RDCP’s 2021 Annual Letter

The following are my key learnings from RDCP’s 2021 Annual Letter.

Portfolio Overview Learnings

• Hit $400m EV, 167% YoY growth vs 2020
• 4 acquisitions (Intelling, Ancient House Printing, SOS Wholesale, Woodford Engineering)
• Unrealized IRR of 182.7%, 2015-21
• Despite pandemic, exclusively focus on what we can control
• Intelling growing revenue at 50% for 4y, whilst maintaining EBITDA margins of 14% (organic)
• Scalable business
• RDCP Infra - 2021 was for consolidation (new acquisition onboarding, cross-selling enabling) with Woodford Engineering acquisition
• Woodford provides a machining, fabrication, laser and water jet cutting service
• Track record of revenue and profitability growth even through 2020/21
• RDCP’s businesses grow for two reasons
1. Leadership team deliver growth organically by winning more projects or clients, thus growing top-line
2. Bolt-on acquisitions
• Intelling is RDCP’s largest biz, then RDCP Infra, vision to become next Keltbray in UK
• RDCP Infra to become group’s largest PortCo
• Opportunity pool for acquisitions for RDCP Care is dry, businesses on the market are either grossly overvalued or ensnared with CQC issues (regulator)
• SOS Wholesale, Dec 2021, one of UK’s largest wholesalers of groceries, soft drinks, cakes, biscuits, confectionery, petfood etc
• 5,000 SKUs, exclusivity over certain brands, developed a few of its own brands
• Can help SOS grow organically via increased sales channels but also bolt-on acquisitions of smaller companies (horizontal integration) and over suppliers (vertical integration)
• Ancient House Printing, May 2021
• Despite pandemic, biz maintained margins, and pandemic allowed to streamline operations, EBITDA margins up when sales returned to pre-covid levels
• Michael Underdown wanted to continue leading and growing the biz
• Focus is organic growth
• “No MBA program or business book can teach you what I have learned as an active board member of Chilango”
• Growing without a constant focus on profitability and margins is a recipe for disaster, Chilango must grow but steadily and profitably
• RDCP Real Estate: 5-unit HMO (house in multiple occupation)
• Vision to grow RE portfolio to 400+ units by 2027, self-funded

Valuation Methodology/Multiples Arb Learnings

• Buy biz for below intrinsic value, reflect value on books as true intrinsic value, also benefit of scale and multiples premium with being part of a conglo
• “Price is what we pay, value is what we get. Two very different things, most investors do not understand. Entire process is multiples arbitrage.”

Reasons Behind Success Segment

1. Firm about vision, flexi in execution
2. Constantly reinforcing moat around RDCP Group
1. Importance of ring-fenced corporate structures
2. One PortCo can’t bring down the Group or other PortCo
3. Hence, avoid/limit cross or personal guarantees, or parent company guarantees
3. Both investors and entrepreneurs
1. WB: “I’m a better investor because I am a businessman, and a better businessman because I am an investor”
2. Sameer 50/50 split between investment decisions and board memberships - one job improves the other
4. Gamified RDCP
1. Multiple quarterly targets allows for bitesize milestones and consistent wins
2. Success breeds further success
5. Control over capital allocation
6. Focus
1. Don’t acquire businesses priced at/above intrinsic value, no matter how brilliant the biz might be
2. Biz and transaction (i.e. the biz’s price, are two very different things)
7. Reject 99.1% of all opportunities
1. Made 18 investments, consolidated into 7 companies
2. Rejected 2000 opportunities
8. Practice “Margin of Safety” investing
1. Focus on finding good value, rather than spending boatloads of money on every type of DD exercise
2. No amount of DD (e.g. McKinsey CDD, KPMG FDD) will save RDCP as an investor if things go wrong
3. “Only thing that can save us is the margin of safety. Even if profitability drops, we can still be within the margin”
9. RDCP are lone wolf investors
1. No co-investments either
10. First principles decision-makers
1. High returns are NOT directly correlated with the technical difficulty of the problem
2. Investing is about logic, insight and initiative
3. “First principles is about investing based on the fundamentals of a business and its sector, utilizing logic and rational thinking to make investment decisions, rather than overly complicated models that don’t reflect reality”
4. Don’t get stuck in “analysis paralysis”
1. Some MBAs/PhDs do, ‘because once you have been taught how to use a hammer, everything looks like a nail’
5. Don’t forget the basics

RDCP vs PE, and Future Plans

• PE in favor of investment managers vs investor
• Competitive auctions, RDCP edge in permanent and proprietary balance-sheet capital (Intelling, SOS, Ancient House Printing)
• PE firms crowding for same LP capital, same assets, undifferentiated service offering - reduction in fees hypothesis
• “If they are good salesmen, they can go again and again and again”
• Buffet > Fink in net worth despite Blackrock at $9.5tn AuM
• Arguments for investment conglomerate rather than investment management are obvious
• US Buyout and S&P 500 returns converging over past few years
• Wife and father’s high levels of faith and trust empowered RDCP with confidence, and focused more on doing less (not wanting to lose a penny) with value-investing approach
• $400m→$1bn, without equity capital, investment team of just 2
• Being the only genuine investor in a world overcrowded with investment managers
• Investment vehicles of mentors structured as either Conglomerates (Buffet), Family Offices (Zell, Soros), or closed funds (Dalio)
• If you are truly an outstanding investor, you should compound your way to increased AUM, not be constantly focused on raising new funds.