#95 | Interview w/ Teqnion CXO Daniel Zhang | Inside the Serial Acquirer Playbook

What does it actually look like to run a highly decentralized, fast-growing group of niche businesses?

In this episode, we sat down with Daniel Zhang, the CXO of Swedish serial acquirer Teqnion. Moving past the typical, surface-level investor questions, this conversation dives straight into the gritty realities of capital allocation, operational mistakes, and the heavy weight of managing public market expectations.

Daniel pulls back the curtain on how Teqnion thinks and operates.

Transcript

SPEAKER_00 0:03

If you've been following the podcast for a while, you know we love serial acquirers. Some of the best serial acquirers in the world by boring, unglamorous, niche businesses that just print cash day after day. That is the exact playbook of Swedish serial acquirer Technion. What makes Technion so fascinating is its incredibly unique culture, largely driven by its unique, eccentric co-founder, Johann Steen. It's a culture compelling that it actually caught the eye of Christopher Mayer, the author of 100 Baggers, who now owns close to 5% of the company. Today we are sitting down with the man who actually runs their deal engine. Daniel Zhang is the deputy CEO, the author of an investment thinking toolbox, and the guy tasked with finding these hidden companies. We're going to pull back the curtain on how their model really works, how they handle major mistakes, and what real, true skin in the game looks like when your own stock takes a real hit. Enjoy today's conversation with deputy CEO of Technion, Daniel Zhang. You've actually met the three co-founders of the Dutch investors before. Thank you very much.

SPEAKER_01 1:56

Very nice to meet you and finally able to meet the fourth and maybe the most important team member. I don't know.

SPEAKER_00 2:04

We'll see. So we'll see where the where it takes us. But um before we jump in, I think it would be good just uh sort of set the stage. Uh many of our listeners probably know you and Technion. Uh but for those that are new and maybe don't know uh about Technion or about you, what sort of company is Technion and what is your main job as a CXO?

SPEAKER_01 2:32

Yeah, so Technion is what uh investors nowadays like to call a serial acquirer. Uh, to be very honest, I'm not sure if I love that name, but it describes very much what we are doing. Uh, we basically have two engines for value creation. One is to acquire niche high-quality companies, and the other engine would be to develop them and make them better. Uh, so I guess thereby the name serial acquirer. Um, the way I think about it is, of course, not very far from there, but the way I think about it is that we have a company, we have a vehicle where we try to create the highest possible uh value for the long-term shareholders, and that is absolutely true to those two engines. But we also don't think that we're you know only part of a box. We try to use the tools that are available, and some of those tools might not be the typical CR required tool, but I'm sure we're getting more into that later on. Uh, so that is basically Technion in a nutshell. We have around 40 different companies uh split up on Technon North, which is Sweden, and also Finland since uh this week. Uh we have around 15 companies in Technon West, which is at the moment only UK. We don't really think much about revenue because of course it's it's about profit and it's about return and cash flow. Uh we're making maybe 15% at the moment, which is uh not good enough. Um and we have around 700 employees. So that's technon, maybe a little bit long as an elevator pitch, but uh a tall building.

SPEAKER_00 4:11

I don't think you should do it much shorter, it doesn't do technon any justice always. Yeah, I think serial acquires is uh is a is a phrase made for investors mostly, right? Just to explain uh what sort of business model a company has. But the way I think about it, if you find the right quote, serial acquires, it's basically like an umbrella where you fit all kinds of different companies and they help each other, uh, they they are independent, they um and you're basically just uh the the the governing body. Is that you're like almost like a little family uh together with different businesses? Is that a better way to think about it?

SPEAKER_01 4:51

Yeah, I think so. Uh it is. I mean, I try to think of myself usually if everything is working well, and now we have an organization that is very strong compared to before, uh, which means that I'm going back more and more to what I should be spending my time on, uh, which is acquisitions and business development. And I maybe it's a little bit stupid, but I try to think of myself as a curator almost. I try to find the best companies within this size, uh, and then I try to pick the ones that we believe have good potential going forward and that I believe have low risk and that would fit with our culture and have low correlated risk with the rest of them. And hopefully, uh the word synergy is not loved within the space of serial acquires, but if there are ways to collaborate and extract synergies that you know without destroying the uh autonomy of the companies, you know, we're all for that. So that is very much how I think about it. And as you say, a family of quite different and quite usual, very d very strange companies because it's usually not businesses that you think about on an everyday basis, but they are very important in society, being mission critical in certain processes is really what we're looking for.

SPEAKER_00 6:14

Yeah, very small, unique niches, right? But uh talking about your your your job as someone who finds unique, high-quality um potential businesses to to add to Technion. How how do you find them? Uh many of them are private, many of them are tiny. Yeah. How do you how do you find these businesses?

SPEAKER_01 6:35

It has changed a lot over time, actually. So when I started at Technion um five, six years ago, uh we were focusing only on Sweden. Uh the Swedish market is very different. Um I would say maybe the Scandinavian market is very different because the transparency is very high. Even for very small companies, you would have annual uh reports that you can find, they're publicly available for everyone to look at, and most of the the numbers are correct. Um, you can trust them almost. Uh at least it's ballpark correct. So in Sweden I just looked through a lot of them uh and basically just picked up the phone and called as many as I could. Uh then over time we went to the UK and learned that things were very different. First of all, if companies are small enough, they don't need to release you know full accounts, so you have no idea what is happening. Um, and even if there are accounts, usually the numbers are not really presented as the real numbers because you're able to do much more things when you own the company privately over there, uh, which I think goes for the rest of Europe as well. So uh learning that, I started to take contact with a lot of advisors, sell-side advisors. And in the beginning, it was of course very difficult because me coming over there saying that hey, we would love to look at a company, hopefully we can acquire it. We've never done it, I don't know how to do it, but shall we try to figure it out together? You know, it's it's not a really strong pitch. But over time, now that we've done that for let's call it four years or so, uh we've built a certain reputation uh among uh cell side advisors that have felt that it's easy to deal with us, uh, it's pragmatic, and we keep our words, which is everything. I mean, reputation is everything um in this game. Uh so now we're in a very fortunate situation where I actually do very little, I think maybe too little cold calling, but it's only because I get sent so many teasers and interesting cases that I don't really have time to pick up the phone myself. So it has really changed over the last few years.

