13 Acquisitions and Why Permanent Capital Beats Private Equity | Chris Rolls of PieLab Capital

Chris Rolls on why permanent capital beats private equity

PieLAB Capital is an Australian permanent holding company that buys compliance and services businesses outright and never has to sell. Chris Rolls built and sold four companies, spent two years inside private equity, then set up a structure with a ten-year horizon and a possible eventual listing, because his closed-end first fund forced him to sell businesses he wanted to keep. The bet rests on private companies being cheaper than listed ones and on regulated, recurring work.

Takeaways

• Permanent capital beats a closed-end fund. PieLAB's first fund mixed Series B growth technology with small private equity and is nearly exited at roughly a 25 percent IRR, tax exempt for Australian investors. Its fixed life forced sales of good businesses, so Chris rebuilt PieLAB as a serial acquirer.
• Compliance is PieLAB's core hunting ground. Five or six of the nine portfolio companies sit in compliance, where regulation forces recurring work. Australia requires smoke alarms checked once or twice a year, so PieLAB rang every provider before buying Detector Inspector, the country's largest.
• Private businesses are cheaper than public ones. The number of US listed companies has roughly halved over twenty or thirty years. Private businesses are more numerous, can be diligenced in ways that would be insider trading for a public company, and public buyers pay a liquidity premium.
• Pricing is the most controllable value lever. PieLAB bought a Queensland strata management business at about seven times EBITDA from the estate of an elderly owner. Prices had not moved in roughly eleven years, and lifting them to market cut the effective multiple to about five times.
• Costs and AI release cash quietly. Shelley, PieLAB's head of innovation, automated invoice reconciliation to save one person six to eight hours a week. PieLAB pulled $400,000 of working capital from a $5m business in its first year by improving supplier terms and collecting cash sooner.
• Bolt-on culture risk is underestimated. PieLAB has done two strata management bolt-ons, and three or four add-ons in total. Chris says bolt-ons carry more cultural risk than buyers assume, and that a fresh portfolio company usually returns more on capital.

Chris Rolls's route into private equity

1. Built and sold four businesses, the last being Rental Express, a property management company.
2. Took twenty or thirty meetings with Australian private equity firms while looking for a way into investing.
3. Proposed fixing two struggling businesses over eighteen months to two years in exchange for being taught the industry, calling it his middle-aged work experience.