.

The hard data supports the freeze-not-collapse framing. NIH — the world’s largest funder of biomedical research and the key end-market driver for Judges’ academic instruments — was doubled from $13.7bn to $27.2bn between FY1998 and FY2003, ground sideways for a decade (the FY2013 sequester cut it 5%), then compounded again from $30.3bn in FY2015 to $47.7bn in FY2023. The scare came in May 2025, when the White House requested just $27.9bn for FY2026 — a 41% cut — alongside the grant terminations described above. Congress ultimately rejected the cuts: the FY2026 appropriation signed on 3 February 2026 set NIH at $47.5bn (+1.0% year-on-year) and NSF at $8.75bn against a proposed 57% cut. So the funding picture is a nominal freeze (FY2024–26: $47.3bn → $47.0bn → $47.5bn) rather than a structural break — though NIH now sits roughly 10% below its FY2003 peak in real terms, and it was the uncertainty, not enacted cuts, that stopped universities committing to £100k instruments. The long-run series is charted in the Bull Case above. (Sources: CRS R43341; NIH almanac appropriations history.)

There is also a lag between appropriations and actual grant funding, and it cuts both ways. Most NIH research project grants are multi-year commitments paid out annually as noncompeting continuations — in CRS’s words, “most NIH research project grants have been committed for multiple years, but funding for the grant has been obligated each year of the grant period as a noncompeting grant continuation” link — so the bulk of each year’s budget is spoken for before a single new project is funded. New awards are the swing variable, and they moved violently while the headline stood still: new competing research grants fell from 10,086 in FY2024 to 6,095 in FY2025, and the May-2025 request would have funded just 4,312 — partly a policy shift toward fully-funded multiyear awards, which Congress capped in the FY2026 act. Instrument purchases key off new projects and new labs, not the continuing-award base — which is why Judges’ order intake fell 20%+ in the US while appropriations were flat, and why the recovery, when it comes, should lag the budget headlines by the same one-to-two years.

Choppy end-markets. Beyond the issues around research funding, structurally, Judges sells instruments that last 10+ years with minimal maintenance parts, so revenue can be lumpy — the opposite of a Constellation Software with highly recurring revenue. We’ve seen deceleration to -4% in 2014 (Euro crisis), -12% in 2020 and -8% in 2024 (China weakness, de-stocking) — though Judges grew 15% in 2008.

Coring and Geotek lumpiness. Geotek is ~21% of EBIT and the least predictable business in the portfolio. Coring revenue depends on episodic expeditions, and no expedition is likely until early 2027 — a direct headwind to the 2026 comparison. Judges bought Geotek for ~£80m including earn-out at ~7x, its largest deal and highest multiple, and to be clear, was fully aware of this lumpiness when it bought it, but the asset that most needs to work is also the one with the least visible revenue.

Management makes a major M&A mistake. Mistakes are inevitable — from succession (Scientifica) or misjudging a business (Armfield) — but Judges now has the scale to absorb them. A £15m deal at 6x EBIT implies ~£10m–£15m of revenue, about 10% of the total, and the average deal over the last two years was £4.5m. The two larger deals that stumbled (Scientifica and Armfield) didn’t derail overall performance, underscoring the diversification benefit.

Operational issues. The Armfield and Scientifica problems largely predate 2017. With the COO (2017), GBDD (2023) and GCD (2024) in place, oversight of each subsidiary is stronger, which should reduce operational issues and capture near-term growth. Judges is also now large enough that inevitable issues won’t badly dent results.

Succession — now executed. On 26 November 2025 Judges announced that David Cicurel would step down as CEO on 9 February 2026, moving to non-executive chair after consultation with major shareholders; Ralph Elman moved from non-executive chair to non-executive deputy chair. Dr Tim Prestidge, group business development director since February 2023 and previously at Halma and Renishaw, became CEO. Cicurel continues to support the group’s acquisition processes, where his experience matters most. The risk is now transition execution. Three points cut in Judges’ favour: the succession was telegraphed over three years rather than forced by a health event; Prestidge spent those years overseeing portfolio companies rather than arriving cold; and the bench has been deliberately broadened with Ian Wilcock (group commercial director), Rik Armitage (group acquisition executive) and John Dunne (portfolio chief executive). One major offset: Mark Lavelle — the COO who drove the margin and working-capital improvement since 2017 — is also retiring, so two of the three people most responsible for the track record are leaving within roughly a year of each other. Brad Ormsby (CFO since 2015) is the main continuity.

