Hidden Gems' Chris Waller Judges Scientific Thesis

You're about to listen to the yet another value podcast with your host, me, Andrew Walker. Today's podcast is Chris Waller from Hidden Gems Investing is on. We're going to talk about Judges Scientific. Chris is one of my favorite guests to have on the podcast. This is his third appearance. I think when you listen to the podcast, you're going to understand why. Chris does fantastic amounts of really in-depth research, really understands the names he pitches. Well, and he has, I like, he does a blend of value investing and special situation investing. This is much more valued than special set, but I love anyone who marries those who skill set. So I think you're really going to enjoy this one. We'll get there in one second, but first word from our sponsor. This podcast is sponsored by Trata. Look, I already know you're going to like Trata. Why? Because you're interested in this podcast. You're listening to this podcast and Trata is just like this podcast, though, unfortunately, largely without the handsome host. Trata is anonymized transcripts of Biciders discussing the stocks that they're following and kind of what they really think will drive the stock. What they really think the upsides are, what they really think the risks are. In fact, a huge way that I prepped for my celebrate podcast is there was incredible discussion on the Trata platform where they were talking about, hey, here's the risk. Here's what I think the event pad will play out. Here's what I've heard from experts who I've interviewed when I've talked to them about what they really think about the podcast. So look, I think if you join Trata, you're going to get huge value, but even better, you can join as a lurker and you can just go and read all the transcripts. But if you want to join and actually start contributing to the platform to, Trata will take it up one step further and it'll be an anonymized interview. They'll publish it and they'll pay you hundreds of dollars to go on the platform and do anonymized interviews and talk about the stocks you follow with other smart people who follow the stocks and long short, all that type of stuff, nothing invests in advice anywhere, but it's a really useful platform. And again, if you're listening to this podcast, I already know you're going to love the podcast. Try Trata.com or see the link of the show notes today to check it out. All right. Hello. Welcome to the yet another valued podcast. I'm your host, Andrew Walker with me today. I'm happy to have one. I think it's the third time my friend, the founder of Hidden Gems, investing Chris Wallard. Chris, how's it going? Good. Thank you for having me on again. Hey, thanks so much for coming on before we get started. I'm going to give two disclaimers. First disclaimer, nothing of this podcast is investing in advice full disclaimer at the end. Second, I mean, Chris is a friend, but I'll tell you Chris runs one of my favorite substacks on, I guess the planet is fair to say, it's in my mind, it's the perfect type of substack. I mean, I get two emails a month from it, but they're well thought out super deep in quality research. You know, I get everything from the compoundery stuff we're going to talk about today to every now and then cash cell special situations, which I love as well. So I love it. It's one of the few emails I read pretty much everything that he writes. So if that's not a good pitch, I don't know what it is, Chris. But let's talk about something you wrote. You wrote it up. Hey, you got to come on and talk about it. The company is Judgescientific. It trades in London, disclaimer, international stock, maybe an intellectualist, but I'd love to dive into it. What is Judgescientific? And why are they so interesting? Yeah. No. Thanks. Thanks for that. And thanks for mentioning hidden gems investing. Well, I mean, my check's in the mail. I'm sure. Yeah. I am. So, and of course, I should say, I own Judgescientific through my fund as well, so just full disclosure there. Yeah. Judges is a UK listed 400 million pound market cap serial acquirer by scientific instrument businesses. So these are usually companies that are very niche that almost always the leader. In some cases, they're even a monopoly in that specific niche. So very low competition, very high pricing power. These are small private businesses with a liquidity event like a founder exit. And yeah, Judges has a really strong track record here. So they, over 20 years, they've delivered about 20% per annum return on incremental capital. The stockers return a similar amount about 25% per annum. And these are good businesses. So, you know, they're not companies that need turning around. I think return on tangible capitals about 40%, 40% for zero organic, he bit growth about 99% and, you know, like I say, their small private businesses usually five to 10 million pound deals. They're all nearly all in the UK, but they sell roughly one third in the US, one third in Europe and one third rest of the world. So Judges has been incredibly disciplined in its acquisition. So they have a founder CEO who owns stock worth about 200 times his base salary. They buy companies on average for about five times ebit, six times if you kind of wait it, if you do a waited average. And the most important thing is they're just very, very disciplined on that price paid. So there've been multiple two year periods where they didn't make a single acquisition. They've done 25 in total over 20 years. I mean, I imagine that would have been extremely difficult for a serial acquirer. So very disciplined on price, a very high integrity. And the reason that they are able to get these businesses at such a low price is because they're very hands off host acquisition. So they don't extract synergies. They don't merge the companies or the brands, they're not like private equity. They're not going to load them with debt. And basically they're going to leave them untouched and, you know, I spoke to quite a lot of founders who sold their businesses to judges in this process. And all of them told me that's the reason they sold to judges. So can I pass you through? Yeah. Yeah. I've got lots of questions. I'm going to continue. I just want to emphasize one more thing. When I say Christmas work, I've been like maybe not so sneakily, but I've been trying to do expert calls with everyone who comes on the podcast, right? Like I'll do an expert call through to your self since obviously a relationship with them. And I had them drum up a list of 12 experts and I sent it over to you. And your response was, Oh, I've already talked to all of them. So if you've already talked to all the experts in the company, like, doesn't mean the stocks going to work or not, but it just spoke to the diligence. And I wanted to mention that when