Title: BNC#9 | Rhys Summerton: The "100% success rate" trade every investor is ignoring Show: BizNews — BizNews Conference #9 (BNC#9), South Africa (conference speech) Guest: Rhys Summerton — founder/fund manager, Milkwood Capital; joined the EOH Holdings board in 2024 and helped steer the turnaround into iOCO Ltd (JSE: IOC), where he is now CEO; Executive Chairman & CEO of Aimia Inc. (TSX: AIM). Milkwood owns ~30% of Argent Industrial (JSE: ART). Date: 2026-08-20 (published) URL: https://youtu.be/RG5ook6qzgE Length: ~21:30 Note: YouTube auto-captions. Fillers (um/uh/"you know"/"I mean"/stutters/false starts) removed; wording otherwise verbatim — no paraphrase, no reordering, no additions. Auto-caption garbles are LEFT IN THE BODY and mapped here. VERIFIED mappings: "Ayoko" / "Ayoka" = iOCO Limited (JSE: IOC), the renamed EOH Holdings (name change effective December 2024); "Amia" = Aimia Inc. (TSX: AIM), the Canadian group Summerton chairs and runs as CEO; "Reese" = Rhys (Summerton); "Brent Hurst" / "Brenthurst" = Brenthurst Wealth (the conference sponsor); "Piet Viljoen" = Piet Viljoen, a fellow BNC speaker; "Expand-a-Gate" and "Jetmaster" = Argent Industrial's South African consumer brands; "Steinhoff" = Steinhoff International (JSE: SNH — collapsed 2017, delisted 2023); "Bidvest" = The Bidvest Group (JSE: BVT); "HCI" = Hosken Consolidated Investments (JSE: HCI); "Sanlam" = Sanlam Ltd (JSE: SLM); "KZN" = KwaZulu-Natal. UNVERIFIED / left as spoken: "management needs to be motivated of the company by" (garbled — the sense is management motivated by ownership of the company); "Argent for example, I made 293 million rand last year of profit" (the sense is "it made" — Argent's FY profit, not his own). NEVER turn an unverified garble into a ticker.
00:03 [music] [music] >> 2024 he joined the board of EOH and helped steer its turnaround into Ayoko and today serves as CEO and chairman of Amia driving the group toward becoming a serial acquirer. Welcome, Rhys. >> This BizNews production is brought to you by Brenthurst Wealth. South Africa's leading boutique wealth manager trusted to guide families for over 22 years. Invest better with Brenthurst.
00:41 >> So, there's different ways to make money. And I guess when you think about it, everybody came here to find ideas on how to make money. Right? That's why we're all here on this side and not in the other conference venue. So, I'm going to tell you two ways to make money. The first way and this way has a 100% success rate.
01:10 100% success rate and it's the easiest way to make money. Are you ready? 100% success rate. All you've got to do, all you've got to do is buy any company that's listed on Nasdaq or the S&P with a market cap of over $600 billion. That is all you've got to do. Because every company that has gone through $600 billion has made you money.
01:41 has made you money. The average return of a company that's gone through $600 billion is 90%. There is no exception. Every single company has done it. Now, there are other companies that have got to $600 billion that aren't on Nasdaq and aren't on the S&P 500 and they haven't made you money. Now, why is that? What's the reason for that? The reason is this, that today and for the past probably 17 years, you've had this big tick.
02:11 And this big tick is called passive investing. And passive investing is sucking the lifeblood out of all these little companies in the rest of the world. So, just take this. Nvidia's market cap is how big? 5.7 trillion. Okay. 5.7 trillion. That means that Nvidia's market cap equals 57,000 little 100 million-dollar businesses.
02:43 57,000. There's only about 20,000 listed companies in the world. So, 57,000, all that money has been sucked out of these little companies and they're being taken into this passive investing. But, it's worked. It's worked and it's the easiest way that you could have made money over the last 17 years.
03:03 Just buy passive and you would make money. 600 billion market cap, go and buy it. But, we do none of that. When I say we, I've got a couple of hats. I know Piet Viljoen was wearing a hat earlier. I would have brought four hats today if I was going to wear a hat because I've got different roles, different jobs.
