Yep, and companies rarely advertise this voluntarily 
Usually, they vie to boast about how only that good organic development has driven ROIC or ROCE to even higher levels Only one company comes to mind that openly talks about this. It’s the serial acquirer Judges Scientific, which reports a ROTIC figure, or return on total invested capital The company adds these amortizations back so that the invested capital better reflects what was actually paid for the companies. From the company’s annual report:
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Thanks, that ROTIC is very excellent and interesting. I’ve been thinking about something similar, but of course, someone has already launched an official term for it.
In the case of Constellation, I’ve seen massive calculation exercises in blogs, where they’ve tried to figure out the “real” return on invested capital, for example by looking at the total cumulative cash flow spent on investments as a proxy for invested capital. You can ponder these endlessly, and it’s a useful way to spend time.
Going even deeper, the development of a company’s value is driven by RONIC: Return on new invested capital, i.e., the return on newly invested capital.
RONIC indicates how the new investments made by the company perform. A company’s growth in itself only creates value if the return on reinvested capital is higher than the required rate of return. If the company is unable to do this in the long run, in other words, if the company does not have attractive investment opportunities, it should return capital to shareholders or pay down potential debts.
RONIC is calculated as the ratio of the change in operating profit NOPATT+1 - NOPATT+0 to the change in invested capital ICT+1 - ICT+0. In practice, this gives the investor an answer to how much new capital the company has had to invest in its business to achieve operating profit growth.
If we again assume that, on average, a serial acquirer pays 8x EV/EBITA for companies (Röko has paid less than that on average, note), taxes are paid on the profit (~20%) which roughly converts that to EV/NOPAT 10x; organic growth is 2% but “free” (because the return on capital for the businesses is something like 150-200%), then RONIC is 12%.
12% safely exceeds the required rate of return on capital, which hovers in the 8-10% range. Let’s say ten; it’s a nice number to round to.
Again, key points include:
-Quality of growth: unsuccessful acquisitions penalize RONIC
-Operations of acquired companies: if they falter, there is less cash flow to invest and growth slows down
-Capital lightness of acquired companies. Again, growth slows down if a larger portion of the cash flow goes into maintenance investments
-Discipline of growth: prices higher than EV/EBITA 8x are not paid for targets except in exceptional cases (a very fast and reliably growing target).
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Röko’s Q1 numbers are out.
Stockholm, April 21, 2026
- Adj. EBITA increased 5% to MSEK 415 (395) in the quarter driven by acquisitions and organic growth, but with negative exchange rate differences
- Adj. EBITA margin declined to 22% (23%) with recent acquisitions having a negative margin impact in the first quarter
- Net debt / LTM Adj. EBITDA increased to 2.4x (1.9x) at the end of the quarter, driven by recent acquisitions consolidated towards the end of the quarter
- Three acquisitions with combined annual sales of MSEK 552 were completed in the quarter
Currency headwinds, these will fluctuate back and forth in the long run.
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An extremely boring-looking earnings report. Rökö has been making waves among my investment circles, but it still hasn’t clicked what attracts people to own this extremely mediocre company? I mean, something other than the obvious Verneri phenomenon.
Whenever you ask about this, intensive ROIC-coping begins, where they try to prove the investment is secretly damn good with some complex variation of return on invested capital calculation, as long as you feed the numbers into Excel in just the right way 
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I took a look at the transcript of the audiocast, which now appears immediately on Inderes’ service since Röko is our audiocast client. This time, my colleague Sabina acted as the moderator.
Organic growth was indeed very strong, even though it’s hard for Johan to comment on exactly what all 33 companies have been doing. But apparently, Röko teaches the heads of the companies to implement continuous price increases.
I think in general, it’s a bit difficult to comment too much on volume versus price across the group because there’s the diversification among the subsidiaries. But we can mention that we believe that the work we have done through the last couple of years of continuing to educate our local management teams on the importance of continuous price increases means that some of them at least have benefited and captured the opportunity that exists in the current market by raising prices.
The impact of tariffs is still visible, and the US share of revenue (exports) dropped to 5% from last year’s 7% level. Apparently, the M&A market has picked up and there are plenty of good targets for sale. Röko has little debt and abundant cash flow. ROCE is dipping because the results of the acquired companies don’t show up in the accounting records yet, but the balance sheets roll in immediately.
The whole set is 12 minutes long.
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Is that a little or a lot of debt if net debt/bullshit earnings is 2.4x? 
On a more serious note: Did management explain in the webcast which industries/companies are driving the strongest organic growth?
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EBITA is maybe batshit or something compared to EBITDA, because EBITA reflects cash flow before taxes well.
Most of the debt is that put/call arrangement, which is on paper. “Real” debt is less than a billion kronor.
(Note: that put debt still needs to be taken into account, because if you only look at market cap and earnings, you get a too generous picture of the company’s valuation since 100% of the subsidiaries’ results are included in the earnings! In reality, there are always minorities who are entitled to a portion of the results.)
