Andvari Associates 3Q21 Letter: Largest Holding And ChemedJacob Wolinsky
Andvari Associates letter for the third quarter ended September 2021, discussing their largest holding and new Chemed investment.
For the first nine months of 2021 Andvari is up 6.5% net of fees while the S&P 500 is up 15.9%.[i] Andvari clients, please refer to your reports for your specific performance figures. The table below shows Andvari’s composite performance against two benchmarks while the chart shows the cumulative gains of $100,000 investments.
During the third quarter, one of our largest and longest-held investments—“Company A”—announced the largest acquisition in its history. Company A will increase its revenue base by about 40% by acquiring “Company B”. Company B has a set of genetic analysis products that enable labs and pharmaceutical companies to perform certain types of diagnostics more quickly and at a lower cost.
Andvari believes the best is still yet to come with our investment in Company A. Depending on the size and pace of future acquisitions, this serial acquirer can grow revenues 4x–5x over the next ten years while maintaining high margins and cash flows. As Company A grows, it will have ever-increasing cash flows to allocate to larger and larger acquisitions. Cash flows will compound. At a minimum, Andvari expects over the long run to earn annualized returns in the low-teens as shareholders of Company A.
A new entrant to Andvari’s portfolio is Chemed. We sold our investment in a large, customer-focused enterprise software company to make room for this overlooked holding company based in Cincinnati, Ohio. Chemed’s two subsidiaries are Roto-Rooter (plumbing and drain cleaning) and VITAS Healthcare (hospice care provider). Chemed checks many of the boxes within Andvari’s qualitative-based investment framework:
- Stable and predictable revenues from two recession resistant businesses;
- Low capital expenditure requirements;
- Roto-Rooter and VITAS have good organic and inorganic growth opportunities as both are the largest players in markets that are still highly fragmented and populated mainly with “mom-and-pop” competitors;
- Management has demonstrated excellent capital allocation skills; and
- Management is long-tenured and highly aligned with shareholders.
Andvari Partners LP
In the prior quarter’s letter we mentioned the launch of Andvari Partners LP, Andvari’s first investment fund. The fund’s track record officially started in early August. For more information we urge you to contact us at [email protected]
For the first nine months of 2021, Andvari still trails the market by a wide margin. However, we’ve caught up a bit in the third quarter. Looking at our collective performance over the past three and five years, Andvari has outperformed the market net of management fees. This outperformance is in spite of the fact that Company A—our largest holding now—has significantly underperformed against the market this year. Finally, we are strong believers in Company A and in our new Chemed investment.
As always, I love to hear from clients and interested parties about anything on your mind. Please contact me with your thoughts, comments, or questions.
Douglas E. Ott, II