We’ve looked at a number of great conglomerate-type businesses in this newsletter. From your classic conglomerates, Berkshire Hathaway, to newer names like Alphabet, we have really run the gamut of businesses that grow by acquiring other businesses.

Taken to the extreme, one of our newest portfolio additions is LIFCO. It’s a business that grows a little bit from organic growth, but primarily from acquiring other businesses. So I’m not new to businesses that have this “serial acquirer” DNA. As a matter of fact, it’s one of my favourite business models.

And the reason is clear: if you buy businesses that can continuously generate cash flow for many years, the parent company gets more and more cash to deploy on more and more new acquisitions. Today, we’re going to look at a business that is very early in its journey but has one of the best capital allocators in recent memory helping it acquire new businesses to add to its already strong portfolio: Perimeter Solutions (PRM).

So is PRM a future 10-bagger or an overvalued flash-in-the-pan?

I was actually in a fire when I was a kid. It wasn’t a forest fire, though; it was a man-made fire by a neighbor who fell asleep, somehow knocked over a candle, then woke up when the fire was out of control. My room was destroyed, and you could see fire coming right out of my window. I remember walking out of our home with the fire alarm blaring, and feeling the heat from the fire that had started below, right below our apartment.

Being in British Columbia, I’m fully accustomed to wildfires in my province, though I’m fortunate enough to have never been evacuated. But as the summers get hotter and hotter, we seem to get more forest fires. And the smoke from these fires affects large surrounding areas, drifting all the way down to Shawn in Virginia!

As a result, Vancouver’s air quality has deteriorated significantly, despite the fires being several hours away by car.

Enter PRM. A business historically focused on Fire Safety, manufacturing and servicing the fire retardant that is loaded into planes, helicopters, and trucks, and dropped on wildfires to slow or extinguish them.

It seems like an odd combination on paper, though, which is true of many conglomerates. But the more I dug into this business, the more I began to understand why they built the business this way. And most importantly, the more I understood why certain parts of the business, primarily the Fire Safety segment, are incredible monopolies for investors to own. It’s worth adding that this is a company that has generated a ton of shareholder value, compounding its share price at 25% since inception.

One of the biggest bonuses of the thesis is that you get one of the greatest capital allocators in recent history’s full attention on Perimeter Solutions. The man is Nicholas Howley, and here is what he did with Transdigm (see below), another business we’ve looked at in this newsletter and on the podcast. That business has compounded at 21% annually since 2006, not including dividends (which have been substantial).

The best part is Howley is only the start of the excellent management team. He’s joined by William Thorndike, yes, that William Thorndike, who wrote The Outsiders. He is also a good investor with a net worth in the hundreds of millions of dollars, and the bulk of that invested into PRM. Then you have Tracy Britt Cool, who spent 11 years as an executive and worked directly under Buffett. She now runs her own fund.

These are the major players involved in finding and executing investments, and so far they’ve done an exceptional job. Other than compounding the share price at 25%, they’ve managed to compound revenue at 42% over the same period.

PRM has a simple three-step strategy, all built to generate private-equity-like returns in a public vehicle. They define PE-like returns as exceeding 15% annually.

The first part of the strategy involves the types of businesses they’re looking for. “Exceptional” is a fitting word to use here, because the margins on some of these businesses are north of 30%, all while boasting other characteristics that business owners drool over. Such as having a mission-critical product despite comprising a negligible percentage of their customers’ revenue, with market-leader positioning.

The second part involves value creation. All acquisitions must already be profitable. Perimeter can then pull on certain levers to increase top-line growth and margins by utilizing value-based pricing, increasing productivity efficiency, and cutting unnecessary costs. A smaller lever, but one that they’ve utilized, is bolt-on acquisitions.

Third, PRM takes a decentralized managerial approach, tending to be hands-off once it acquires a business. Since they want to stay lean and not grow their HQ team, they place a lot of responsibility onto their subsidiaries, allowing them to run their business without the bureaucracy of a centralized system. Accordingly, Perimeter sets up an incentive tied to Adjusted EBITDA to align management with shareholders, along with having 13% insider ownership.

Let’s start the story of PRM with the Fire Safety segment, as this was the major cash flow generator for much of Perimeter’s existence. Starting wth fire retardant, you might be thinking, can’t pretty much anybody make fire retardant and sell it to the government?

And the answer to that is embedded into a boring acronym. QPL, or the Qualified Products List, which the US Department of Agriculture (USDA) maintains. If you want to sell fire retardant to governmental agencies in the US, you can’t just show up with a tanker full of red goo. You need to pass rigorous testing, certification, and approval processes. A process that takes years and costs money. All with no guarantee you’ll even make the list.

PRM has been entrenched in this bureaucracy for decades and holds large contracts with the US Defense Logistics Agency, as well as the California Department of Forestry. But the fire retardant part is only part of the solution. To get the fire retardant where it needs to be, preferably as quickly as possible, you also need a proper distribution network. PRM has 60 full-service air bases in North America.

Meaning that, when a fire breaks out anywhere in California, the retardant must be stored in a tank near an airstrip. And you have to be able to load it up quickly. You can’t wait around for your retardant to arrive from thousands of miles away. Fires don’t wait.

So, even if a competitor were to make it onto the qualified products list, they’d also need to replicate PRM’s pre-positioned supply chain, which took years to build out. And since PRM’s customers are largely government agencies, they have little incentive to move away from what they already know works well. And when it comes to battling fires, the stakes of switching are about as high as possible, with lives on the line.

When I first started analyzing Perimeter Solutions, I respected its strong moat around fire-retardant products, but there was an air of cyclicality that bothered me. If Perimeter makes most of its money thanks to higher-margin profits during fire season, what happens when the fire season is slow?