you said, I spoke to farmers because I know you did. We have like 12 and none of them were new to you. Yeah. Well, yes. And unfortunately, he doesn't guarantee you get the investment decision right, even if you do all the work. But I think it gives you a better chance. And a lot of these companies I'm looking at, they're small. And so, yeah, that you can definitely learn more about an industry. Let's let's let's dive into a bunch of different things and just real quickly to level up for people again, judges, they're doing lots of small acquisitions. But can you just one more time, like, give an example of the type of company that they would acquire? Yeah. So, usually a private business with a founder who wants to retire either immediately or soon afterwards, these types of scientific instruments are things like vacuum chambers, ultra low temperature cooling, analysis of different soils and rocks. This type of equipment is generally thousands of pounds. In a couple cases, it can even go up to a million pounds for a whole system, some very high tech equipment. Yep. And I think it'll come into play in a second. This is the type of equipment you're going to find not all this stuff, but a lot of it is going to be in university laboratories, right? That's right. Like, running hard science. It's not as simple as just the microscope that they say. But I think it was in one of your parts or maybe it was in their investor day. It was like a 15-fold microscope with all sorts of different things. So really fantastic. Let me ask the question I like to start every call with. Okay. Great overview. Loved it. But the market is a competitive place. What do you think you're seeing that the market is missing that makes judges a alpha opportunity? Yeah. And I think, you know, one thing I should add as well, it does trade on 21 times free cash flow, which maybe seems like a kind of optically, you know, premium or doesn't screen cheap automatically. I think that if they can redeploy capital at least 20% returns for long periods of time, that means their earnings are going to grow at 20%. If they can redeploy 100% of earnings. And so you can still do very, you know, you can grow earnings at 20% and if it holds its multiple, you can still generate that return as an investor. And there's a lot of serial acquirers with this type of success that, you know, traded a high multiple, even, I think in terms of what investors are missing, I mean, aside from the fact that it is still small, you know, 400 million market cap, despite this track record, they've also had quite a lot of short term headwinds. So the stock is actually down by almost half since its peak 18 months ago, really the first time they've had a drawdown of this scale. And the reason is they had an issue in one of their subsidiaries, the biggest acquisition they made called Geotech, which had a quite significant decline in earnings. So we might touch on that. They also had a period where because they sell some products into China and there's been some macro headwinds there, you know, that impacted them. And then most recently they've had this issue around US college spending, which has fallen quite significantly. And so those three kind of headwinds are, I think, what's basically, you know, causing investor concern. And then there's a longer term issue, which is how long can they keep doing this for, you know, the founders 76, you know, so that's probably the longer term issue. You hit all the questions that I'm going to ask, but I'll try to earn my bones as a good podcast host and add some heat on to those bones. So let's start with the acquisition, right? So they call it their buying build model and they say, like, look, they gave lots of reasons and we can dive into them while why they can buy it five, but I do still want to push on that a little bit, right? Like they say, Hey, we're going to go buy these businesses at five times EBIT and in the way they talk about it, they say, Oh, by the way, we're going to leverage up three or four times EBIT, right? So we're only putting in one or two times our cash. We get a 20% return, but it's even better than that because we put the cash one. And look, I had the same push back on teravests when we talked about this. And I have the same push back when we talk, you know, constellation software is the one everyone's going to think up on these roll things and there's plenty of others. But my push back is, Hey, look, I get it, if I was selling to judges versus a middle market private equity shop that was going to fire 70% of employees, maybe I'd take a little discount, but five times EBIT, 20% return that you can also lever up. Why are people giving them such just such a good deal? It seems like such a good deal here. And I always question, like, why is the seller going to give someone a good deal? Yeah, there's a few competitors that judges face and a few sort of coming up. So, I mean, aside from private equity, you've got some companies like Oxford Instruments, ThermoFisher that are operating in this type of scientific instrument business. And they make acquisitions like this all the time, but they're going to consolidate your business and the reason in their opinion for doing that is they think they can extract all these synergies. And so that is why they approach it that way. In terms of just very hands-off companies, there is one other publicly traded company called SDI, which basically has a exact same approach of hands-off making these acquisitions. Sometimes they bid on the same deals as judges. But I think that's a good example of why it's really difficult to do because they actually change their CEO fairly recently. They've got a new CEO who is very much emphasizing synergies and he's pointing to obvious things like, "Hey, why don't we have five companies go to market as one more exhibit together?" And these things seem really obvious. And so there's just a lot of conventional wisdom that that's the way to extract value. The problem with that is you then put off these founders and there are some founders who are willing to sell for a cheaper price because they really care about the company not changing it. And so it's difficult to maintain that discipline. If I could just like pick at this point a little bit. So everyone's aware of search funds, at this point where you basically get a Harvard grad and they say, "Hey, instead of going to private equity or banking, I'm going to raise $3 million and I'm going to go buy the local HVAC or plumbing company and I'm going to apply kind of Harvard MBA skills to it and maybe we'll go buy the company, the city over eventually." But they basically say, "Hey, I'm going to go shake hands with the local plumber and he's going to sell to me because I'm going to operate it and I'm going to standardize it but I'm not a private