03:22 But, essentially what I do is I'm an investor and I'm trying to think like an investor. And what I'm going to speak to you today about is serial acquirers and how to make money the second way. First way is easy. I'm going to tell you how to make money, I think the second way. It's a much more difficult way to do it. But, you can still have very good returns out of it.
03:45 So, what are we talking about? Serial acquirers, you know about them in South Africa. There's a couple of them that have been super successful. For example, Steinhoff was a serial acquirer. But, that's not the successful ones. Bidvest is a serial acquirer. Was a serial acquirer. Tomorrow, you'll probably hear from HCI, which is a serial acquirer.
04:12 In other words, they do one acquisition after the next after the next. And that's very important. Now, there's different kinds of serial acquirers globally. And we kind of split them into two groups. The one group, you might say are perpetual holding companies. They go and they buy and make an investment, and they hold it forever.
04:36 Berkshire Hathaway is one of those. But, then you have other ones that are like thematic serial acquirers. Those are companies that you might have heard of like Constellation Software. They keep making acquisitions in exactly the same industry, and they consolidate that industry. And what that does, it means they have expertise in that industry, and they can keep on acquiring them.
05:01 So, you have those two kind of groups, and then you have the third group, which I call the cannibals, which I'll talk about a bit later. They are also serial acquirers. They don't buy other businesses, but they buy their own business. In terms of they buy their own shares back. So, those are kind of the three kinds of serial acquirers you get.
05:21 The thematic ones, the perpetual holders, and then the cannibals. And some of them go across those different categories. Now, you might think what makes a good serial acquirer. And there's a couple of characteristics that we have to think about what makes a good serial acquirer.
05:42 The first thing is decentralization. So, what I mean by decentralization, it means that if you're going to own a bunch of these little businesses and keep making acquisitions, you must make sure that they have management that are accountable for their actions. So you almost, what Charlie Munger said about Warren Buffett is he outsources it to the point of abdication.
06:10 You don't want to be involved with those businesses as the top management team. So that's very important is to make sure that what I call radical autonomy. Each of these subsidiaries or businesses you buy can continue to forge their own path and future and they are incentivized by it. The next and the most important thing about serial acquirers, and we're going to get to some examples, is management.
06:38 If I was doing a presentation, you would see in bold red would be management and they need two characteristics. One, management needs to be motivated of the company by and two, they need to be honest. If you don't have those two things, if they're not motivated and they're not honest, the whole serial acquisition story falls apart.
07:01 Because think about it, you are allowing these people complete autonomy, so they have to then run their own business and you have to trust them to do that. Now, those are two very powerful features, but you cannot be a serial acquirer if you don't have cash flow. You need cash coming out of that business so that you can make further acquisitions.
07:27 Those are three very important ones, but those are things that you can identify. There's other things that are super important characteristics of serial acquirers, which sometimes people forget about. The thing that we look for when we trying to identify a serial acquirer is a very long runway of acquisitions.
07:48 So, let's say I've got this company that's generating cash, it's got good management who I trust, and it's got this decentralized structure. The thing that you have to make sure of is that there's enough acquisitions to keep fueling this machine. They keep having to be able to take that cash and buy more things.
08:06 So, that's very important. You've got to operate in the area where there's lots of potential acquisitions to make. And then the fifth one, which is really important, but sometimes gets missed completely. If you can find a serial acquirer with a tax loss, you found something very valuable. Because the acquisitions you're making, you want to put into there not have to pay tax on them in future.
08:32 So, you can actually pay a better price than anybody else, and it's going to generate better returns. And the important thing is the market never appreciates tax losses. So, those are kind of the structural and the financial elements about serial acquirers. Obviously, the things we look for is not to have any debt on the balance sheet because you need the cash flow to be able to make those acquisitions.
08:53 So, that's the theory. So, we have different kinds of serial acquirers, and those are the characteristics about what we look for. Now, let me take you back to the start. Remember I said that all these companies, $600 billion plus, you've made money out of all of them at the expense of all these small little companies.
