When we first began AH one of the earliest criticisms we received was our lack of focus on a specific industry. We built a Horizontal HoldCo rather than a Vertical HoldCo.
Vertical HoldCos favor the operator. They allow for lots of opportunities to create synergies, improve processes, and copy best practices.
Horizontal HoldCos favor the investor. They allow for a large universe of investment opportunities and the ability to be opportunistic regardless of industry or geography. My partner and I are investors. We went horizontal.
However, in practice, a Horizontal HoldCo does not end up being a series of completely unrelated similarly sized investments. It does not work that way. Different investments will become more important over time and represent outsized portions of the structure.
Here are a couple of ways that happens:
Bolt-on acquisitions. Certain companies and management teams will lend themselves to bolt-on acquisitions. In 2018 we acquired a last-mile logistic operation for our BPO business. It was an easy bolt-on investment for a company already providing services to similar clients. Last-mile services now represent 40% of the profits of our BPO vertical. This has helped grow the significance of that business in our structure.
Opportunities for organic growth. Some businesses are easier to grow than others. Some CEOs have a growth mindset. When these two come together, rapid growth can be a result. This happened to us in our restaurant business. At the beginning of 2020, we had 13 total locations. By the end of 2022, we had 40. Our restaurant business now represents over 60% of the profits in Panama.
Tailwinds. Some businesses will simply benefit from tailwinds. Our furniture business in North Carolina benefited from demand trends in the area. A combination of increased demand and a bit of pricing power enabled us to more than double profits in a relatively quick amount of time. This was not due to some innate skill of ours. We benefited from things outside of our control. That company now represents 50% of our US profits.
We keep buying bigger companies. Every deal we have done has been a bit larger than the last. While the difference between companies six and seven may not be great, the difference between our first and eighth acquisitions is quite significant.
Not all businesses will act the same or have the same results. I am never certain which of them will grow at an outsized rate, but I am fairly certain that going forward one or two verticals in our HoldCo will end up representing the vast majority of our profits.