equity firm that's going to fire everyone." And because that all going to deal and that historically has worked quite well, I believe. But I've been worried about that because even if that works well, there's a lot of Harvard MBAs out there. And you know, if you're of all these plumbers who, "Hey, every month, I'm getting 100 emails from search funders." And I do wonder with judges, like you mentioned SDI, which seems to be changing the model. But judges had this quote on one of their calls where they said, "Hey, over the past 20 years, the multiple we pay for businesses that we buy has not changed." I was kind of, I think it's really interesting. But it hasn't changed at all with like more financing and the ability to copy this model in like funders and small piece. I was just really surprised that even if they've got like kind of a little moat versus private equity, it just doesn't get competed away by other people really not the same kind of like all shocks Berkshire Hathaway style playbook. So what do you think about that for? I think it will take a long time for someone to replicate the track reputation because they've been doing the same thing for 20 years. And let's say tomorrow you and I, you know, we took the exact same approach and you know, we could really do that. What founder is really going to sell to us over judges when we haven't made an acquisition or we've only made one or two when judges have a whole list of 25 companies who you can speak to. And, you know, the founders will very openly tell you that, you know, these guys are trustworthy and the number of the founders mentioned to me that when they may, when they were going through these negotiations, they had referenced checks not from people judges provided but from people they knew and who were able to vouch for judges and say, yes, you really can trust these people. They're not just saying all of this in the acquisition phase and then they're going to same. So I think it will take quite a while for someone else to build that same reputation. And you know, these acquisitions are small, I mean, five to 10 million pounds. And so there isn't as competitive a bidding process as there would be at a, at a bigger scale. You know, the other thing I thought was interesting, you say not competitive. I thought it was interesting. I think it was on the Q4 call as well. They said, hey, a lot of our acquisitions, we were actually the runner up bidder and we don't retrain. We, you know, we bring financing to every deal. Well, we can sign on the line you can trust us and they said, hey, a lot of times we're the backup bidder but, you know, every now and then the winning bidder falls through and people just come to our backup bid. And I thought that was really interesting and, you know, if you're winning something, you say, hey, we were the runner up bid. There was a higher bid out there but for X, Y, Z reason we got it, that's always really interesting. And I think about a third of their acquisitions, there's actually no competition, something like that of that order of magnitude. Let me ask you another question, sustainability of the model. So they do 1.3 acquisitions per year is their history. Let's just round it down to one to make the numbers easier, right? Yeah. When you're doing one acquisition a year and you're a hundred million dollar company and you're buying a five million dollar company that, you know, maybe after you kind of like standardized some procedures and put a tennis multiple, it was worth 20. Well, that's a lot of value creation, right? Particularly if you use some debt, that's a lot of equity value creation. But this is a 400 million, 500 million dollar company now. So they either need to do bigger acquisitions. So instead of doing a 4 million acquisition, they need to do a 16 or 20 million acquisition to make that same like a creation per overall work or they need to accelerate the acquisition. So, you know, when I look at this, my first worry is, hey, Chris is right. He found something that historically has delivered great returns, the acquisitions were great. But, you know, these are really small acquisitions and there just aren't enough of them to move the needle anymore. So do you think they can continue to kind of find enough deals to move the needle and create this value creation that, as you said, at 21 times free cash flow, you are baking in acquisition kind of related gains. Yeah. I think that, I mean, that's definitely the challenge. And I think they've done a few things that are going to help them make more deals. I mean, ideally, we want them to make more of these small deals, not move up. You know, they've done a little bit of moving up one or two bigger deals, but, you know, you get the lowest prices at the smaller companies. So they've significantly expanded the management team. If you go back two or three years ago, there was only really three of them. So there was the founder CEO, the CFO and the COO, and that was basically it to the head office. They've now got three other people who have come in over the last three years. And so their core team is, you know, pretty much doubled. That's going to give them a lot of, a lot more management bandwidth to be able to do a large a number of deals. They're starting, they're still very early on right now, but starting to create some platforms. So some of their acquired businesses have started making acquisitions of their own. That's very, very early on at this stage. So, you know, too early to really say it is a platform, but that's something else that they're working on. The other thing is, you know, they've been quite focused on the UK, but they have made one or two acquisitions outside the UK, and, you know, they haven't gotten the prices they'd want, which is why they haven't made more than those one or two, but that's something that, at some point, they could, they could do more of. And even the industries that they look at, you know, that, you know, scientific instruments is a great sector to be in, but there are a lot of sort of adjacent industries, and depending on how you want to categorize the industries they look at, there are actually thousands of companies. I think that, I mean, they're working on all of these areas, but yes, that's going to be the challenge. So, you mentioned, look, you'd love to do, as many of the smaller deals as you can, you get the lowest price. They tend to be the most strategic, like even if you're not rolling them up in terms of firing people and synergies, you can probably toss them on your CRM, your accounting, all that sort of stuff. And I think they've got a slide in their deck that says, hey, here's some of the standardized things we do. You get, you know, look, if accounting costs, if accounting software costs $50,000 per year, and you buy a $4 billion