Eurofins (XPAR:ERF, Financial) is a global provider of testing, inspection and certification services in areas ranging from food safety to environmental monitoring to pharmaceutical manufacturing. Like Constellation Software, the company is run by a founder with a gift for allocating capital within an industry that exhibits an appealing mix of resilient demand, steady growth, sticky customer relationships and a relatively low sensitivity to pricing. Founder and CEO Gilles Martin has compiled one of the most impressive records of value creation in recent corporate history by consolidating a fragmented market wherein scale yields manifold advantages.
Martin and his family still own more than a third of Eurofins’ outstanding shares, and he has tended in the past to run Eurofins like the family business it once was. This has drawn criticism from a handful of analysts who claim, sometimes fairly, that Eurofins let the development of its corporate governance practices lag the torrid growth of its operations. The company has proactively addressed the most substantive of these criticisms over the past year, and exhaustive research has convinced us that Mr. Market’s remaining concerns are focused much more on style than substance. Timely purchases during a recent period of particularly acute skepticism have netted us a gain of about 40% thus far. Though the valuation of the company is less attractive today than when we invested, we think observers may still underappreciate how much more profitable and professional Eurofins could become as it matures.
From Ruane Cunniff (Trades, Portfolio) & Goldfarb's Sequoia Fund fourth-quarter 2019 letter to shareholders.