SPEAKER_00 8:50

I know you're a big Buffett fan. I I have Buffett uh, well, not literally hanging right behind me, but uh as a metal poster. Yeah, uh you have the cheaper variant. I think you print have a printed version of Buffett.

SPEAKER_01 9:03

I think it is in color, so it's uh it's not the cheapest. But you're you're right.

SPEAKER_00 9:08

Yeah, I think he said uh something ballpark, uh it takes 20 years to build a reputation and five to destroy it, right? Something like that. So uh I think I think you're right. Uh anyway, uh you've been on uh several uh other podcasts as well, so I'll try to avoid as much of the basic questions as I can here. Um I think uh it would be fun to to before going into the playbook of Technion and um just some of the the business model behind it, I think it would be fun just to know a little bit more about you. The story goes that you joined Technion after basically like a single conversation with uh Johan, I believe. What was the moment you thought where this is where I want to work and build something instead of somewhere else, uh not in Sweden, or you could probably make more money somewhere else. Uh why did you choose Technion or did you choose Johan?

SPEAKER_01 10:02

Uh yes to all of those questions. Um I started out as an economist. Um, I worked five years as a management consultant, which was very fun, it was exciting. I learned so many different things, but I also felt that I was missing for me at least two very important things. One was that I missed being part of a real tribe or a family, or whatever you want to call it, because as a management consultant, you just change your team every four, six, eight weeks. And the second part was that I felt that I missed being part of the real change because usually we created we maybe came up with interesting ideas, and we created a lot of PowerPoint, and then we gave it to someone, and someone else hopefully did the implementation. But you know, ideas are not really worth a lot, in my opinion. Um it's really the implementation. Um, I can come up with a lot of ideas, but I just don't know how to do it. Um, so after five years, I was a little bit lucky. So, a former colleague of mine who was working at McKinsey became the CEO of um uh textile service company, which is a fancy word for laundry companies. Uh, and he called me, and or actually, uh, a recruiter called me and uh asked if I want to join the company. You know, my first thought was never in my life, it sounds super super boring. Uh but one thing that I learned over time was that uh for me at least, it's not really which industry it is, it's mostly about the challenge and the people I'm working with. Um, I was working with you know autonomous cars already you know over uh roughly a decade ago, and that felt super cool, but it was actually less fun compared to mining projects um because of the people and the challenge. Yeah. And uh I thought that was fun, so that's why I joined him. Uh the journey was basically uh a private equity um exit. So we did that uh for a few years, five years, and uh during that time we did exit solely to an industrial uh company that wanted the management to stay on for a while. Uh that's a lot of background, but during the whole background, I've been a little bit lucky with my own personal investment. So I got to a point where I felt, you know, in theory I wouldn't really need a job because of to get food. You know, don't get me wrong, I wouldn't be able to drive Ferrari or have a bunch of Rolex watches, but I would have an okay life. And after getting to that point, I felt that I owe myself to spend my time on something that I would truly enjoy, something that I would choose not because of the money, but rather because it's fun and challenging and be able to build something great, which for me is motivating. And because I am interested in in investing, I saw that Technon had an IPO 2019 and thought it was an interesting company to follow. And to your point, you know, did I was I interested because of Technion or UN? I think that you know in the early days of Technion, the two were very interchangeable, the culture is very much set by UN and the legacy uh culture is still very much what U1 has created. Um and as you probably have seen, you know, it's a little bit different. Um we try to be the best at being capitalist basically, you know, creating shareholder value over time, but there's different ways of doing this. Uh I felt when I read the reports from Y1 that he was talking like a normal person, you know, no filter, no corporate uh BS, uh rather just talking out from his heart, but also that it was very different and unique in the business model that you could actually scale up and build something really, really big if you did it correctly. So in 2020, the summer, end of the summer, I basically texted Johan and asked him, you know, I have a fun idea. Do you want to talk? And he asked me, you know, if you want something, can you send me an email? I wrote him an email on Friday afternoon, and then uh he said, you know, come in on Monday and we'll have a talk. So we sat in his office on Monday and spoke about we spoke a little bit about technia, of course, but it was mostly about life in general, our perception about things, our viewpoints, uh etc. And we ended up in a situation where Yuan just asked, Do you want to work with us? And I was actually a bit shocked because I didn't see that as a job interview. Uh I was just stared to get to know the man behind the company. Uh but I was also very impressed because I got the feeling that Techno was entrepreneurial, that Yuan was a true entrepreneur, even though he doesn't really use that word himself. And because he was able to do that, I felt you know I can't be worse. I said just asked, What do you want me to do? And uh his response was I don't know actually, but uh figure it out. So the X in my title is a placeholder, let's figure it out. Um, but I always thought it was a little bit fun, so I I've kept it since then. Um so to your question, you know, did I choose Technion or Yuan? I think both, yeah. Yeah, I would have needed both.

SPEAKER_00 15:35

Yeah, that's a it's a cool story. Really cool. I didn't know about the X, it makes sense, but uh it's really fun.

SPEAKER_01 15:44

The only downside is that uh every now and then I get uh you know people trying to sell really strange things that I don't even know what it is, and uh customer experience solutions, for example.

SPEAKER_00 15:54

Oh yeah.

SPEAKER_01 15:55

I just don't know what that is.

SPEAKER_00 15:57

So when you talk about Joan and culture, what what do you mean? Like it's such a big word, it's open to interpretation. Culture means different things to different people. Like when you when you listen to the earnings calls, and uh Joan has been uh on a couple interviews as well, it's very clear that he's a unique guy, he's very honest. Um, I love the fact that he's like a marathon runner and he's just he seems very genuine. But how does that work in practice for Technion? How do the employees feel that? How do you feel that?

SPEAKER_01 16:28

It's it's a very, very, very good question. And and to be honest, it we we use that word, and I think if you ask people at Technion, you would get a little bit of different answers. I mean, if everyone had the same answer, it would be a sect. We're we're not a sect, we're trying to build a company here. But I think what we try to embody and what we try to make more and more feel, and the people that we recruit, we want them to feel the same. Is that we want to be we want to be kind, we want to be transparent, we want to be have ownership, we want to ensure that you know when we do something wrong, we own up to it and just to try to be better next time. So that's the soft part of it, and that is really easy to explain. And I think that every now and then there is something or someone interpreting the techno culture as only being kind and soft, and not saying that we're not, but there's the other side of it, which is you want, I we want to be the best at what we're doing, you know. Will we end up being the best uh creators of shareholder value over time? You know, theoretically, most likely not, uh, because there's only gonna be one and he's hanging on the wall behind me, right? But we want to feel that is what we're chasing. We want to be the best at this competition. You're trying to be the best. We're trying to be the best. Yeah, it's not you know, let's just be kind and have fun and do some donations. That's not us. We're we're I don't think that there's uh I can't say that word. I don't think it's a paradox between being kind and being really good at creating shareholder value. We're trying to do both. Um and I would say that is the techno culture that we're trying to build.