business, that's a nice synergy, you buy $40 million business, and you put it on your, so you say $50,000, it's meaningless. So, you can tell that, but I want to talk about geotech, real quick. And not specifically geotech, but just geotech was by far their largest acquisition. I think he spent, including the urn out, which probably doesn't get hit at this point. So, if you include the urn out, it was over $100 million pounds, was the acquisition. I think three times larger than their previous largest deal, and probably- And 80, I think, yeah, but yes, by far the biggest, yeah. And probably eight to ten times larger, maybe even more than their average deal. And geotech has been an issue. We can talk about the issues at geotech, but I just want to ask that high level, when I look and I see, hey, the company took this zero compounder, zero acquire, takes the biggest swing by far they've ever done, and it's the worst acquisition they've ever done. I look at it and say, oh, I might have trouble scaling that model, guys. So, what do you think just the overall geotech learnings? Yeah, and I would also wrap in as well, there've been a couple acquisitions that haven't been successful, that's scientific or an arm field, those are, you know, about 8 million pound acquisitions each. So, historically, on the larger end, although not like geotech. And so sometimes investors, yeah, they're looking at this and saying, well, hey, when you scaled up, your acquisitions weren't so good, so maybe this, you know, doesn't work as you scale. I would say probably a few things, which is, there have been some acquisitions of this scale that have worked very well. So, GDS instruments was one, they just did a relatively recently bought a company called Tia Coatings, which looks like it's a very good bit. And I think I was looking through the data, seven of their previous acquisitions have now grown to a scale where they're of the similar level or bigger than the scientific or an arm field. So, there's nothing kind of unique about the 8 million pound number where they can't, you know, go above that. That's still a very, very small company, you know, 8 million pounds. With geotech specifically, I think they had an issue, so maybe just give you a bit of background on geotech. It's about 20% of the company's free cash flow right now. So, you know, meaningful. They analyze soils and rocks, so for oil and gas, you know, drilling, mining where they need to know where to drill. This type of analysis is very important. And geotech is really the only provider in something called multi-sensor, non-destructive analysis, which means that basically they can take a sample, they can analyze it in lots of different ways in a way that doesn't destroy the sample. You can use it again. So, it's a company that fits in very well with the style of business judges likes to acquire. Now the thing that went wrong last year, so this company was acquired just over two years ago. The thing that went wrong last year is that about a third of geotech's business is providing equipment for an expedition. So, this is literally a vessel that's going to go out to sea and help basically map the ocean floor to figure out where to drill and so on. Typically, they do one expedition per year. There was no expedition last year. And so that loss of revenue drops through entirely to profitability. And so, judges as a company actually saw negative revenue growth and decline in profitability last year. That's actually reversed. So, the first half of this year, there was the expedition as normal. That's reversed. I actually don't see any reason to believe that this acquisition won't work long term. So, I think that it's still very early. We only really have two years of data. It looks like the headwinds they had reversed. So, yeah, I know a lot of investors look at this and just have concluded this is a kind of failed acquisition, but I think it's far too early really to say that. I think the company probably agrees with you. Let me just say on the one expedition, you know, I was kind of surprised when you've done literally a thousand times of work on this than me, but I was kind of surprised when I was reading there say, hey, you know, this much of the revenue and earning streams comes from one expedition per year. And this year, we didn't have one. And it's like the year after they did the acquisition, right? Could you just talk about, so the expedition, it sounds like it's for oil and gas mapping the ocean map foot, but could you just give a little bit more detail to the extent you know about, you know, what is going on with this expedition? You know, when you say there's only one per year, I'm like, Oh, is, you know, is X on the only one who uses it and Chevron and everyone else is using someone else or like, well, what's just kind of going on with this expedition? Can you work on that? Yeah, so I believe it's a Japanese vessel that they provide all this equipment to. And, you know, historically, it's been one per year. This one actually got delayed. So, so it happened early in 2025 instead of in 2024. So it wasn't canceled. And historically, they've done one per year. There's, I believe, only four vessels like this in the world that can actually do these types of expeditions. And I think this sort of white geographically spread out. So that's a third of their business. It's not, it's not, it's not the other two of those where they're almost a monopoly, but it's still one where there's obviously very limited competition. It's very specialized. So I don't see any reason to kind of extrapolate that there's something wrong with this business. I would also say as well, although this geotech is 20% of judges free cash flow today being, you know, by far the biggest acquisition. If you look at the rates, they will probably compound that, you know, by making more acquisitions going forwards and, you know, growing ebits, it's sort of mid-high single digits. It's probably only 15% of free cash flow in three years and 10% in six years and so on. And so I do think that people tend to overly focus on this, you know, currently. If I can back up just a little bit, I asked, I think the number one question is, hey, can these guys continue to find a creative acquisitions, right? Because if they, if they can continue to find a creative acquisitions, where they're paying four or five acts and kind of getting that 20% return to capital. And especially if they can scale that up, this guy is kind of limited. Here, I think that's the number one question. You're right up had a, I don't know if I'm sure you remember it, but if you don't know, I'll repression remember. It had the Halema example as a answer to that question. And I just thought it was such a nice example. I just want it to pause here and let you present that as kind of a rebuttal