Subsidiary Overview

Below is a summary of the largest subsidiaries. Judges gives subsidiary-level commentary only on Geotek; the thesis doesn’t rest on any single one. The goal here is a high-level feel for the kinds of businesses Judges buys.

Geotek (12% of revenue, 21% of EBIT). Judges acquired Geotek in May 2022 for £45m plus a £35m earn-out (fully paid June 2023), implying ~7x EBITA — six times larger than the next-biggest deal (Scientifica, £13m) and the highest multiple Judges has paid. It was sourced by board member Charles Holroyd who got paid a founders fee; two founders signed one-year contracts and an MD stayed on.

Founded in 1989 in Daventry, UK, Geotek designs and manufactures Multi-Sensor Core Loggers (MSCL) for geoscience, plus related services. MSCLs enable high-resolution, non-destructive analysis of geological cores — cylindrical rock and sediment samples extracted from below the surface — used by university researchers, miners and oil-and-gas operators to analyze, record and digitize core data. Geotek has served 40+ countries, with 90% of revenue from exports. Core analysis supports climate research and helps resource companies run feasibility studies and optimize extraction (e.g. building 3D reservoir models for simulation).

Geotek runs three roughly equal divisions:

• Instruments. MSCL instruments using geophysical and geochemical sensors and custom software to measure and log core characteristics rapidly and automatically — with lumpiness similar to Judges’ other subsidiaries.

• Services. Fee-based core-logging services that improve revenue visibility via long-term contracts rather than one-off equipment sales, sometimes delivered in the field with a fully equipped lab and staff beside the customer’s operation. More recurring than instruments.

• Geotek Coring. Specialized coring for gas hydrates, underpinned by proprietary technology that brings hydrate cores to the surface without changing pressure or temperature, so they can be stored and analyzed intact. These expeditions (typically academic or government, running about once a year) make coring revenue profitable but very lumpy.

In June 2024, Geotek made the tuck-in acquisition of Rockwash (rock-cuttings digitalization) for an initial £2.3m plus up to £3.7m earn-out, described as strongly synergistic. The Companies House filings quantify the lumpiness: Geotek’s revenue went £9.9m (2022) to £14.9m (2023) and back down to £7.0m in 2024, with EBIT collapsing from £5.8m to £0.6m, because Geotek only secured a coring contract in the summer of 2024 for a 2025 start — part of why management flagged a 2024 miss versus market expectations at H1. (Rockwash added £2.2m of roughly breakeven revenue on top.) That expedition ran in H1 2025 and underpinned the first half, which is precisely why the 2026 comparison is so difficult: no further coring expedition is expected until early 2027 (call it a £6m or ~6% revenue headwind at attractive margins). Geotek earned its full earn-out, but with three expeditions in five years of ownership, it remains too soon to call the deal.

Global Digital Systems (11% of sales, 11% of EBIT). Acquired March 2012 for £7.7m (~6x EBITA) from two founders, who transitioned the company over five years to two younger managers still in place. Founded in 1979, GDS designs, manufactures and sells instruments that test the physical properties of soil and rock (strength, stiffness) for geotechnical and earthquake engineering — used at the Three Gorges Dam, the Millau Viaduct, Heathrow Terminal 5 and Crossrail. There’s a services element (on-site installation, instruction and support), machines run £25k–£150k and are long-lived, with add-on potential. GDS is the quiet compounder of the portfolio: it has grown revenue at an 8% CAGR and EBIT at 12% since 2016, and in 2024 — a year the group declined 8% organically — it grew another 14% to £15.9m with £3.6m of EBIT at a 22.8% margin, making it the largest subsidiary by revenue. By these rough numbers, a clear success. GDS has complementary technology to Geotek, though management isn’t pursuing explicit integration. Note that GDS-type geotechnical work carries the group’s offshore wind exposure, an end-market that has become more challenging.

