Serial HVACquirer
$LDB.MI scuttlebutt notes
Hello,
After spending two days deep deep diving into Lindbergh’s operations in Italy I wanted to share some of my notes with fellow $LDB.MI shareholders and other investors who like to keep track of the company.
Since I had an amazing experience with Lindbergh’s team, take anything I say here with a grain of salt. I’ll do my best to remain unbiased.
If you’re unaware of what Lindbergh is (shame on you), I suggest reading my write-up or interview with the CEO first.
On Waste Management and in-night waste pick-up
The Italian regulation on waste is the most stringent one in the EU and always evolving. Hence there are significant obstacles to obtaining licenses/authorizations to transport, store, dispose or recycle waste in Italy. For instance, it took Lindbergh 2.5 years to get a permit to store waste in Milano
IMO Lindbergh’s main value-add in Waste Management BU is understanding complex regulation and managing documentation/compliance. All waste documentation in Italy is done on paper, and in the last year alone, Lindbergh handled more than 120 000 waste-related documents
another significant value-add provided is managing “complexity” at the national level. Lindbergh outsources most of its waste logistics to over a hundred partners who specialize in transporting particular kinds of waste. Also, because these partners (waste transporters and disposal sites) are either licensed to handle specific sorts of waste or are restricted in their jurisdiction/territory, they are unable to compete with Lindbergh nationally. Thanks to its huge network of partners, Lindbergh can service any sector in Italy that needs waste handling, thereby providing its clients with a "one-stop shop" solution
the in-night waste pick-up is unappealing to “traditional” Waste Management companies operating on the market today. Meaning, their business is only lucrative when they dispose enormous quantities of waste and don’t want to deal with the kind of complexity Lindbergh handles. For this reason, Lindbergh is still the only provider of this type of service in Italy. Moreover, even if they were able to obtain all the required waste authorizations, newcomers would not be able to launch this business because they’d need to manage considerably greater volumes and reach a particular scale in order to turn a profit. The reason Lindbergh's economics work is that little amounts of waste may be bundled and stored together.
Waste Management is a growth industry! And this growth comes naturally, as Lindbergh is frequently approached by clients that lack the capacity to manage the compliance requirements themselves. Moreover, this is a high-value and low-cost type of service. So customers are not price-sensitive, allowing Lindbergh to maintain 40%+ gross margins at all times and adjusting pricing as necessary
fun fact: in 2008, Lindbergh's first waste collection was carried out by its current President, Marco Pome!
On Lindbergh France
Lindbergh France was the part of my scuttlebutt that didn’t live up to my expectations
rather than employing drivers in France, Lindbergh instead uses a network of subcontractors (third-party drivers) to handle its in-night deliveries. This lack of control is the main issue facing French business because they are unable to provide the same level of service quality as they do in Italy. So in an effort to improve network quality, they have recently appointed a new manager in France. And they also use “truck-managers” to help coordinate other drivers
There are some other structural features that make France less appealing than Italy. For instance, the average number of deliveries per driver is fewer in France due to its significantly greater territory. This means that since the vast majority of Lindbergh’s in-night business in Italy is limited to the north of the country, an Italian truck driver is capable of delivering a far greater volume of orders than a driver in France
the reason why Lindbergh hasn’t opted to hire its own drivers from the get-go is the high cost of doing so. Thus, while they are "forced" to use subcontractors for the time being, having their own network is the end goal
today, losing a large customer in France would be disastrous so they want “a stable base” there before they attempt to layer additional services like they did in Italy. As you are aware, Lindbergh’s onboarding process is a long one. While this is certainly an advantage in the long-term, it also presents a drawback in “situations” like France where you would like to move as fast as possible
HVAC business
The HVAC space has far more potential than I had previously thought, to the point where I believe that investors may soon view Lindbergh as a serial acquirer
“The strategy of consolidating the Service and Installation Centres in the HVAC (Heating, Ventilation, Air Conditioning) sector through the subsidiary SMIT Srl will be pursued with determination. The recent acquisition of two Service and Installation Centres in Verona is a clear demonstration of this” H2 2024
Here’s why I think that HVAC roll-up strategy makes perfect sense:
As of right now, Lindbergh is the only business in Italy implementing this kind of consolidation strategy on a national level. This sector is attractive because it is extremely fragmented and made up of thousands of tiny profitable local companies that employ only a few engineers and have been in business for 40-50 years (which is why Lindbergh keeps a local name after acquisition) while facing no competition within the covered territory.
HVAC maintenance is a stable and predictable recurring revenue business because it’s mandatory to maintain HVAC equipment at least once per year. Currently, the owners of these businesses are approaching retirement age and are “willing sellers,” but with no-one to sell to.
To this date, all HVAC acquisitions were a result of Lindbergh’s shared contacts, HVAC owners reaching out to Lindbergh, and them paying a 3–4x EBITDA multiple for the acquisition. Furthermore, the typical companies that Lindbergh acquires have net cash positions on the balance sheet and negligible capex requirements, so EBITDA to FCF conversion is more than high.
The financing of M&A is also not a problem because Lindbergh is highly OCF profitable, has spare room for leverage and a practice of paying owners in tranches, so the activity of the target company itself can pay for the acquisition. To further de-risk the transition period, Lindbergh prefers to keep the prior management inside the business for 1-2 years.
Once the company has been acquired, Lindbergh has the chance to further optimize its already profitable operations. They can centralize back-office functions, onboard everyone on the same ERP and accounting software, optimize customer service, and gain bargaining power with the suppliers. And perhaps after a year or two, centralize the inventory, put HVAC engineers on the T-LINQ app to increase productivity, and incentive them to cross and up-sell to customers they serve.
The current “standard” for local HVAC companies is 1 back-office employee “managing” 2.5 technicians, Lindbergh wants 1 to manage 4.
The only risk to this strategy appears to be choosing/retaining the right managers and keeping the technicians satisfied. This is a “relationship” business after all, done in the homes of customers.
This business should have high-single digit to low double-digit EBITDA margins. Depending on the region (North Italy has higher margins) and the nature of work(installations are higher margin than maintenance service).
All in all, I’m more than pleased they will “pursue it with determination.”
5 highlights unrelated to one another
the technicians Lindbergh serves are paid about 60 euros per hour by their customers, so the in-night service Lindbergh offers is less expensive that paying technicians’ wage while they spend 30 mins in the branch talking football and sipping espresso
the onboarding process takes around 1.5 years and completely disrupts the prior way of doing business for Lindbergh’s customers. Following the onboarding, Lindbergh becomes so deeply ingrained inside the customers’ business model that ditching it would be a nightmare. Especially because there’s no alternative to Lindbergh’s in-night service in Italy. This explains why, since implementing their waste logistics service in 2008, they have never lost a customer
Management doesn’t take “management” type of salaries and is rather incentivized by the performance of their stock ownership. All 5 owner-operators have watched Lindbergh go from 0 to hero
“I’d rather hire a truck driver than an office employee” – Andrea
It’s pleasing to have Sun Mountain and Will Thorndike in the shareholder structure since they can help around capital allocation and strongly advocate for “value per share” attitude
current capital allocation priority is inorganic HVAC growth and organic waste/circular economy expansion
Thank you for reading!
And a very special thanks to Andrea, Michele, Marco, Marco and Matteo for inviting and allowing me to get into the weeds of Lindbergh. It was a wonderful and insightful experience.
disc: I’m considering adding to the already large position I built in October
This is NOT investment advice. All content on this website is for informational and educational purposes only and should not be considered to be advice of any nature. Due your own due diligence.