to that question. Yeah. So Halema is a serial acquiring the UK that operates in scientific instruments as well as a couple other industries. And they, of course, had the exact same issue where they were buying these types of businesses 15, 20 years ago. And they got to a level of scale where these small acquisitions were less meaningful. And what I did is I looked at their cash on cash returns over five year period. So I looked at, okay, let's sum up the total cash spent on acquisitions, capex and working capital. And then let's compare that to what the growth in operating cash flow was and use that as a proxy for, okay, this is how much they've invested over five years. What was the resulting return on that investment? And if you do that analysis, you'll see that when Halema had revenues under 500 million, they had very similar returns to judges. So you know, 20% plus. And over time, you know, that reduced as the size of Halema increased. And you know, today is kind of more like just over 10%. And the point of that was to say, well, that moment when Halema really saw diminishing returns on acquisitions was when they reached 500 million in revenues. Judges today is at 130 million in revenues. So a long way below that. I would also say, you know, if we think of other serial acquires, I think first time I was on this podcast, I was talking about terives and, you know, terives today will generate about revenues of 1.4 billion Canadian. And you know, they're still finding great deals. They're doing 20 million dollar deals that they're now not even disclosing the financials for because it's small relative to terives. So you know, we're talking about whether judges can do 5 million or 10 million pound deals. So I think these are still very small companies with a lot of runway. I so I think you're 100% correct though. Terifest, you know, it's more commoditized businesses. So I just don't know and kind of business say he's ESG because it's not fully ESG. But businesses with like a little bit of an ESG overhang was this is lab tools. So I do understand, hey, you know, there are lab tool businesses that have billions of dollars market. But I do wonder if as you step up from 10 to, let's just use 100 million, right? You're not buying from mom and pops anymore. And there are, you know, thermo fisher wants to snap up every single 100 million EBIT business. 50 million. No, I used 100 million EBIT, not 100 million valuation. But still, there's, you know, mid-tier life science tools. Like I do wonder if this has a little bit more of a cap versus a terives where it's like, hey, nobody cares about 100 million oil and gas. You know, tank, gas tank, whatever it is. I just wonder if that's the case, you know? Yes, I think you're right. I mean, they will come, they will be a point when we get those diminishing returns. I just think it's still quite far off. So for context, you know, judges free cash flow this year will be something like 20 million pounds. You know, so that will grow over the next three years. They can take on some debt. But their acquisition spend over the next three years is probably going to be something like 80 million, unless they find some, you know, really attractive deals. So, you know, 80 million, depending on how many deals you think they can do, that those are still fairly small deals. So I don't think we're at the point, even in, you know, over the next three years, where we're really hitting those diminishing returns. Let's talk management. And you already addressed it a little bit, but, you know, this is a CO in his 70, 76. You know, this is not a constellation with the 10 years ago with a CO in his early 50s, where you say, hey, the neck, I've got 20 more years of, of kind of growth. If I'm almost unlawed, you know, this is not pressure in the 80s, or you say, I've got 40 years of war. But 76, he's either going to retire or pass away in the next decade, 15 years, it kind of on the upper limit. And, you know, even at 76, you start worrying about slowing down. But what do you worry? How do you think about just kind of the succession issue here? And you didn't mention the upgrade of the team, but still, you lose that founder, the driving force behind 50 deals here, you worry. Yeah. Yeah, I mean, I consider this the biggest risk. So, he's 76. Just in terms of his actual role today, he has been reducing his role for the best part of a decade, to be honest. So, he's very focused on the acquisition side. He doesn't really get involved host acquisitions. So, the COO who really manages that. So, his focus is on acquisitions. And, you mean, first of all, you know, he hasn't said he's going to retire. And I don't think he's the type of person who is likely to retire anytime soon. I think what is much more likely is that he moves up to Chairman. The Chairman, who's who's quite old as well. And I would expect, at some point, maybe the Chairman retires and David Cicarell, the CEO moves up to Chairman. And I think that's okay, because the most important thing that he brings is just that discipline on acquisition multiple. And, you know, going two years, not overpaying. In terms of technical expertise, they have that already, with the team they've brought in. In terms of sourcing, I think that can also have been replicated and they're adding people on that as well. So, I think those are all replicable. I don't think the day he goes at judges is suddenly going to be very hands-on with companies. And one of the things I asked in my due diligence as well is, you know, how much of this reputation of being hands-off and being an attractive acquirer is with David Cicarell versus with judges the company. And the response was generally, it's more of the company. So, I do think that the thing that they will miss is just that discipline. As long as he's involved with the company as a chairman, I think that's fine. He can still say no to deals. And so, I don't think that certainly over the next three, I don't think next five years he'll be exiting completely. He's still got the majority of his net worth invested in the stock. Speaking of majority of his net worth invested in the stock, and I think you had in the right up, his stock ownership is 100XD, what he gets paid. And he had a nice quote on Q4 earnings call where he was like, I'm obsessed with shareholder value. It's all we want to do is create. Would this be an attractive, you know, if four years from now, he's 80, he says, all right, it's time for me to really have, would it make more sense for him to sell this to a private equity firm? Or would you just kind of like be loose? I could imagine both ways where you sell to a private equity firm and they like the platform and they want to keep the platform as is or you sell to a private equity firm and they say, hey, we own these things. Let's roll