09:14 So, what happens is in real life, John Smith sells his shares in this little company and puts his money into a passive ETF. The shares get sold down, the valuation goes lower. And so, you have this is not a South African phenomenon, it's not a UK phenomenon, it is global, where you have a lot of smaller companies that are extremely undervalued.
09:39 But they have a problem. These companies have really suffered for the last 17 years probably because any capital that they have has been taken out of those businesses. Why is that? Because money's flowing up to this big tick passive investor. So the money's flowed out and what's resulted is these management teams are not motivated at all.
10:07 They kind of just go through the motions. They run 100 200 million pound or dollar market cap companies or billion rand 2 billion rand. Nobody cares about them. The investors don't care about them. And so they're left for dead. If they produce good results or bad results, the share price still goes down. They don't make any money out of it.
10:26 Now, it's a little bit like what serial acquirers, the benefit of serial acquirers is a little bit like I don't know if anybody here has koi fish in their homes. These koi fish ponds. But the big koi fish if you leave them, they just get fatter and fatter and lazier and lazier because they're swimming around the same little pond.
10:52 But you go and take a few little fish little koi and you throw them into that pond and you find they start, all the fish start getting stimulated and start moving around a bit quicker. And that's what it's like with serial acquirers. Because you've got all these management teams in these little companies and they go about their daily business and they're fine, but they're not growing and all the capital's getting sucked out of it.
11:13 But now you let them make an acquisition. And that really starts the process of re-energizing the whole company. So that's the theory. Let me give you some examples. So I'll tell you a story back in about 2016. I was visiting South Africa and I thought let me visit some companies down here. And when I say down here, I'm talking about in KZN.
11:43 And I visited two companies and the one was a company called Argent Industrial. Some of you may have heard of Argent Industrial, but it's better known as maybe the owner of Expand-a-Gate or Jetmaster. That's fireplaces. And Argent had had quite a tricky history. It was an industrial conglomerate and it had made a lot of acquisitions in the past.
12:14 But it had also run into some difficulties. In that the share price had gone from I think around 20 rand a share and the share price had fallen all the way down to maybe four rand a share. And so I went and I met with the CEO of that business for the first time. And I just want to go back to the point about the characteristic of a good serial acquirer.
12:41 Remember I said motivated and honest management. So I went and I met the CEO. And I walked into this office that gave me terrible coffee and a very dark brown desk full of papers. And I sat down there and the CEO said "These are all the problems with the company." And he went through one problem after the next problem after the next.
13:07 I think there were five or six problems that he confronted me with. So I said "Is that the worst that you've got?" Yeah. And he said, "No, that's it. That's as bad as it gets." I said, "Well, that's fine. I'm fine with that." And I got to know him a little bit better. Took about, I don't know, 18 months.
13:29 And the share price did nothing for 18 months. The actual NAV of that business. Okay, on the balance sheet you could have closed the business down that day and you could have doubled your money. You could have gone from four rand a share to eight rand a share. No problem. But yeah, you had a motivated CEO who I felt was honest.
13:56 And yeah, he had this little business which nobody cared about. So we went around and we bought 15% of the company. And I think we must really thank Sanlam for selling us 8% and a few other South African institutions who completely gave up on this company. And there were a lot of rumors around and different stories.
14:19 That's what happens. Share prices go down and so the stories multiply. But when you really looked through it, there was a lot of value there. And so what we did is we said to the CEO "Why don't you sell some of these businesses that generate no returns? And take that money and you can do two things with it. One, you can buy your shares back because you trade at half real value.
14:44 And the other thing you can do is you can take that money and you can make acquisitions in other parts of the world. If you don't want to make acquisitions in Africa, take the money and go buy things in the UK." And that's exactly what he did. So our 15% actually ended up being 30% because he bought half the shares back.
15:04 So Argent might have had, I don't know, 95 million shares. It's now got 53 million shares in issue. And so we didn't sell and our stake doubled in the company, but the share price still didn't move. For two years the share price didn't go anywhere. But half the shares had been bought back at half the value of the company.
15:22 But then it really started to get interesting. So, remember, the little koi fish, you throw them in. So, the management of Argent, the CEO, started to make acquisitions in the UK. And he would find this good little company, maybe making a million pounds EBITDA, and he would plug it into Argent. And then you'd find another one and another one.