SPEAKER_00 18:20

Yeah, basically like a set of values, and then the way it it unfolds in practice is different to everybody.

SPEAKER_01 18:28

Yes. Yeah. I I think so too. And it's quite interesting. I mean, obviously, Warren Buffett, Charlie Munger, uh Berkshire Hathaway is a big, big, big inspiration to to me. Um Yuan hasn't read that much about them until I started and kind of forced him to start looking at things. But he naturally just has a little bit of that ethos in him. And I think it's quite interesting because if you look at Hollywood movies about um capitalists, uh, first of all, you know, that's a word that usually means something negative for most people. Uh, but also the people that are good at it are usually the Wolf of Wall Street style. You make a lot of money, but you're really not a good person. You do bad things, you're evil, all of those.

SPEAKER_00 19:15

Selfish, yeah.

SPEAKER_01 19:16

Exactly. But when you look at the best capitalists there has ever been, in my opinion, you have Warren Buffett and Charlie Manger, who most people would say are the kindest and most fair people around. So maybe you get to somewhere by being short-termed and uh evil, but I think getting to the top, going back to the reputation, you you you have to be, you know, someone that is fair and have values that are aligned with uh you know normal moral principles because sooner or later you're gonna run out of uh business partners, otherwise.

SPEAKER_00 19:50

Yeah. So from the four pictures on your wall, the the the the top two make sense. I can see those quite clearly. What are the other two?

SPEAKER_01 19:57

Uh, the other two one is a letter from uh Debbie, um uh Warren Buffett's uh earlier uh secretary, which I thought was fun. Uh and the one below is when Gemini released uh Nano Banana Pro 2, I thought it was fun. Uh it's just we have a wheelchair company, so that's Mario Kart combined with uh uh wheelchairs.

SPEAKER_00 20:21

So that's how you're spending your time, Daniel. Exactly, exactly. Yeah. Um, how about we go uh a bit deeper into Technion's playbook? Yes. Um can you guide us through your thought process and the actual process of uh to end up acquiring a new company to your portfolio? I'd like to know sort of how it starts. Uh, you've already told us how you find these potential companies, um, but also how you determine whether they're worth acquiring or not. Um, can you take us through your uh process? Absolutely.

SPEAKER_01 20:58

So I think from a very top level, the way I think about if something is worth acquiring or not, you basically have, or for me at least, uh, a few different things. One is the quality of the company, one is the price, uh, and then there's something about time value, because obviously I can only do one thing at a time. Um but starting with the quality piece, so when you look at a company that is making, let's call it, 50 to 100 million Swedish krona, um, it's not gonna be the same quality, quote unquote, compared to if you buy a big listed company, they don't have the same people, structure, processes, etc. But compared to peers, I'm trying to look for a company that is above average when it comes to quality. And on some kind of 10 point scale, I'm trying to look for things that are at least above seven. And what does that mean? So when I look at a company, I always start with the financials. So for me, they have to have a robust growth. Over time, they have to show you know robust or growing margins, they have to have good return on capital. You know, we have thresholds for all of this, they have to show that they have a good free cash flow yield. Um, and I want to ensure that there are um enough um equity in the company as well. So when we look when I look at a fun a company, I start with the financials, and only when they tick all of the boxes, I start looking at what they actually do. Um so a lot of companies just drop off because financially they're not good enough. And I like to start with the financials because, first of all, uh it is the ultimate litmus test if something is working or not. And it's also very, for me, very data-based. Um, as you probably do as well when you look for listed companies. It's nice to start with the filtering because otherwise you get stuck in that this company is fun, and you start with the psychological process of wanting to have it instead. Uh, and then switching over to the qualitative side of things, I want to ensure that it's something that we understand and that we, with our knowledge feel, will continue to solve some kind of problem over you know, as long as we can foresee, which basically means that it's a it's a problem that can only be solved either by uh the laws of physics or it's something that is deeply rooted in psychology because people change very slowly. Uh, groups of people change even slower. Um I try to see, you know, if is there an organization in place that can actually handle this, or is it you know a one-man show and that person is gonna leave, or those four people are gonna leave? Um so trying to tick off all of the qualitative pieces. And if we feel that this is something that ticks all of the boxes, or enough boxes uh that they would fit into our group, I try to think about the risk aspect of it, um, which is the part that you want and me discuss the most. So when we have discussions, we talk very little about the upside because it trusts me that I can judge if it if there is an upside or not. The risk is what's really interesting because for us in our model, we're not a venture capital company where we buy 10 companies and hope that one does 20x and nine you know goes bankrupt. We need to ensure that everything in the ideal world works, or at least nine out of ten, uh, which is the complete opposite of um venture cap. Um, so from the risk aspect, it's both on the individual company per se, you know, customer concentration, supply concentration, where they sit on the value chain, um, etc., but also how the risk profile looks compared to the rest of the portfolio. Uh, you know, are they driven by the same factors as something else? Because that's we don't want to build up too much correlated risk there. And then the third piece would be the time value of it, because um, whether or not, in theory, it makes you know 10 million Swedish krona or 20, it takes roughly the same amount of time to get through. So, of course, for us, if we feel that it's a vendor that is strong when it comes to decision making and uh and we can do something rather uh efficient and pragmatic, that is worth something to us because in that type otherwise we could have done two deals.

SPEAKER_00 25:31

Yeah. So when you talk about the circle of competence, you have so many different kinds of companies from electrical components to acoustic target systems to wheelchairs, uh housing, much, much more. How do you determine whether it's really within your circle of competence? Like, do you really need to understand the sector and industry, or do you need to understand the unit economics, or do you just have complete faith in the management of the subsidiary? I I can't imagine you understand each company completely.