them all together and get that one time synergy hit. Or I can imagine say, hey, no chance they sell to a private equity firm because once you do that, you lose the culture and you're going to risk that. And so I can see every which way. What do you think would make most sense? I think it's unlikely he would sell the company. I think if they sold a private equity, even if the private equity firm was hands off, I think that image, the reputation they have of being not private equity, I think that would obviously be difficult to maintain. I also think this, he's a little bit like some of the founders he buys from, I think, I think this is this company's his baby and he doesn't really want to see it change in a material way. So I think what is much more likely is that he is building the team and I think his success is already with the company. I think it's a guy called Tim Prestige. I think it's much more likely he keeps it on like that. Perfect. Look, let's Q2 towards the end of July, they come out with a Q2 or H1 update. Now, this is a British company. So the H1 update, they're actually going to report full earnings in September, I think. So you don't get the tag, you don't get the call, you don't really get a lot of commentary. But they pulled down their guide, right? And they said, hey, the big issue we're having is US government higher education. So I just want to talk about the people who are going to look at the chart and say, hey, why was this down three weeks ago or something? So I just want to talk about the government guide. What's going on if that can obviously nobody loves to get hit in the face. But you know, is this one time? Is it going to get made up? How do you think about that? Yeah. So about three weeks ago, as you say, they had their trading update and they cut their guidance for EPS by between 10 and 20%, a 22%, I think. So they gave a range. Roughly speaking, it's about three pounds per share. So the stock is at 60 pounds right now. So the US is about a third of the company sales within that we don't know the exact amount that ultimately ends up with US colleges, but it's probably something like half of that. And essentially, college spending on new equipment has come to a complete halt since March. Now, I have to admit, I was a bit surprised by the extent of the reduction, because in March, when they had an earlier trading update, they had their full year guidance. And this management team is historically quite conservative, and you know, very high integrity. So we were they were surprised and I was surprised. So I think what happened is, you know, in March, President Trump made various announcements about cutting scientific funding in the US. So depending on the institute you look at it somewhere between a 20 and 50% cut. So the National Institute of Health, for example, which is one of the biggest ones 40% cut. So that really happened in March and March April May. And on top of that, there's a second issue, which is there's obviously, I don't know what the right word would be, but there's a confrontation going on between the US government and certain colleges. And you know, that's not just specific towards scientific instruments. It's really around other topics, but all in government funding across the board is one of the tools that the administration is is using. And so that is impacted them quite heavily. And these are the largest research institutions, right? So it's not just it's like probably the biggest buyers of the tools who are having the threads, having everything through then. Yeah, no, the question is kind of like, look, you've already seen a few colleges settle with the administration. But you know, the NIH funding cuts are happening. You've you've seen the universities, but the question kind of is, hey, now it's a small piece of the sales right about a third of the sales and then half of the year. But is this a one time cut? And then it bounces back next year or is this a for at least the next three and a half years until we maybe get a new administration? All these levels are going to be low. So you're like, you're kind of on a much lower baseline going forward or, you know, all the universities are scared of their own shadow for another three and a half years. So they were, they're kind of looking over. And as you said, a lot of these instruments are thousands, tens of thousands of dollars are kind of looking over every line at them and saying, yeah, maybe we don't need the Microsoft. How do you just kind of think about that? Yeah, I think it's a very good question. So I think what is hurting them right now is not just the actual cuts because actually a lot of the cuts are proposed cuts, as well as some grants that have already been made that have been frozen. There's a good website called Grant Witness, which you can, you can kind of track this stuff. What's hurting them as well as just the uncertainty? You know, you could imagine if you're a college in the US, regardless of whether you're actually Harvard or Columbia, if you're just a college and you're seeing all this happen, you don't know whether your grant funding will actually come through. You know, will the administration come for you next? And so there's just a lot of uncertainty and that uncertainty is really actually the bigger killer than the actual reduction. And so what's basically happened right now is there's been an almost complete halt of college spending on new equipment. And so to the question of, you know, is this front loaded, is this kind of three years, because it's basically gone to close to zero since March, it should, this should be front loaded. I mean, it can't go lower than zero. So I think that ultimately, we are seeing some resolutions. I think Columbia settled and they've had their grant funding restored, brown the same. So any type of resolution, whether it's, you know, regardless of the size, any sort of resolution will reduce uncertainty. And I think you'll see some level of improvement from here. Now, I think that, you know, I would assume that there is going to be some significant reduction in scientific spending, regardless of the resolution. Okay. And there's House and Senate committees trying to fight that, but we just assume for now, you know, they end up at a 20% card or 30% cut. But right now, the spending is reflecting like 100% cut because they're just stopping all spending. And so I think you're going to obviously see that be a headwind in the second half of this year. That's in the guidance. You might see a little bit first half of next year, just because in Q1, you won't be lapping this uncertainty yet. But basically, from then onwards, you should see some recovery. Now, if spending goes from, you know, minus 100 to minus 50 or minus 30, that's actually quite a significant recovery. So instead of seeing