And the fact is, there isn’t a great answer to that. But PRM has improved the Fire Safety segment by moving towards a recurring revenue business model. That only works to a certain degree, because at the end of the day, you’re still talking about selling a physical product, which you can think of as a consumable. Except in PRM’s case, that isn’t consumed at a predictable cadence.

To give you a better understanding of how this plays out, just look at the adjusted EBITDA margins that the Fire Safety segment has produced:

This segment’s margins and cash flow are, evidently, volatile. But if you zoom out, the margin profile is improving given that the volatility is due to seasonality and a fixed-cost base.

The North American fire season runs from April to September, so the bulk of sales land in Q2 and Q3 for the segment. Fixed costs include maintaining the air tanker logistics network, storage/mixing/loading of equipment, and base management staff. So when less retardant is used, you can see how margins suffer.

The good news?

PRM is increasingly transferring these fixed costs to its customers with forms of recurring revenue, helping to keep the fire safety segment flush with cash and preventing large quarterly declines in margins.

The second half of PRM comprises its Specialty Products side. This part of the business was much smaller relative to the overall business for much of PRM’s history, but as of the latest quarter, it now accounts for nearly 64% of PRM’s consolidated revenue.

IMS has been an interesting acquisition. Its purchase price was pretty small at about $33 million. A sensible price somewhere in the high single digits of EBITDA. It was followed by two smaller tuck-ins of $10 million and $12 million. Perimeter doesn’t disclose the performance of individual segments, but it appears that this investment, while small, has been successful and was a precursor to another business that, one could argue, has been transformative.

At the end of 2025, PRM closed its largest deal since the Perimeter Solutions Fire Safety Business, in Medical Manufacturing Technologies (MMT). MMT provides support and services to medical device manufacturers — think of things like stents or catheter tubes, consumables that are incredibly mission-critical. MMT helps automate the processes involved with manufacturing these devices on behalf of the manufacturer. Since their technology is proprietary, they provide maintenance and regular service (see a theme here?) that keep customers locked in.

The MMT deal helped to further diversify PRM’s revenue away from its very good, but volatile Fire Safety segment. MMT was the biggest reason the Specialty Products segment has grown to account for the majority of PRM’s revenue.

PRM paid $700 million in cash for MMT. And when you are talking about a business that has a market cap of $5.5 billion, you see just how big of an acquisition it was. Management originally thought MMT would add $140 million in revenue and $50 million in adjusted EBITDA. But after owning it for half a year, they realized the business was probably even better than they thought, and believe they will easily surpass these numbers.

When I think of the two largest parts of PRM in the Fire Safety segment and MMT, I see two wonderful businesses that I would have no problem owning for the long haul. These are businesses that will remain in demand for a long time, with little risk of their products becoming obsolete. So what’s my hesitation in going all in with the business?

The founder’s advisory fee. This is how the founders responsible for M&A are compensated for their hard work. And so far, I don’t think investors are particularly upset about paying it, given the excellent gains the company has delivered. Nonetheless, if you are thinking of owning this business, you absolutely have to understand this part of the thesis. By owning PRM shares, you are essentially paying mutual fund-like fees for the right to do so. Actually, the fees are more like a hedge fund than a mutual fund, with a 1.5% management fee on AUM and an 18% performance fee.

PRM pays both fees in cash and common stock. On the one hand, I think it’s great that at least 50% of these fees are paid in stock because it forces the recipients of the fee to increase their ownership in the business, which was probably the original idea to help create alignment.

On the other hand, it dilutes shareholders. As long as the founders are getting paid in shares, the share count will rise, diluting everyone’s ownership stake. The good news is the fixed fee expires at the end of 2027, and the variable fee expires at the end of 2031. So after that, dilution risk reduces considerably.

The other problem with this fee is how much it obfuscates the income statement. In FY 2025, it added $453m in operating expenses; in 2024, it was $198m. So it makes their GAAP net income numbers pretty ugly, even though this is technically a non-cash expense. At least they don’t have to pay income taxes yet!

Whenever I look at any company, but especially serial acquirers, you have to take into account how they’re funded. Believe it or not, I think any serial acquirer with a good system should utilize debt as part of their business model. While you might think I’m being heretical in saying this, I have my reasoning! Serial acquirers often have more ideas than they have internally generated cash flow. If they can generate a return above their cost of capital, then using a little leverage is a great way to grow.

But you have to have everything in moderation, and leverage is no exception. I like businesses to have net debt between 2x and 3x EBITDA. Perimeter Solutions has been generating a decent amount of cash over the last 2 years. But with long-term debt of $1.2 billion, I’d really like to see cash from operations (CFO) exceed $400m. When MMT is fully consolidated by Q1 2027, I won’t be surprised if CFO gets to ~$300m, putting them at about 4x leverage. It’s still higher than I prefer, though.

We know now that PRM has some very nice assets in its portfolio, but one thing I haven’t discussed much today is why some of these assets have such strong barriers to entry. And that’s because regulation protects fire retardants and phosphorus pentasulfide.

The problem with regulation is that the barriers to entry can also be extremely punishing if your products no longer meet specifications. For instance, one of PRM’s competitors, Fortress, had one of its products removed from the QPL, further strengthening PRM’s position. However, if testing of PRM’s products revealed issues related to corrosion or health, regulators could scrutinize the products closely. And removing it would catastrophically hinder their ability to generate revenue.

For phosphorus pentasulfide, the product is so volatile that transporting it is incredibly dangerous. So it’s another heavily regulated product, which is why it faces very little competition.

Yet, the gravest risk lies simply in PRM being a new business, still finding the niches where it works best. While Howley obviously understands aircraft parts from his days at Transdigm, PRM is entering totally different niches. And thus, untimely bets in new fields could prove hugely costly. Such is life, though, for inquisitive acquirers.