SPEAKER_01 26:04

No, no, um, absolutely not. And I think circle of competence have changed a lot since I joined, you know, what what it means. I think obviously uh Warren Buffett popularized that term and I think it makes a lot of sense. Uh, I think it depends in which circumstances you are, uh, what it actually means. Uh for us, it me doesn't mean that we need to understand enough to actually be able to explain all of the ins and outs of the products and you know be able to build a product or in but we want to ensure that we understand why this works. I mean, some people would maybe call it a moat, but uh you know, why does it work? Why have they been able to grow for the last two decades? Why have they been growing quicker than the competitors? Why do they have higher return on capital and higher margins compared to competitors' peers? Um, those whys we need to understand that. There is something about that, okay, if it has been working consistently for let's call it two decades, most likely there is something that has worked. The question is: do we understand what it is? And do we believe that it will continue? And do we believe that we can be friends with someone that really understands it and can continue to run it? So it goes maybe more into uh, I don't want to make this into a quoting Buffett podcast, but you know, when he's saying know jewelry, you have to know the jeweler. So the circle of competence moves a little bit more into do I understand it from a helicopter perspective, why should be able to work, and do I trust that the jeweler knows jewelry?

SPEAKER_00 27:51

Yeah, that makes sense.

SPEAKER_01 27:53

So um I know uh as well. I mean, the circle of competence, we we try to widen that a little bit. It it goes without saying that if we try to find more and more uncorrelated risk, we also find new things that are a little bit different. We also try to think that if something really goes wrong, uh we want to be able to you know jump in to run it ourselves as a worst case scenario. So we try to put ourselves in that mindset. Would I be comfortable at least doing that as an interim? Um and hopefully that never happens.

SPEAKER_00 28:25

Yeah. I know the acquisitions never stop for podcasts, so just checking in on you if you're still good on time. But uh Absolutely.

SPEAKER_01 28:34

Okay, okay.

SPEAKER_00 28:35

So you just did uh two recent acquisitions. Uh I apologize for any uh mispronunciations, but Norband, I believe, and uh test short for test. What was it about these specific businesses that uh fit the Technion mold and make them attractive to you?

SPEAKER_01 28:53

They're very different. Um Test is Andy, the the vendor and the CEO of the company, he described his company as a small tank. And um it's it's interesting because if you look at the numbers, it has been growing consistently basically over uh the last couple of decades and uh not a lot but always growing a little bit. The margins have expanded always a little bit. It's uh it's not a company that will you know give us huge uptick in earnings, but it's one of those companies that we believe will you know add earnings with a lot of stability and low risk. And I really hope that I'm right about that, of course. Um they they are you know deeply ingrained into uh NHS hospital system in the UK where they sell equipment and do tests within endoscopy. So there is a lot about going back to reputation, but you need to have a lot of certification in order to be within this field. There's a lot about technical know-how, and there is a lot about the reputation because obviously, when you do this kind of test, you want to ensure that uh uh you do it in the right way, that there is no contamination, and that everything is safe. So it's not something that uh the hospitals want to gamble with. They have a business model where they basically have 80% recurring revenue. So uh I think in in business terms you you have a very big installed base, they sell a little bit more every year and then it just ticks on, um, which is great. Yeah. Andy is a great person. Um, we met a few different types, it feels like we have the same ethos, which thinks very similarly that you know, yes, it's a nice company, but it's really about the people. Um, in in theory, if the people left, it would be nothing, it would be a cool brand, um, but nobody being able to do that. So I think that we we it feels like we have a very good uh rapport and relationship, um, and there is uh a clear second in command that hopefully can take over in the near future. Uh Nurband is very different. Uh, Nurband is uh our first acquisition in Finland, uh, which is very fun. Hopefully, that's a beachhead for us so we can find more acquisitions over there. The first one is always the most difficult one because we want to find something where we feel at least that we are absolutely sure about acquisition. Uh, June started a business long time ago. Uh really creative, super smart person uh coming from the music industry. Uh so what Norban does is that they make NFC RFID solutions, so it's hardware plus software, and um the the two applications are basically access control and uh closed loop payments. So access control is exactly what it sounds like. Uh at certain uh venues for uh concerts, etc., you buy a wristband and it includes a chip and then it regulates if you can get in or not. And then, of course, the most more a little bit more advanced version would be that you can get into certain places like backstage and not other places. Uh the access control uh sorry the closed loop payment is a very interesting area where uh Visa MasterCard American Express would be open-ended uh payment. A closed loop payment basically means that everything happens within only at a venue. So it's basically a payment system that uh goes without with these chips. So when you go to the festival, you pay by tapping your wristband instead. Uh so you don't need to bring your phone. You buy beer, you buy burgers, t-shirt, or or whatnot with these things. Um, and um we take a little bit of that.

SPEAKER_00 33:02

Yeah. Um like um this is the first acquisition in Finland. Uh a couple years ago you were only operating in Sweden, now you've expanded to the UK and Finland. Is this something Technion is looking to do um more often? Uh maybe in Finland, but also in other countries? And to expand on that question, does going outside of your core Sweden complicate things? Uh does it add more complexity?

SPEAKER_01 33:30

Uh so do we want to go to more questions? Sorry, countries. So at the moment we feel quite comfortable with being in Sweden, UK, and Finland is new. There's so much to do in especially UK, and Finland, we only have one. So we're not in a rush. I mean, over time we would absolutely look for you know uh a new geography. Uh, we'll be a little bit optimistic about that. So if we find a case that is really good, we might do it, but we're not actively chasing something in uh a new leg. Makes sense, yeah. And because exactly what you said, uh, there is all of the countries have their own legislation, the UK legislation and the processes are very different compared to Sweden. The Finnish process is actually quite similar to Sweden, but they also speak a language that we don't understand. So um there is always the trial and error when we do something new. Uh so we want to do it in a pace that uh where we feel that if we make an error, we can actually fix it before it becomes detrimental.

SPEAKER_00 34:33

So, how did you find this company in Finland? And uh to to to add to that question, when you look for these companies, which is your main job, um, what sort of uh traits do you look for in these companies? You've already talked about obviously uh revenue growth, whether it's robust, uh increasing margins, but are there like other things besides financials you look for in these uh in these news businesses?