Quorum Technologies (10% of revenue, 14% of EBIT). Acquired from its founder in 2009 for £1.5m including earn-outs (~3x EBIT); the founder stayed a year as MD, then consulted. Formed in 2001 as the MBO of Polaron and merged with Emitech in 2005, Quorum designs and distributes sample-preparation instruments for electron microscopy: samples must be electrically conductive for image clarity, so they need cleaning, drying, coating or freezing. Quorum sells coating systems for non-cryogenic samples and freezing/transfer systems for cryogenic ones, priced from ~£4k to £20k. In 2019 it made the £3m tuck-in of Moorfield Nano (physical/chemical vapor deposition, etching, annealing). Since 2016, Quorum has grown revenue at 6% CAGR and EBIT at 14%, and it is one of the steadiest businesses Judges owns: 2024 revenue of £11.6m at a 31.5% EBIT margin, its fifth straight year at or around 30% — a success by these rough numbers.

Armfield (8% of revenue, -2% of EBIT). Armfield looks like a mistake. Judges acquired it in 2015 for £9.8m including earn-out (~5x EBIT), then the second-largest deal (behind Scientifica). Founded in 1875 (educational instruments from 1963, MBOs in 1981 and 1994), Armfield designs engineering and teaching instruments focused on food handling for education and research. Sales fell 27% in 2015 on lower oil and commodity prices that hit its emerging-market customers (55% of sales were ROW, heavily Africa and the Middle East) — a drop large enough to knock 6% off Judges’ total revenue. Sales bounced back the next year, but total growth has averaged a tepid 1% CAGR since 2016, and Armfield has now been loss-making in each of the last four years. Judges may have bought it while it was over-earning on large new Middle Eastern university orders. Management attributes the trouble to end-markets rather than the business, but there were management changes around acquisition and again in April 2023, and German competitors like GUNT may have matched Armfield’s quality at a lower price. Despite a 2% recovery in 2022, 32% growth in 2023 and a further 10% in 2024 to £10.4m, Armfield still lost £0.2m — 2024 was its ninth year under Judges’ ownership without a meaningful profit. Judges clearly misjudged either the competitive position or the normalized earnings; absent a material improvement in margins to match the recovering top line, a good ROIC is hard to see. Management indicated at the FY2025 results that measures to improve underperforming businesses are starting to take effect — Armfield is the obvious test of that claim, and so far the revenue line is responding well before the profit line (though the 2024 loss was the smallest of the four).

Scientifica (8% of revenue, 5% of EBIT). Scientifica also looks like a mistake. Judges acquired it in 2013 for £13.4m (~6x EBIT), then its largest deal, from three founders (1996 vintage); one left at close, two stayed as MD and Sales Director. Scientifica designs instrument rigs for research into neurons, neuronal circuits, animal behavior, electrophysiology, multiphoton imaging and optogenetics — micromanipulators, optical microscopes, mounting solutions and imaging systems, modular so labs can upgrade over time. It runs Centres of Excellence at Université Laval (Montreal), Cold Spring Harbor (New York) and King’s College London, with consultants in Germany and China; exports are 75% of sales. Large multinationals like Olympus and Nikon focus on life sciences, while Scientifica is bespoke to neuroscience, where it ranks top-three alongside Micro Control Instruments (UK), Sutter Instruments (US) and Thorlabs (US).

After acquisition, Scientifica grew above average in 2014–2015 but couldn’t execute its order book, hitting margins hard. Management attributes this to succession: the MD/co-founder (Plan A) meant to stay indefinitely but decided to retire, while the Sales Director/co-founder (Plan B), a strong leader, was forced to step back at 40 due to health issues — the two departed the same day. A Plan C recruited from Halma couldn’t manage the transition, so the then-COO (Plan D) was parachuted in with Plan B’s part-time help. Plan B, now recovered, was reinstated as MD in January 2020. After five straight years of decline, Scientifica rebounded 15% in 2023, with EBIT margins recovering to an all-time-high 15% (unlike Armfield, which ran negative). 2024 answered the sustainability question badly: revenue slipped back to £9.9m and the margin relapsed to 4.6% (£0.5m of EBIT), so the 2023 margin now looks like a spike rather than a new level. There may still be a path to an attractive return, but it requires holding a margin Scientifica has managed only once in the last nine years — and as a neuroscience supplier to academic labs, Scientifica sits directly in the path of the US research-funding freeze.

Management & Board

Judges has an exceptional management team for its size, but it is in the middle of the most significant transition in its history. David’s ownership is significant and Mark holds a meaningful position from options. The criticism is that ownership beyond the two isn’t large, and — given Judges’ non-aggressive compensation — the thesis leans on their stakes as the key incentive.

