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Most investors have never heard of LIFCO, Addtech, or Lagercrantz. But since January 2020, these Swedish companies have compounded shareholder returns at 20–40% annually – outpacing the S&P 500 by 7% per year.

They're not tech companies. They buy boring, profitable small businesses – distributors, industrial suppliers, niche manufacturers – and hold them forever.

McKinsey has studied them for two decades and consistently found they outperform every other M&A strategy. Yet almost no one is doing this at scale in the US with SMBs.

A compounder systematically acquires small-to-midsize, profitable businesses – often at 4–7x EBITDA – integrates them onto a centralized financial platform, and reinvests the cash flow into more acquisitions. It's a perpetual compounding engine.

Berkshire Hathaway pioneered the model. But a new generation of publicly traded compounders, primarily in Scandinavia and Europe, has refined it with tech-enabled sourcing, decentralized operations, and relentless focus on their return on invested capital.

The key names: Constellation Software (Canada, $52.8B enterprise value), LIFCO (Sweden, $17.9B), Addtech (Sweden, $9.7B), Lagercrantz (Sweden, $5.3B), and Diploma PLC (UK, $10.0B).

Permanent ownership. Unlike private equity, they don't buy to flip. This matters to sellers who care about legacy, employees, and customers. It also eliminates transaction costs and tax friction from repeated sales.

Decentralized operations, centralized capital allocation. Acquired businesses keep their names, leadership, and autonomy. The parent provides financial infrastructure and growth capital. LIFCO runs 275 companies with under 10 people at their headquarters.

Disciplined underwriting. They target specific EBITDA ranges and ROIC hurdles. Constellation Software historically acquired at 5–7x EBIT with 20–30% IRR targets. There are no ego-driven acquisitions at play.

Flywheel economics. Every acquisition generates cash that funds the next. Constellation has compounded free cash flow at 25%+ annually for over two decades.

Most Roll-Ups from the 2000s either no longer exist or have been sold, but Compounders who started at the same time are flourishing and worth billions today.

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Since January 2020, programmatic acquirers have delivered 20%+ compounding annual returns, exceeding the S&P 500 by about 7% annually.

These aren't speculative returns. They're built on cash flows from decades-old, diversified businesses.

McKinsey's research over two decades found that programmatic acquirers consistently deliver 2–4% excess annual returns compared to companies using other M&A strategies. The outperformance widens during downturns, because compounders have cash to deploy when others are forced to retrench.

They trade at premium multiples and have earned them. LIFCO trades at 21.2x 2027E EBITDA (based on financial analysts’ forecasts of LIFCO earnings for the full year 2027), Addtech at 20.7x, Lagercrantz at 20.5x (peer median: 17.4x). It’s clear that the market rewards consistent compounding.

You can't easily access these returns. Most compounders trade on European exchanges that are difficult or expensive for US investors to access. Even where accessible, they now trade at 15–21x EBITDA – the easy money has been made.

But you can access the underlying economics. These returns come from acquiring businesses at 4–6x EBITDA and compounding cash flows. That's not a stock market trick – it's just math. The same unit economics are available to private investors who co-invest alongside operators running the same playbook.

The entry point matters. Public compounders have been "discovered" – their multiples reflect decades of execution. Buying LIFCO today at 21x EBITDA means paying for the track record. Co-investing in a private compounder acquiring businesses at 3–5x EBITDA gives you access to the same model before the multiple expansion, not after.

This is diversification beyond traditional alternatives. Programmatic acquisition of cash-flowing small businesses is uncorrelated with tech cycles, not dependent on IPO markets, and backed by real revenue. It's the asset class that built Berkshire and it’s sized for private co-investment.

The compounding is the point. Each business generates cash that funds the next. Over time, the portfolio compounds on itself. The earlier you participate, the more compounding cycles you capture.

At Lynnfield, we are constantly vetting deal opportunities to acquire cash-flowing SMBs. With one such deal around the corner, we are actively looking for co-investors and invite our readers to apply for the opportunity to generate passive wealth.

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The compounder playbook is overwhelmingly European. The vast majority are headquartered in Sweden, the UK, Germany, or Canada. The US, the largest small business economy in the world, has remarkably few players running this at scale with SMBs.

The same tailwinds exist here. Aging business owners, succession gaps, fragmented markets. The US market is arguably bigger: 6 million businesses with fewer than 100 employees each, 52% of owners are 55+, and 70% of small businesses that go to market fail to sell.

Why the gap? US capital markets have historically favored tech-driven growth, PE-style buyouts, and venture capital. The "boring but beautiful" compounder model – buying HVAC companies and industrial services firms – doesn't generate headlines. But it generates returns.

At Lynnfield, we’re acquiring profitable businesses from retiring owners in the $500K–$5M cash flow range – the same EBITDA range and permanent-hold philosophy as Europe's best compounders.

Same principles: Permanent ownership. Decentralized operations. Centralized financial infrastructure. Disciplined underwriting at 3–5x EBITDA. Reinvestment of cash flows into new acquisitions.

And the best part? We're early. Europe's compounders have been running this for 20+ years and now trade at 15–21x EBITDA. The US market for this model is nascent. For co-investors, that means entry at ground-floor valuations on a proven model validated across markets, cycles, and decades.

The thesis is simple: The compounder model works. It's been proven in public markets for over two decades. The US small business market is the largest, most fragmented, most target-rich environment in the world. And we're building the American version.

Thanks for reading!

Europe's compounders have quietly built some of the greatest wealth-creation machines in public markets – not through technology or financial engineering, but through disciplined, repeatable acquisition of profitable small businesses. 

The model works. The returns prove it. The US market is wide open. Now is our time.

Talk soon,
Param

P.S: In case you’re joining us late, you can check out the previous editions of this newsletter here.