No, as I quoted above. But Röko buys companies with pricing power (based on their high margins and capital-lightness) and clearly the company also instills a Swedish culture of bold pricing in them.
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The best part of the Inderes forum is when Eka comes to challenge your investment thesis in the thread of a company you own, thanks! I can’t say why others own it, but I can tell you why I do. It’s impossible to summarize this in a single post, but let’s start with the basics:
The starting point of the investment thesis is that there are just over 20 million small and medium-sized enterprises (SMEs) in Europe. A significant portion of these companies are privately owned by entrepreneurs and families, meaning they aren’t part of any mega-corporation yet. A large number of these companies were founded by older generations, so many will face retirement in the coming years and decades. For almost all of these companies, a successor cannot be found among heirs or family, for numerous different reasons. Because of this, approx. 15,000 SMEs are sold in Europe annually.
Röko is a “forever owner” of such SMEs. It buys them and, in principle, owns them forever and reinvests the money to buy more. This creates that compounding machine in Excel. The company basically has endless opportunities to reinvest cash flows in the coming decades. It’s obviously easy to grow through acquisitions, and anyone can buy whatever companies to grow if they have endless money.
This brings us to ROIC. I think this part is extremely simple; you don’t even need Excel, mental math is enough Röko’s business is ultimately capital allocation, effectively stock picking in private firms. If you pay fair value (required return is high because it’s private and small) for a good SME that is:
- Historically very profitable
- Reasonably defensive
- Possesses pricing power
- Needs very little maintenance investment (capex)
…then such companies constantly produce good cash flow that can be reinvested. These companies wouldn’t be remarkable investments on their own, but with masterful reinvestment of cash flows, magic starts to happen if you can do it for decades. In many investment cases, the problem is exactly that reinvesting cash flows is impossible to predict, or the company simply has nothing to invest in with a good return. In serial acquirers and investment companies, this reinvestment problem is inherently solved.
Röko targets approx. 15% growth, the prerequisites of which have been calculated several times in the thread. My thesis is that Röko can maintain this pace for a truly long time—a decade or two.
Röko’s acquisition criteria:
Maybe it can be summarized as: if successful, Röko will become a kind of mini-Berkshire, but with European SMEs and without the insurance float So, it’s pretty useless to expect +20% turbocharged annual returns, but purely by reinvesting cash flows, there are reasonable chances for, say, 15% annual returns on paper.
That’s still a multi-bagger over decades. So this is an investment that requires time and patience
A topic for a completely different post is what all this described above requires from both the capital-allocating headquarters and the cash-flow-generating subsidiaries. In practice, Röko is a lean 8-person headquarters and a group of dozens of entrepreneurs with their employees in very diverse industries. Running such an entity efficiently and with the right incentives is no easy feat.
Also fishing in the same waters are a whole bunch of other serial acquirers, PE clowns (private equity), and industrial/strategic buyers. Röko’s angle here is the forever ownership and decentralized operating model, where acquired companies are run entrepreneurially even after the transaction, with minority ownership keeping incentives in check Overall, very similar logic for value creation as Berkshire’s unlisted investments, just without the insurance companies. This, of course, requires masters at allocating capital, which I believe Röko has.
I’ll add that in an investment case like this, there are no rocket-ship drivers; instead, this is damn boring basic work, entrepreneurship, and capital allocation Things happen slowly, one acquisition at a time, and you have to look at the case with a very long-term view. This is like watching a tree grow in the yard. Nothing really happens in a year, but in a decade or two, a lot. There are no exciting pharmaceutical companies here waiting for a breakthrough to ten-bag in a moment
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Speaking of mini-Berkshires. Fairfax is trading below P/E 10, its market cap is in the same ballpark as Berkshire was in the early 90s (adjusting for inflation), it is aggressively buying back its own shares, and has delivered over 20% ROE for the last 5 years. Röko is already priced close to its full potential, while Fairfax has plenty of room for multiple expansion. So, a bit of a “buff” at this point. Some Röko investors might be interested if Berkshire-like companies are close to your heart.
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The financial markets have long recognized the potential of unlisted companies, and investors focused on these assets are called private equity investors. There’s an unimaginable number of these debt-leveraging, value or quality investing PE funds just in the European markets. In Europe, private equity investors also have a genetic peculiarity of being quite security-oriented, so Röko’s market is a true (blood)red ocean where you have to work tirelessly to achieve even mediocre returns.
Normally, in private equity, a fund’s life cycle is a maximum of ten years, which is enough time to improve the management model and business quality of acquired companies and maximize the buyer’s impact and thus return, also aligning well with the investment horizon of an investor investing in these assets.
At Röko, the goal is to own forever, which admittedly can be beneficial if you identify as a pension fund and your investment horizon is also eternal. Is it? I argue that a typical Röko investor does not benefit from such an ownership philosophy in any way, and I’ll add that few investors even have personal experience of what, for example, a significantly shorter 10-year stock ownership means and what kind of drastic ups and downs can occur during such a period for a single holding.