15:45 And now they've bought, let's say, seven decent industrial companies. Things that put the tanks on the back of fuel delivery vehicles that go in airports. Or businesses that make little trolleys that you push around supermarkets. And these businesses generate a return of sometimes 20, 25, 30% on your acquisition price.
16:12 Now, remember what I said, what makes a good serial acquirer? So, we've got the management, tick. This business got lots of cash because it's sold off assets, and it's generating cash from its existing business, tick. But also, we've got a long runway for acquisitions. So, in Argent, if you take the UK, where most of the acquisitions have been made, there are 5.5 million small businesses.
16:35 There are 20,000 businesses that make over a million dollars of EBITDA that are not owned by any bigger business. So, they stand-alone business. 20,000 that are in manufacturing. So, you've got this huge runway of things to look at, of businesses that you can look at. And the beautiful thing is, there's this retirement trade going on.
16:58 Somebody is running their business, they get to 65 or 70, they don't want to continue doing it, they want to monetize their business. And so, they go and sell it to you at three or four times EBITDA multiple. Now, you plug that into Argent, and Argent continues to grow. Now, just take this as maths very quickly.
17:20 Let's say — and these are real numbers. So, let's say Argent for example, I made 293 million rand last year of profit. Bottom line, cash flow equals profit. And let's say you take the 293 million and you buy things that are like a 20% free cash flow yield. That's what you pay. Five times. So, that adds another, let's say, 70 million, 60 million to your earnings, your cash flow for the following year.
17:55 So, now you're at 350 million. Let's say you do that for another year. It goes to 420 million. You do it for another year, you're at 500 million. So, Argent today, 293, I would expect them to be around 350 next year, 420 the following year, and 500 the following year. So, in just over two years, you should be at 500 million rand for Argent of earnings.
18:21 How many shares in issue? 50. So, that's easy maths. 500 divided by 50 is 10. So, 10 times, let's say a 10 multiple, is 100 rand a share. Today, the share price is 40 rand a share. So, you're paying four times what is a very achievable outcome for Argent today. Four times. And it's got net cash on the balance sheet, which we haven't even spoken about, cuz I'm running out of time.
18:53 And now, I really want to speak to you about another serial acquirer. So, that's one. And so, tell you about another one which I'm involved with. Some of you might remember it. It's called — it used to be called EOH. EOH, some of you might have even been shareholders. Now, EOH used to have a market cap of 100 billion rand. 100 billion rand. And then it's collapsed.
19:19 Now, EOH, today we call it Ayoka. Ayoka is an example of what happens when a serial acquirer goes wrong. And there's lessons in that because what happens with serial acquirers, they make these little acquisitions, they build them up, and then they start trying to chase earnings. And to chase earnings, they start making reckless acquisitions.
19:41 And Ayoka made many, many mistakes, but it also did a lot right. So, what Ayoka did, made all these acquisitions, and then the share price collapsed because it was chasing earnings at the expense of everything else. For low quality acquisitions. There was also some other issues which you can read about in the press.
20:00 >> [gasps] >> But so Ayoka goes and does this. Now, the key lesson from Ayoka is remember what I said, I said you want to make characteristics. The first characteristic of a successful serial acquirer is radical autonomy. Or management that you give the bandwidth to run their own business. As soon as something goes wrong, what happens is the tendency of people, of managers, you fire the CEO, you bring in a new CEO, and he goes in and he says, "Oh, all these businesses are run independently and autonomously. We must
20:36 bring them together. Because if I bring them together, I can get rid of their CFO, their HR person, and I can consolidate it into one." And that's the biggest mistake companies make. They go from wanting to have radical autonomy, and they go towards having a huge head office. And the head office has this whole world that just grows out of nowhere.
21:00 And before you know that strangles the business. And that was one of the key takeaways from Ayoka. I'm out of time, but I'm sure we can get into the Q&A, and you can ask me any questions you want about that. >> Thank you, Reese. This BizNews production is brought to you by Brent Hurst Wealth. A Mauritian Trust offers a powerful solution for global estate planning.
21:21 Invest better with Brent Hurst.