the company grow at, let's say, seven to nine percent like they have done historically, you might see them grow at double digit rates from a from a lower level. You know, the other interesting thing is clean-ish balance sheet here. These guys, yes, it sucks in the short term, but you have to wonder, hey, is there a five million revenue business out there that's run by a mom and pop where all their orders just got canceled and, you know, they're calling up and saying, hey, we've got an inventory bill coming to like, we, you know, we, we had ordered for this. So you have to wonder on the other side, is there, is this a moment for these guys to go buy and make some really creative deals in a sector that's probably not super love for it now? Yeah. Let me talk valuation real quick. You mentioned at the front, 21, I'm just going to call it mid-20s free cash flow multiple here, right? Now, this is a business that historically, as you said, has grown mid to high single digits plus a creative acquisition. So 20s is probably a fair-ish multiple for a normal business and then you get above normal business like there's extremely limited capex. You get great tax, all the sort of stuff that you leverage on the thing. So a business like that could easily sustain a 40, 45 times multiple, I would say if you believe, if you believe everything that Chris presented, but I just want to push back a little bit, I mean, mid-20s multiple and saying, hey, you know, three years out, I'm going to slap a mid-20s multiple on this, assume the continued growth, assume the, continue to creative to get like an IRR that's in the 20s. Those are aggressive assumptions. So like, what, where do you get the, where do you get the confidence that? Because I would push back as, hey, if acquisitions are a little slower and growth comes down and all of a sudden you're looking at a 15 times free cash flow multiple that you get like the reverse divest double play, right? Multiple comes down, growth comes down, boom, everything's like you get a pretty negative IRR pretty quickly. Yeah, I mean, it's something I've thought about in terms of like you say, if you were just to look at the organic growth of the business, it's take away the acquisitions for a second. Yeah, you know, five to seven percent or seven to nine percent organic growth trading at 20, 25 times seems fairly priced. But I think, you know, this is a serial acquirer and so I would obviously very much look at what is the total amount of growth they can achieve and if they can invest 100% of earnings that, you know, 20% returns, that's 20% earnings growth. So, you know, what and how long a runway do they have to keep doing that? So if they can grow, you know, what should a business that can grow 20 at 20% or even just kind of teens for a long period of time trade at, I think when you look at it, that way, then, you know, 21 times valuation is very fair. And so in my valuation, I don't assume that the multiple goes up or I don't assume any significant multiple expansion. You know, you can sort of take your own view on that. If you think the multiple stays the same, then you earn whatever the earnings growth is. And if you, you know, if you think it comes down, then you have to take some of that off. I just think that if you look at other comps, there are a lot of serial acquirers like this that trade well into the mid-20s, sometimes even 30 times free cash flow. And so kind of regardless of my argument, you know, organic or inorganic, the reality is I think that the market does pay these types of multiples or higher. And so I think that if they can, you know, they've got a lot of short-term headwinds, which this going through right now. And at some point, I think they can get back to normal. And I think the market has shown it's willing to pay these types of multiples for a business like this. The only piece of it is a lot of the loose comps that trade for mid-20s to low-30s multiples. I think there are organic growth on the businesses that they buy is actually lower than what what judges have. So if it works, it should trade for, now maybe there's less, a little bit less, a positive growth. But if it works, it should probably trade for a higher multiple of those businesses would be myself as well. And these businesses are higher-quality businesses. There's significantly higher-quality, you know, depending on which serial acquireer you look at. But certainly compared to the more industrial ones, these are much higher-quality businesses. One last question, and then I'll turn it over to you for kind of final thoughts or anything, if I missed anything. But I can't claim credit for this scheme from someone on Twitter, but they tweeted out, "Hey, in January, the management team got an option grant that was based on achieving 5% per share EPS over, I believe it's the next three years." And their prior option grant, if you looked at the bottom of that press release, was 10% caterer over the next three years. Now, the company to their credit said, "Hey, there was a UK tax increase from 19 to 25%, so we don't think we should give 10% again." But people were saying, "Hey, you know, this is supposed to be a compounded business." We've talked about all the reasons, right? 5% revenue growth, great leverage, it was, is giving them EPS targets at 5% for three years? Like, it kind of seems either out of line with everything we've been saying or too generous. Well, it's a very astute observation, and it's one that I noticed as well, going through the compensation package. Frankly speaking, I think it should be higher than 5%. So, you know, I would very much support a higher number than 5%. I think if you look back through their history, yes, it was at 10% previously, but actually before that, it was at 5% as well. So, I suspect in their minds, they're just going back to what it always was. But, you know, yeah, frankly, frankly, I agree. It should be at a higher number. I would also say that I suspect part of the reason they want to be generous in giving management options is because, obviously, the founder has a lot of shares. The COO owns shares about 20 times his base salary, which is accrued through these option packages over the years, but they've got the newer members of management, and I think they want to get them in a position where the primary determinant of their comp is the share price performance. And so, I think, you know, in some ways, if there was no EPS target and they were just getting options, maybe we wouldn't have a complaint, but I think that's partly behind why they're being generous in that package. That's great. Actually, the last thing, I know I said the last thing, but one more, I do think it's worth quickly discussing the company pays out a dividend. And I think, you know, you and I are domestic-based. Despite Chris's