SPEAKER_01 35:00

Yeah, so um yes, there are a lot of different traits, and they're a little bit different depending on the type of company. Um we are omnivores, we're very sector agnostic. Uh I truly believe that you know great companies can come in different shapes and forms. Um I think what is underlying is of course the great financials, uh which always is together with good people um over time, especially for these small businesses. If you don't if if you don't have good people that are um nice, uh it's very, very difficult in a small niche to survive because you're gonna burn the eight customers that exist um and you're gonna be out of it. So, I mean, longevity is super important for us when we look at traits. Um then, of course, recurring revenue is nice, it's not something that we're always chasing, but if it's there, um perfect. But if we go one level below that, um recurring revenue can almost mean different things. We we would not buy a company where we see that you know the customers get exchanged every year or every second year because it means that something is really wrong that the customers because the customers are not sticking with you, and it takes a lot of work to find new customers all the time. So, you know, churn is important as an example. But when it comes to recurring revenue, it depends, of course, how you classify it. For test, that is for me the recurring revenue that investors like to talk about. It's just the same uh because you have some kind of contract that is coming every month or every quarter or whatever. But we also have companies where we basically have a hundred percent share of wallet um with the customers for a certain component, so it's not truly a recurring revenue because nobody promises you that it's gonna be five components they're buying per month or ten or whatever. But if they sell something, we sell, um which is different, but in a sense almost better. Uh because when you choose to have a 100% share of wallet and give that to one of our companies, it means that we have pricing power, in lack of other words. So we we like when there are sticky relationships in in all directions, um, because that is very, very difficult to replicate the goodwill of that. Uh other trades that we're looking at, I like when they are underpricing things, um, because it means that we can typically do something with that over time. Um we very much like when it's uh something that is, as I said, mission critical, but still a very small piece of the total TCO, uh, so that the customer thinks that it's super important, but it's not really important what the price is because it just has to work. As an example, we have a company called MSF that sells special fasteners that go on satellites, and you know, you kind of don't want to jeopardize that.

SPEAKER_00 38:11

Uh no. Makes sense, yeah. Yeah, satellites is uh is a lot more expensive than the the fastener, yeah.

SPEAKER_01 38:18

Exactly. Uh nobody really cares if it's 10% extra margin or not.

SPEAKER_00 38:22

Yeah, exactly. So what sort of multiples are you uh acquiring businesses for, usually, if you can share that? Uh how do you determine like a fair value for you, like a good buy price, but also for the the original owners?

SPEAKER_01 38:35

Yeah. We try to be very transparent with this as well. So we try to get our money back in roughly five years, and then of course, nobody has a crystal ball. Uh so uh if we look at the companies that we have bought, it looks like we're getting our investment back in a little bit quicker than five years, not much, but a little bit. So we tell all the vendors very early on that this is the way that we value things, it's not really based on multiples. I mean, of course, you could calculate what the multiple implied would be, um, but it makes it fair because then everyone knows from the beginning that this is how we calculate things, and when we have all of the CEOs or vendors in the same room, they all know that they got paid in the same manner. And that is something that we feel is important, uh, and not basically that the one that negotiates the harder gets it. It's also because we are human persons as well, so by having this kind of rule which is you know fixed, and then of course you can think about what is the value of the next five years. That is the difficult piece, right? But it also kind of handcuffs ourselves into that this is the way we do it, so we don't get inflated away by pay overpaying for things. Uh, but it usually translates to them because the companies that we acquire, they we expect them to grow usually single-digit uh or sometimes double digits, so it roughly translates to five, six times EB.

SPEAKER_00 40:06

So I I would like to talk uh briefly about some of the acquisitions. Um for our listeners who aren't very deep into accounting. Um, when a serial acquirer, or when, for lack of a better word, buys a business, they usually pay uh a little more than the the value of factories or inventory. Uh that extra money they paid has to go somewhere on the balance sheet. Now I know older peers in Sweden like Livco or um Lagerkrantz take about half of that uh money and label it as an intangible asset, uh I don't know, customer list or brand value, whatever it may be. Uh Technion, I believe, allocates almost 100% of the to Goodwill. Is there is there a specific uh I mean critics might look at this and say it artificially boosts uh boosts the earnings compared to uh some of the other players? Why is putting 100% into goodwill the right move for Technion?

SPEAKER_01 41:06

Uh it's interesting. You're right. We're putting uh almost 100% on Goodwill. Uh on some companies it's maybe 80-90%, but yes, it's it's high. I think it it's an interesting discussion, and not to become too philosophical about it. One thing that sometimes annoys me a little bit is that I mean the companies that we acquire and the companies that maybe log accounts, adtech, etc., are acquiring, they are very similar. Sometimes we meet each other for the same cases, but then if you look at the accounting of it, all of them are doing a little bit different, including ourselves. And you know, for me it doesn't make sense. Accounting should be the same for everyone, right? Um but it isn't, but all of them are doing it correctly, uh, including ourselves, because we have auditors looking at that. But sorry for that little accounting IFRS rant. But to your question, why do we do it this way? I yes, some critics would say yes, it maybe artificially uh bumps up the profit. At the same time, you could argue by doing it the other way, you would get a lower balance sheet over time, so it would actually artificially bump up the return on capital for the other one. So it's uh you know, it's diff depending on how you look at it. The reason why we have chosen, and my argumentation for why I think 100% goodwill is better, is that because it's not amortized unless you do an impairment right. For me, it shows the real balance sheet. So if you look at our balance sheet, if we continue to do it in the same way, and you look at our balance sheet in 100 years' time, uh or even in 10 years' time, you're gonna see all of the assets that we have actually paid. You know exactly how much money that has gone out. All of that is in on our balance sheet. Whereas if we put, let's call it 100% of the intangible on, I don't know, customer relationships, and then we amortize that for five years, 10 years. After that, you wouldn't see that. And then it looks like we have a company with very, very high return on capital, but it's because we actually just removed a piece of the balance sheet. So for me, it's the more transparent way of showing it. And uh, when you look at it, you can also see when we acquire businesses, it looks like this. Uh, so that would be my and our stand on why we do it this way.

SPEAKER_00 43:26

I'll have to think about it a little more. So I really like talking about incentives. Uh, you probably know why, as Munger famously said, we will not be a quoting podcast this uh this time. So uh obviously we know the incentives for uh for technique and for you. Um but what sort of incentives drive like the subsidiaries? Do the subsidiary CEOs uh have certain um incentives? Uh which sort of outcomes are they rewarded on?

