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Compass Group’s Scale Helps It Win Catering Customers

Compass Group, a new holding in the Harding Loevner Global Equity strategy, is the largest food-catering company in the world. Based in Chertsey, England, the business provides everything from corporate dining to stadium concessions—including at Stamford Bridge, home of Chelsea Football Club—to food services for hospitals, retirement homes, universities such as Texas A&M, and even offshore oil rigs.

While some of its rivals have recognizable names—Aramark, Sodexo—the global food-service industry is still so fragmented that Compass’s 15% market share is 2.5 times that of the next-largest player. This scale is a key competitive advantage because it allows Compass to earn attractive margins while providing better service at better prices than competitors, and lower than the cost of a business managing its food needs in-house (which many still do). Customers that outsource their catering to Compass tend to be loyal—96% renew their contracts. This high retention rate along with Compass’s demonstrated ability to pass on inflationary cost increases to customers are evidence of its strong bargaining power over buyers.

Food service isn’t a particularly fast-growing industry, but Compass has plenty of room to increase its market share by converting more self-operators to customers as well as by using its strong balance sheet to acquire smaller competitors. The company has been a serial acquirer but also a smart one. Its sales have continued to grow at a high-single-digit rate through a combination of M&A and winning new business, and the stock has risen at a compound annual rate of 9% (in US dollars) over the past decade.

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BBVA Takes a Risk By Going Hostile

BBVA is Spain’s second-largest bank and wants to get bigger. Management thought a good way to do that would be to buy its rival Sabadell, Spain’s fourth-largest bank. The resulting firm would be Spain’s second-largest bank, with a roughly US$70 billion market cap, 100 million customers around the world, and US$1 trillion in assets. Sabadell’s management, however, was not so taken with the idea, and rejected the offer.

After being rebuffed on its US$12.9 billion “friendly” offer at the beginning of May—a 30% premium to Sabadell’s market cap at the time—BBVA came back with a US$13.1 billion offer that it plans to present directly to Sabadell shareholders, bypassing management. This kind of hostile merger is a rarity among banks. Mergers are risky enough on their own. Hostile mergers amplify those risks, and hostile mergers in the highly regulated world of banking amplify them even further.

Analyst Isaac May presents a few of the biggest reasons why hostile mergers for banks can be risky, and portfolio manager Moon Surana presents counterarguments for why BBVA might be able to overcome those risks.

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Chipmaking Is Getting More Complex. Daifuku’s Smart Monorails Keep Fabs Running Smoothly

In semiconductor manufacturing, a single speck of dust poses a threat to production. It’s why cleanrooms, the sterile labs where silicon wafers get etched and cut into pieces, and then packaged as finished chips—with thousands of steps in between—contain few humans. To reduce the risk of contamination and defects, materials are largely transported by automated monorail systems that travel along the ceiling.

Source: Daifuku.
While advances in generative artificial intelligence (AI) have put a spotlight on the companies that design and manufacture chips, as well as their data-center customers, providers of cleanroom technology play an increasingly critical role in a world of high-performance computing. Not only is the industry for cleanroom automation characterized by an attractive competitive structure, but new trends and challenges in chipmaking are also improving the growth outlook for this specialized material-handling technology. One player in particular may stand to benefit, and that is Daifuku.

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TOMRA Struggles to Save the World and Turn a Profit

TOMRA built a business that has benefitted its shareholders and the environment. The Asker, Norway-based company sells “reverse vending machines” that collect used soda cans and other recyclables as well as advanced sorting systems, such as those used in recycling plants to sift through waste and find reusable material. It was founded in 1972 and its growth has benefitted from and mirrored the environmental movement that began in the 1970s. In the half century since, TOMRA has expanded into more than 100 markets around the world, making money for its shareholders while helping clean up the planet.

TOMRA has a dominant business position. The company’s scale, brand, and service network are difficult to match for smaller competitors or new entrants. It has a 70% global market share in reverse vending machines, and roughly 50% of the market for sorting machines. A third division focuses on adapting its sorting technology for production and processing in the food industry.