The 2025 annual report spells out how pay works, and it confirms the point (Annual Report 2025, remuneration report). Salaries are benchmarked against similar-sized AIM companies with no external remuneration consultants — Prestidge moved to £350k on promotion to CEO, Ormsby sits at £281k — and pensions are 5% of salary, the same as the wider workforce. The annual bonus is capped at 50% of salary; in 2025 half was tied to the adjusted-EPS target in the budget and half to individual and ESG objectives (from 2026: 50% EPS, 40% individual, 10% ESG).

The system has teeth: with 2025’s results, only the ESG element paid out, leaving Cicurel’s total compensation at £289k (£270k salary, £13k bonus), Ormsby’s at £307k and Prestidge’s at £377k. Long-term incentives are market-priced share options rather than a nil-cost LTIP — three-year vesting, exercisable to year ten, conditional on at least 5% compound adjusted-EPS growth (all options granted in 2023 lapsed) — and executives must build a shareholding of at least 1x salary before selling vested option shares. Prestidge received 60,000 options at 5200p on promotion in January 2026, on top of 60,000 at 7690p from January 2025. Nobody gets rich here on salary or bonus; the wealth is in the equity, which is the point.

David Cicurel (74; ~10% stake — shares worth ~£30m at the current price, options ~£1m). Founder. CEO from inception until 9 February 2026; now non-executive chair. A student of successful serial acquirers, happy to emulate Halma and to poach its people. He believes the COO and MDs must be empowered “to the point of abdication,” and saw his role as creating a culture founders want to join and never leave. He continues to support the group’s acquisition processes. An engineer by training with an INSEAD MBA; his record speaks for itself.

Dr Tim Prestidge (53). CEO since February 2026; joined 2023 as Group Business Development Director and a board member. After his PhD he became Divisional CEO and then Executive Committee Director at Renishaw, then spent eight years as a Divisional CEO at Halma chairing portfolios of technology companies across the UK, Europe, US and China. A physicist by training. Three years overseeing Judges’ portfolio companies before taking the top job is a reasonable apprenticeship — but he takes over into the toughest trading of the company’s history.

Brad Ormsby (49; shares ~£0.4m, options ~£0.7m). Joined 2015 as CFO, after three years as a CFO (including an IPO) and six as controller of a public tech-focused investment firm. Beyond finance he helps with M&A, appears well aligned culturally, and is now the primary continuity in the executive team.

Mark Lavelle (66; shares ~£0.1m, options ~£6m). Joined 2017 as COO, a role akin to Sector CEO; now retiring. Seventeen years at Halma, including CEO of two operating groups and head of M&A, and led innovation such as Halma’s India shared-use capabilities. David ran a long COO search across Oxford, Spectris, Thermo Fisher and others, narrowing to three candidates — all from Halma — and chose Mark for his longer CEO experience and shared background (engineering, INSEAD MBA). The subsidiary-level margin and working-capital improvement since 2017 is largely his.

Ian Wilcock (58). Joined 2024 as Group Commercial Director and a board member, in an M&A-oriented role. He began at Renishaw, then helped lead two investor-backed SMEs acquired by corporates (Footfall by Experian in 2006, Irisys by Danaher in 2012), spent four years at Danaher, and most recently eight years on the management board of Oxford Instruments. A chemical physicist with an MBA.

Rik Armitage (Group Acquisition Executive, ex-Oxford Instruments) and John Dunne (Portfolio Chief Executive) round out a head office that has roughly doubled in senior capability in three years — deliberately, to add both bandwidth for the acquisition strategy and oversight of underperforming businesses.

I don’t believe Judges’ decentralized structure, entrepreneurial culture or disciplined capital allocation change under Prestidge: two senior executives come from Halma (very similar DNA), Brad has a decade at Judges, and Cicurel remains on the board as chair. Judges’ AIM (rather than main-market) listing is intentional — AIM shares held two-plus years are exempt from the UK’s 40% inheritance tax above £325k — so David, and perhaps Mark, are incentivized to hold the shares indefinitely; even if the rules change, the older executives have strong reason to think long-term. The board comprises the CEO, CFO, GBDD, GCD and five independent directors, chaired by Cicurel with Ralph Elman as deputy chair; three non-executives own £2.5m–£4.0m of stock, creating strong alignment.

LON:JDG, LSE:JDG, JDG.L, JDG:LN and $JDG. ISIN: GB0032398678; SEDOL: 3239867.