SPEAKER_01 43:57

Yeah. So uh it When we buy a company and the CEO is the vendor, then there is an earnout element which looks very different compared to who it is. But if we think about the steady state and with external CEOs that we have hired, the setup is uh basically saying that you get a percentage of the EBT increase compared to the average of the last three years. So if there is an increase of the EBT compared to the average of the last three years, you get a percentage of that. However, if the number is lower, uh then you get a negative bonus, which I think is maybe for some are controversial. That applies to, you know, of course, you one and myself as well. Because in my opinion, uh for corporate governance overlaw over uh overall, uh you get this thing of heads you win, tails I don't lose much. I don't lose much, yeah. Exactly. So with this, we're saying if you do well, you can actually get 18 months of bonus, which is a lot, but you have to do very well in order to get to that ceiling, right? But if you crash a company that we have acquired for 50, 100, 150 million krona, then you're gonna feel it as well. But we're being a little bit kind, and also due to HR regulations, we can't force anyone to pay back money, but it will be a low watermark. So if you make a bonus the year after, you have to uh first you know net out compensate for it.

SPEAKER_00 45:29

Yeah.

SPEAKER_01 45:31

There is also two more things that we've added into that. So if you get a bonus that is higher than four um uh monthly salaries, you have to put 50% of everything into technial shares that you buy on the open market and to align incentives even more. And there is also a cash flow piece in that. So if the results are what they are and you get the bonus, but if the cash flow is uh 20% less than the result, then you actually get 20% less in bonus, and the other way is also true. So basically, we're awarding growth in EBT, we're awarding cash flow growth. Um, and we're also saying that please don't destroy our companies because that's gonna cost you next year.

SPEAKER_00 46:24

You've you've changed uh out of media falls share of uh subsidiary CEOs uh in the last couple of months. Um central uh command got a little bit more hands. Um would you say Technion still operates the same way, uh decentralized, or is there somewhat a change of strategy? Uh can you expand on this?

SPEAKER_01 46:45

No, I mean we're yes, there has been a shift in strategy. We have learned things and we tried to do things better. Uh I mean your one is still here, I'm still here. Uh, it's the same ethos as we started out discussing. We want to be the absolute best when it comes to creating shareholder value over time. I think we've done some recruitment that we should have done. Uh we have remedied uh most of that. Uh we when we built Technon, I mean I wasn't here since inception, but I started out here when we were 15 companies. And uh when we were 15 companies, we didn't know how to structure ourselves in order to care of 30 or 40 or 50. Um, and we made certain mistakes when it came to how we built the organization and you know what kind of guardrails we had and how much decentralization. I mean, decentralization is compared to centralization, it's binary words, right? But in the real world it's some kind of scale. I think that we were a little bit too far out on a decentralization scale, but and we keep the decentralization almost fully. If you run the company as expected, you know, there will be very little to no involvement from HQ. But where we have changed more is that when things are not going to plan um and we have early warning results, then we come in earlier, uh, and there is a more structured process for you know, so you know where we're heading, uh, when we start asking you more questions, um, etc.

SPEAKER_00 48:23

Now, what what's something you've learned the hard way since working at TechNI? And uh like could you give an example of like a meaningful mistake you've made and you now do completely different?

SPEAKER_01 48:34

Uh oh there's so many mistakes we've made, but I think the core of it is that in order to build something that scales, you really need very, very good people. I think that in certain cases we've been trying to, from sometimes economical reasons, we try to find someone that sounds a little bit cheaper on paper, which is probably true. But uh the cost difference, not saying that you know paying more always gets you better talent, but I think that we've been a little bit too cheap in that area. Uh so frugal? Yeah. Yeah. I think I mean we haven't learned anything that you wouldn't have read in the books. That's the stupid thing, right? Uh sometimes you have to make your own mistakes because we're not smart enough. Uh, when it comes to uh continuing on the people side of things, uh when you start feeling that it's not the right person, um we are, you know, uh kind. We're really trying to focus on the long term, but that doesn't mean that we shouldn't do something about that and just let someone continue in their own capacity for for too long because it destroys value for everyone. Uh I think when it comes to acquisitions, we've also learned more things over time. Uh, I mean, taking the longer time horizon, in the beginning, Technology bought companies that we could afford. Uh, it wasn't really the companies that we wanted, but with no money, um, you buy companies like contract manufacturers with thin margins, low return on capital, and those companies are losing money in an economical downturn unless they're run by Leo Messi. And uh so it's it's very, very difficult. We're going higher in the in the price sorry, in the quality category uh without trying to move our valuation method. Um I would say that we have been much better when it comes to when to pull out of deals, because on paper there are so many things that look great. The numbers are great, everything that has been described in the fundamentals are great, but uh we if we feel just the tiniest feeling in our stomach that something might not be right, uh, we would rather just not do a deal. Um, because the worst thing that can happen is that we do a deal and it's a bad deal.

SPEAKER_00 51:00

Am I right in stating that some of your subsidiaries also do um, I believe they're called bolton acquisitions. Uh do they have like complete freedom here or do you have like oversight here? Uh how does that how does that work?

SPEAKER_01 51:13

In the future, I I envision where certain CEOs and certain subsidiaries would be able to do boltons a little bit more you know autonomously, and where I only uh do the overseeing. So far, the boltons are still made by uh me and and the team over here in Stockholm. It has been fun to try that out. Um I think that we'll do maybe some more boltons, but uh going back to the time value of money, it's uh a bolt on that I'm making up numbers. Well, let's say that it's making three million krona in in earnings, and we have another company that is making you know five times that. It's not that it's taking 20% of the time, it actually takes the same amount, or in certain cases, maybe more time, because the 15 million company usually have you know more administration in place and it's easier to go through the process because they're more professional. So Boltons is uh centrally, if we have central resources attached to it, as we have today, it's not really the best um way of creating value for shareholders. Um, in certain cases, we still might do an exception if we can find a quick way of doing it. But uh otherwise we'll have to wait until we have CEOs that are capable of doing it, more or less themselves.

SPEAKER_00 52:32

Now, I I understand if you uh want if you want to skip this question, then we'll cut it out. But it's about the reward catering. I believe this company was acquired back in 22 somewhere. Yeah, uh, it's currently in liquidation. That's right. Um yeah, it you took a large impairment on it, and uh, I believe you're even suing the former owners. Now, obviously, things like this happen in business. Uh you cannot avoid it. It's about how you how you deal with it and learn from it. But how does a thing like this happen in a company that uh prides itself on diligence? Are you looking for founders you trust? Do you want to own them forever? Looking back, what sort of things did you miss? Uh what do you think happened here?

