AGB 2022.9 - Roper Technologies (ROP)

Reinvesting Cash Flow into Software Assets

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Roper Technologies

“What Roper is in a sentence is we compound cash flow. That's our focus. How do we compound the cash flow for our shareholders over a long arc of time? By buying great businesses and then making them even better.” - Chief Executive Offer, Neil Hunn, at the Jefferies Conference in June 2022.

Roper is a serial acquirer of businesses that fit a very specific set of characteristics. While most serial acquirers try to stick to one or two industries, Roper rather acquires businesses across industries that meet three criteria. First, the business has to meet Roper’s CRI (Cash Return on Investment) threshold, which is a measurement of cash flow return.

CRI = (Net Income + Depreciation & Amortization – Maintenance Capex) / (Net Working Capital + Net PP&E + Accumulated Depreciation)

Second, Roper determines whether the management team can thrive under the company’s ownership. This is a judgement call from Roper’…