accent, he's domestic-based. Most of my listeners, I'm sure, are domestic-based. And just when you think about cereal compounders, until a cereal-acquisitive compounders, until they're in the very, very late stages of their cycle, you tend not to see them pay a dividend. And I mentioned the domestic because I think in London, the culture is a little bit different on dividend payments, but they've clearly thought about it. They've got a question. They addressed it in the Q4 call. I just want to talk to you quickly, the dividend policy here. Do you think it makes sense? Are you willing to just kind of give it a pass? How do you think about all that? Yeah, I mean, the punch line is, I think they should not be paying a dividend. I think if you can generate 20% returns on capital with investments, you know, paying out at your cost of capital minus income tax is not the best use of cash. So, you know, ultimately, I would prefer that they just reinvested everything. I think that some of the points you made, you know, there is, you know, unfortunately or fortunately, a very different culture in the UK around a lot of income funds and a lot of investors, their shareholders see that as important. And I think for the founder as well, he has quite a low base salary. And so his dividend payment is actually where most of his income comes from. And I think for some of the other members of management is pretty meaningful as well. And so I think that's the idea behind it, but yes, I would prefer they just invested in acquisitions. Do you know what the biggest red flag I saw in judges was the whole time I was researching it? At the end of the Q4 call when they were asked about the dividend, he said, I've been to Berkshire several times, I've read more and I know they don't pay dividends. And my history of serial confounders when they reference, when they reference the goats, my history is that it's not it's and for me. That is, it's definitely, you know, I've seen a number of companies which, you know, whenever, whenever your selling point is something someone else has done, that's usually not a great selling point. But in this case, they have obviously have the 20 year record. My favorite was, I can't remember if it was a public deal or if it was one that I got shown kind of privately that got pulled at camera, but it was a deal to buy a crypto, right? It was going to basically turn it into a digital asset treasury company. And the headline quote was like a Charlie Munger quote. I was like, Charlie Munger was the most anti crypto person in the entire world. He would be rolling over in his grave if you knew that you were using this launch and digital asset treasury company. So, well, Chris, credit to mainly you because most of my research was reading your report, reading your follow ups and all that sort of stuff. But I think we've done a really nice job explaining judges scientific, talking through all the bookcase, spare case, everything. But I just want to pause here. Is there anything else that you think we should have hit or that listener should be thinking about that we kind of maybe glossed over? But probably just the only thing we touched on it a bit, but probably it's worth fleshing out what actually happens to these companies after the acquisition. Because they are judges is very, very hands-off. But to the point where they actually, they don't integrate IT systems, they're really very hands-off. In fact, some of the founders told me that basically they wouldn't have really noticed, they haven't noticed a difference in terms of their actual business, you know, pre and post acquisition. So it's very hands-off. But there are a few things that they do. So one is just reporting. A lot of these are very small businesses. They don't have great reporting and KPIs and so on. And so judges does demand that every month. And that tends to have an impact on the business once they're more focused on these financial metrics. The second thing is just around succession. So a lot of these founders, they're either retiring immediately or usually after a couple years. Judges are very, very good at managing that transition, which is actually quite important because if you think of small businesses, you know, quite often when a small business loses its founder, that's a lot of the value leaving. And so the fact these businesses have continued to grow at 9% organically. It looks like nothing's changed. But actually, if you look at the counterfactual, if it had not been acquired, it probably doesn't grow anywhere near that. So that's the second thing. And just the last one is in terms of guidance so that they don't push anything onto these businesses. But they do try and, you know, hold them effectively on a couple areas. So one would be pricing. A lot of these companies have very strong pricing power and haven't used it. And the other thing is just on R&D, making sure that's focused on projects of a commercial outcome, you know, not a science project. So those are probably the two things I would highlight that they encourage as well. You know, most of my time this year has been spent on net cash biotech after they bust down phase three. And I will tell you, I would love to have control of these and make sure that all the R&D spend at these companies was going towards commercial prospects and not towards, hey, we've got cash and we've got, we've got to think we've got to do R&D. It's like, well, if it's a way to shorten the average person's with a common goal, to take it from seven days to six days, 23 hours and 58 minutes, that's maybe not something we should be investing money in, because there's not a lot of commercial potential there because guys like a $100 million face three doesn't really make sense for that. That's just my rant. And I don't even know what it is. It's obviously it's a business, you know, and yeah, Shaji is a good because they have great technical expertise, but they have very business folk, very returns focused. And so that they're able to kind of get the best of those. It's the wonderful thing about having, you know, hopefully a shareholder focused control shareholder who's overseeing these businesses school. Well, okay, if that's it, Chris, I mean, again, we love having you on the podcast that I, the great thing about hidden gems, it's only a couple of emails a month and they're all very well focused, deeply thought outside. So I love reading it. I'm sorry, you can't make dinner next week, but it had fun and looking forward to sketching up soon. Great. Thank you for having me and thanks everyone for listening. A quick disclaimer, nothing on this podcast should be considered investment advice. Guests or the hosts may have positions in any of the stocks mentioned during this podcast. Please do your own work and consult a financial advisor. Thanks.