SPEAKER_01 53:14

Oh we there was two, you know, sometimes you say that uh you want all stars to align, and I think in this case, all the stars, but the bad stars align uh from our side. Uh we wanted to go to a new country. We were very persuaded by the people behind the company, and we felt that we built a really good relationship and a good trust. Uh we very seldom take external help to do due diligence. Uh, to my knowledge, we've only done it once during the time I've been here, and that was that one. Um we have our checklist of you know what type of companies we should buy and what we shouldn't buy. You know, one of the things that I described to you before, we want to buy from owners that have shown over decades that it has been working and low customer churn, etc. What we also do is that we can do exceptions, but it has to be on an exceptional basis. Unfortunately, this was one of the exceptions that we felt it's worth doing because the upside is just so huge if we do it right. One of the learnings is that no matter the upside, we will never sacrifice anything for risk. It was in our minds a calculated risk, uh, but obviously the calculations in that case was wrong based on that the assumptions were wrong. Uh I think as the way I work, the way you want to work, is that if we feel that we own the process, we try to do the absolute best that we can. And I'm not blaming anyone for it. You know, I signed the dotted line, and we are the ones that are responsible for it. But strangely enough, if another party is doing the due diligence, it's like you're removing a little bit of the responsibility, at least feelings-wise. It's not true, but it feeling-wise, it feels a little bit like that. We went through that, and all of it uh looked good. Uh, and then obviously the rest is history. I mean, we we don't want to comment on anything that are not publicly available, but uh in the court documents uh you will be able to see that our stand is that we uh bought a company where the vendors have warranted and that they have the correct certifications and that the accounts have been done according to local gap and the national regulations. And our stand, as you can see in the court document, is that those two things and others uh were not true. So, our view, let's see what the Court of Ireland would say, is that it's a clear case of fraud. Uh, we never want to go in a situation to fight with people because it takes energy, it takes resources, uh, it keeps you away. Waste of time. Waste of time, waste of money, waste of everything. But we also got into a situation where we screwed up by acquiring something that wasn't what we believed it was. And uh we could, of course, choose to say, sorry, shareholders, we screwed up and let's try better, or we say we screwed up, but let's recover something because we believe that we were at fault here. Uh so that's the route we went down. Um, could we have seen that the accounts were different from what we thought? Could we have seen that the certifications uh were not in place? I mean, I I would be lying if I said no, but uh we made an honest mistake uh for that, and we learned a lot.

SPEAKER_00 57:00

We have a saying in uh in the Netherlands: um, after something happened, you look a cow in the butt. That's uh that's the literal translation. But uh, you know, after something happened, it always makes sense. So uh yeah, it is what it is. Um, we've been getting so many questions about this uh since we own Technion, many of us own Technion. It's been a hot topic on uh on uh on Twitter X. I believe uh your partner is uh CEO of a subsidiary within the ecosystem. Some of the people, some of the the people that listen to us and uh follow us raise some questions about potential conflicts of interest here. Um, how do you navigate this dynamic? And uh does do like these sort of things coming up, felt acquisitions, uh questions about um your um a partner being in the ecosystem? Um, do these type of things bother you as on a personal level? Like you would just want to focus on your business. Maybe you could just expand a bit on uh on that?

SPEAKER_01 58:02

Yeah, so Linnea is working uh as CEO of Eloflex, so that's the Mario Kart picture behind me. Um she's been there since I believe January last year, so one and a half year so far. Uh privately, we both hate it, to be honest. Um, it takes work home, uh, and it's the one place where I get a little bit of vacation from work. But why is she here? I mean, for me, this might sound very strange that you know uh you or anyone else can choose to believe me or not, but the way I think about this, the way you want to think about it, is that technology's ours. We try, I mean, you want to own maybe 5%, I own less than 1%. We both think and feel that we own 100 each. So, you know, mathematically it doesn't jive, but whatever. Uh, we try to do what we believe is best for the company uh and for the shareholders. If that means that we bring in someone where we know the capacity of that can do something uh that we feel uh nobody else can do, at least for this price, we do that because it creates value. Uh Linia has a background uh where she has been working as vice principal for uh a couple of schools for I think uh almost a decade. So um the role is, I mean, I've seen, of course, some comments saying that you know it's not a business, whatever, but uh what is a business? Uh if they have revenue, they have cost, you have PL responsibility, you have 50 employees, etc. Um, if you don't call that a business, fine, I don't care. But the the outcome uh the first year is that the profit went up you know 135%. Uh if that is good for shareholders or not, um I'm I can't be the judge of that. I think it's a good turnaround. Uh she, if you look at the compensation level, uh she has, I believe, the lowest salary of all CEOs, even though the company is a mid-sized one in our group. She has a bonus structure that is a little bit more difficult to achieve compared to the rest. And all of that is just based on that, you know, I I'm not a religious man, but going back to quoting Warren, I would be happy to open up, you know, any information and talk to a well-informed local reporter and talk about what has happened. That is my moral compass. If I felt that we did something wrong, you know, then I would be in trouble. But I have no problem talking about that and showing the numbers because they are what they are. Uh was it worth it to put her in there to you know get uh let's call it a Twitter hate, or at least some Twitter hate? In hindsight, to be honest, I would probably say no uh and say, you know, let someone else do it. Uh let the profits wouldn't be at this level, it would be worse for shareholders, but my private life would have been a little bit better. That's my you know very transparent, honest answer. And she won't be here for much longer. You know, it's a turnaround, she got it here, she fixed it um to the level that's stable, and then she's gonna be out.

SPEAKER_00 1:01:23

Yeah, yeah, I can tell that it somewhat annoys you, and uh yeah, but I can imagine uh it's it's it's very difficult to balance and um and and I mean uh yes, it it annoys me a little bit, of course.

SPEAKER_01 1:01:36

Uh I'm human, but we're not stupid enough to that we didn't understand that we might get some heat off it. Yuan and I had a discussion. We technically in a very, very different place right now compared to maybe roughly two years ago, one and a half year ago. We were in a place where you know the numbers were going down, margins were you know compressing, and we felt that we need to really double down and use every single tool that we have in order to keep the spirit and the culture of technology, but still ensure to turn it around. And how do we do that? Um and that that was part of what we thought we needed to do. Uh, in the situation where we are right now, we're still not where we want to be, of course, but we've had let's call it three quarters with a positive trend in the right direction. Uh today, we would never have done something like this, it would just not be worth it.

