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A reinvented company with a large moat and reliable cash

Having divested its industrial legacy, this software conglomerate is focused on through-the-cycle quality companies
August 17, 2023

In its transition from industrial to software conglomerate, Roper Technologies (US:ROP) is a symbol of the times. Having sold everything from pumps to stoves and lawn equipment in its 133-year history, the Florida-headquartered company is now (almost) all-in on the intangible economy. It was an expensive switch, but Roper now owns more than 20 high-quality, cash-generative software companies in niche markets, and, with billions of dollars to spend, there is room for further growth.

Tip style
Growth
Risk rating
Medium
Timescale
Long Term
Bull points
  • Strong cash generation
  • Diversified software portfolio
  • Trades at a discount to peers
  • Potential to profit from AI
Bear points
  • Pricier recent acquisitions
  • Dogged competition

In June 2022, Roper sold a 51 per cent stake in 16 legacy industrial firms to Clayton, Dubilier & Rice for an upfront payment of $2.6bn (£2bn). That headline figure obscured the deal multiple, which equated to an enterprise value of just over 10 times the businesses’ earnings before interest, tax, depreciation and amortisation (Ebitda). Investors seemed unconvinced that Roper had landed on the right side of the deal. In the fortnight that followed the deal’s announcement, its shares fell 17 per cent.

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