Investors usually get into funds and stocks as ‘long-term owners’ until those two or three bad years in a row come along (when one should, of course, increase ownership), after which trust in management is lost, and money is pulled out. This is how investors have always acted and always will act. Unlike in PE funds, Röko’s continuous stock liquidity is a huge minus because it unfortunately enables poor timing and thus the destruction of one’s own investment returns.
Liquidity also brings other problems for the investor. While in a conventional PE fund, only the acquirers need to be scrutinized carefully, Röko has taken a leap in difficulty because that alone is not enough. Mr. Market also steps into the boxing ring, who relatively efficiently assesses the correct stock price based on the team’s past performance and the companies’ future prospects. Furthermore, the more attractive the business model and story Röko has, the more you have to pay for them in the stock price. Of course, with decades of ownership, the impact of the purchase price is effectively neutralized, but that does not save ‘fair-weather Buffets’ investing in the shorter term.
So, in my opinion, those investing in this should just switch directly to a private equity fund if they want similar exposure to that market and asset class, thus avoiding those pitfalls and freeing up time spent monitoring stocks for other projects. The fee structure in those is often perceived as salty, but Röko’s founder also has a history of compensation disputes, and therefore, they will certainly ensure in the same way that too much benefit from the created added value does not flow into the wrong pockets of small investors.
I see the greatest benefit of Röko and other similar companies in the sector for jaded stock pickers who no longer have the energy to spend hours sifting through stocks and making difficult choices and therefore want to outsource that company digging to another person and become passive to enjoy the appreciation of a long-term, thoughtful owner with a well-diversified portfolio. In their own mind, they can then convince themselves that the person staring back from the mirror in the morning is a ‘stock picker’ and not a ‘fund investor’.
Now that I have written about Röko in this tone, the reader has probably formed an incorrect impression that I consider this a bad investment. Indeed, Röko easily beats a typical Finnish investor’s dividend-muddler investment due to its serial aggregator logic and target market, but at the same time, as an investment idea, it is irritatingly aggressively mediocre.
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I think Röko (or other “perpetual” owners) has certain advantages at the negotiating table with SMEs. While PE guys in their puffer vests or suits would be coming to the family business office after the transaction to straighten out EBITDAs and give advice, Röko instead gives entrepreneurs full autonomy to work.
With this approach, Röko specifically looks for SMEs where the entrepreneur-owner and/or other key personnel would stay on to run the business with an entrepreneurial spirit (as minority owners). This approach can be very attractive to a seller in certain deal situations, but not all.
For example, if a family business had a successor in the next generation or among key personnel, but they didn’t have the personal risk tolerance to buy 100% at once, Röko could be an attractive option. In this case, the next generation/key personnel can stay and run the company as minority owners with entrepreneurial freedom, while Röko carries the risks of the majority owner. The seller can trust that the company will preserve its brand, culture, and employees in the eternal home provided by Röko. Meanwhile, in PE, an aggressive five-year plan would be hammered out to cover those outrageous costs and generate returns on top.
This is a bit of “soft” stuff, but for some SMEs and entrepreneurs, these can be very personal and important matters. An entrepreneur may know all their employees very well—they might even be family members or relatives—and would primarily want to preserve their jobs under a new owner. Röko can also be an option for an entrepreneur to diversify their ownership well before retirement age to provide security for their family. They sell the majority to Röko and then run the business as a minority owner, just like before. There were some fun highlights on this slide, where an entrepreneur who recently sold their company to Röko was interviewed in a magazine:
I agree regarding the position of a Röko investor. It requires guts and a truly long-term investment strategy, for which every investor is, of course, responsible to themselves. For a completely rational Röko investor, continuous liquidity is just an opportunity to buy more as the expected return improves, even if the sellers are those small-cap funds with their paper-handed owners. As you said, Mr. Market has factored in the value creation potential of such a business quite efficiently, so the opportunities brought by volatility and a long holding period must be utilized to achieve good returns.
In my opinion, Röko’s remuneration and incentives are generally in a completely different ballpark considering the position of a retail investor compared to PE. In practice, the Röko team only has fixed salaries, and everyone has significant share ownership.
You still have to do a bit of stock picking among serial acquirers, as there are plenty of them listed nowadays, often with a very similar-looking narrative That mediocrity and seediness, at least in terms of returns, might be left behind over time But yeah, you won’t get the next fast multi-bagger out of this no matter how hard you try, unless Mr. Market goes crazy again—so this is boring!
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The most important thing is that in the morning, a ‘money man’ stares back from the mirror, not a broke ‘stock picker’. The operating logic of private equity funds differs significantly from ‘decentralized serial acquirers’ where decision-making largely remains with the operating companies; also, the fee structure is typically much more favorable for serial acquirers. The incentives of the main owners, at least in Röko’s case, are largely aligned with those of the retail investor.
Serial acquirers have most often outperformed the returns of private equity funds. The main reasons are likely:
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Lower costs
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No need to sell; good targets churn out excellent cash flow for longer
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Serial acquirers usually buy smaller, private companies at significantly lower multiples than those for which large PE funds compete.
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