SPEAKER_00 1:02:33

I don't think you'll ever be satisfied. Uh uh the your character will never be uh fully, fully satisfied. I think you'll when when you're so when you achieve the goals, I think you'll find something new to achieve. You you don't seem like the person that sits still and uh and is like, well, we reached it and now let's just lay back and uh and relax. So I think you're right, Tim. Um last uh last two. As as techniques kills, um, mathematically maintaining your growth pace means choosing between bigger targets or higher volume of deals, right? Yeah, uh it's pretty basic. Which of these do you prefer and uh what's the reasoning?

SPEAKER_01 1:03:10

So I I think that there's a ceiling of how big things we can buy uh until you get you know very high multiples. So when I started at Technion, uh if we bought something that made maybe five million Swedish krona, that was considered as a rather big acquisition. Uh now we're saying that we're looking at companies that are between 10 and 30. Yes, there are companies below 10 as well, but closer to 10 than five. Uh so we have gone uh in the direction of bigger, then of course you get to a point, just to make up a number, if you make 50 million in eBit, you could basically go and list yourself on the stock exchange. That's I think where techno was give or take when we listed ourselves. So the multiples would be completely different. Um, so that would be some kind of ceiling, I think.

SPEAKER_00 1:04:03

Um so then you wouldn't consider buying publicly listed companies if the evaluation lets it?

SPEAKER_01 1:04:09

Uh we would be open for everything that creates shareholder value, but I think that we would be the shareholders and we would be better off if we bought more of the things that are, let's call it, 10 to 30, 40 something. Yeah. Um so the other level would be to buy more. I think last year we bought maybe nine companies this year. If we include the boltons, we're at five, but then of course it's only three platforms. Um, so I think a little bit bigger, uh, and then we could probably go uh at more, but we're also constrained that we don't want to dilute shareholders. Um so uh there will be some kind of bottleneck in how much capital we have to spend.

SPEAKER_00 1:04:56

Yeah. What's the hardest part of running a publicly listed company?

SPEAKER_01 1:05:00

Uh I think that the hardest part is that the hardest part is probably that we want to do this for the very long term. And we know what is happening and what changes we are doing. But we are also running a company that is very slow when it comes to changes. Uh, most of our companies, you know, if you implement a change, you won't really see the effect until let's call it six months, sometimes, you know, almost a year later. There are companies that where things switch us much quicker, like the wheelchair company is probably one of our most agile company. But um what is a little bit annoying in that is that we know what is happening, but because we only report four times per year, um there is a mismatch of our view of how it's going sometime and the um and the overall sentiment. I wish that I could say that I absolutely. Don't care at all what other investors think, but I'm human, so I do care about that. I care about it because we want to be the best at what we are doing. And being through a period where the financials have been shite, to be honest. But knowing what we are doing and knowing that we're fixing it slowly, but you sim, you won't see that until maybe a year down the line. That is a frustration, both because that it takes time to get that communication across, because obviously, as an investor, you would say, Yes, I hear that you're saying things, but I don't see it in numbers, and then you would have to wait as a year. But the other part which I think is worse is that, well, you haven't invested in technology, but some of your friends have. They put our their trust into that we will do something good. We didn't do that. We made it worse over, let's call it the 2022 to 2023 to 25 period. And you almost feel like a like a fraud. We know that we did the best we could. We could, you know, in hindsight, we could have done things faster, better, quicker, you know. But the disappointment, of course, affects us. Um realistically, you know, if if Yuan and I owned the company ourselves 100%, yes, we would have been a little bit stressed last year, uh, but we would also be fine because yes, you know, cash flow was down, eBit was down, nobody's dying by you know getting 100 mil uh in eBit. And you know, we could have implemented those things in the pace and we would be you know fully okay with the pace that it was going. But uh but feeling that other people are disappointed, that that sucks. Which and I'm saying you know, all of the investors that have invested and we made it worse, they have all the right to be disappointed. But it it takes a toll to be on the other end. But that's you.

SPEAKER_00 1:08:01

Yeah, yeah, nothing to add there. I I think you explained it well. Um, it's hard to be in someone else's shoe. Like uh you have a different job compared, or not a job, you have a different goal in mind, maybe compared to investors who most of them not all I'm not saying all of them, but most of them want to see their money grow over time. I I actually don't mind if I own a great company. I'm I'm speaking at from an investor standpoint, not from an entrepreneurial standpoint. I don't mind companies declining 50% if the business is great. I can just over time add to it. So yeah, it's a difficult balancing act. Let's wrap it up. We always end this sort of episode with a big open question. Um, so you've done many different things. You are running a business, you're uh a CXO with uh with a big X in the middle, and you've worked at several different companies, uh, maybe you've moved around. What is one major lesson you've learned over uh your lifetime? Uh maybe at Technium, maybe somewhere else, you'd like to share with uh our listeners, share with the world something maybe people don't think of too often, or uh something that is overlooked. Um what would what would that be?

SPEAKER_01 1:09:18

Uh I really don't have any smart things to add here. But the first thing I that came on top of my mind when you uh asked the question was to just surround yourself with great people. And I think it doesn't really matter if it's about building a company or just in private life, but uh thinking about technology, after that we brought in you know some people with exceptional talent. Uh it just the analogy I'm thinking about is you know, Wacamole, when you're at a Tivoli trying to uh hammer down the I don't know what it is, beavers. Um it's not beaver, whatever. It's like moles. A mole, of course, in the word. Uh and you have a company and it just feels like there's problems everywhere, new problems popping up, left, right, and center, and you just have to you know help the CEO to fix all of those problems. But then suddenly you change the player, and it's someone that just fixes everything. You know, almost overnight, uh, there is no more problems. And sometimes when we've done those changes, I've had to call the CEO and say, you know, is everything alright? You know, I haven't heard in a while. Yeah, yeah, I'm just fixing things, and suddenly no modes are popping up because you have a great person running it. And I think that is uh it's something that everyone knows, but somehow you need to almost do a few errors there to fully, fully understand the depths and and the impact of doing it.

SPEAKER_00 1:10:55

I think that fits perfectly with uh what I learned about you, about Technion. I want to say thank you, Daniel. Uh I really hope we get to talk again sometime in the future. Keep up the honest work, and I wish you all the best.

SPEAKER_01 1:11:08

Thank you very much, Tim. Appreciate it. Have a good one.