Kingsway Corporation (CEO Interview)

DISCLAIMER & DISCLOSURE: The author holds a position in Kingsway Corporation at the date of publication but that may change. The views expressed are those of the author and may change without notice. The author has no duty or obligation to update this information. Some content is sourced from third parties believed to be reliable, but accuracy is not guaranteed. Forward-looking statements involve assumptions, risks, and uncertainties, meaning actual outcomes may differ from those envisaged in this analysis. Past performance is not indicative of future results. All investments carry risk, including financial loss. This analysis is for educational purposes only and does not constitute investment advice or recommendations of any kind. Conduct your own research and seek professional advice before investing.

This podcast/video interview focuses on a company that almost nobody understands correctly, which is exactly why it’s so interesting.

This is not a stock that currently screens well. It’s misunderstood and financial metrics are misleading. So don’t get lost in the numbers. This is a qualitative investment thesis.

The business piqued my interest because I am particulalry focused on companies with an opportunity to reinvest capital at high accretive rates of return over the long-term, and which have first class management teams. This one ticked both of those boxes.

Here’s what you really need to understand:

* ‘Search Funds’ are a niche “entrepreneurship through acquisition” (ETA) model.

* Stanford professor Irv Grousbeck (not merely an academic, but successful entrepreneur with a net worth of a couple of billion dollars, and co-owner of NBA Boston Celtics) and Will Thorndike (author of ‘The Outsiders’ book and seasoned investor himself) helped popularise the ETA model.

* ETA involves backing talented early-career CEOs (often MBAs) to find, acquire and manage an acquired business.

* Acquisitions are private mom-and-pop type lifestyle businesses which are capital light, enjoy recurring revenues and have no customer concentration risk, but which have been operated as lifestyle businesses and starved of growth capital. Without succession plans in place, founders ultimately look to cash out. This generally means that they are available to buy at low single digit multiples.

* Investments are typically too small for traditional PE firms, but too complex for individual investors.

* In 1994, Thorndike founded Housatonic Partners, a fund focused on the ETA model and he