3 Companies With Stellar Acquisition Records

Effective capital allocation is a critical skill for any management team. But how can an investor judge a company’s ability in this area?

In this video clip from “The 5,” recorded on Nov. 9, Fool.com contributors Trevor Jennewine, Zane Fracek, and Demitri Kalogeropoulos discuss how Constellation Brands (NYSE:STZ), Teladoc (NYSE:TDOC), and Roku (NASDAQ:ROKU) have made strong acquisition moves in recent years.

Trevor Jennewine: Let’s talk about spin-offs and mergers and acquisitions. When you think about those types of deals that have taken place over the last few years, name one that stands out and you can be for good reasons or bad reasons and discuss the deal and the impact it had. Demitri, let’s start with you.

Demitri Kalogeropoulos: Let me share my screen for a second. That’s a cool question. The one that jumped into my head when I was thinking about this as a game-changing acquisition was 2012 purchase, and that accompany calling the Constellation Brands and the ticker symbol is STZ, and you might be aware of them. They sell alcoholic beverages and beers.

Let’s see if I can get this up. But what we’ve got here is the operating margin. Since that purchase in 2013, they spent about thee billion dollars buying the US rights to Mexican imported beers from Anheuser-Busch, which is Corona, Modelo, and Pacifico. Since then, as you saw their margins, they were primarily just a wine and spirits company before that, and around then I don’t know if we’re following alcoholic beverages, craft beers for really the thing that everyone was drinking.

But then that changed, and it all shifted the money went into these premium imports and Constellation Brands just had an amazing six or eight years following that. The company is still making really good bold purchases like that.

I’m impressed with the management, capital allocation skills. They’ve got a big ownership in Canopy Growth, the recreational marijuana market. They’re really aiming to make a big push in that. They’ve been spending a lot of cash in upgrading their Mexican brewing network so that they can satisfy demand and get those margins continuing to go higher over time.

That’s one stock I think that investors might want to keep on their watch list if they’re looking for exposure to the alcoholic beverage industry, and if you like a management team that have a good track record for allocating capital.

Zane Fracek: Pivoting hard from alcoholic beverages to healthcare, in acquisition, I thought it was pretty interesting in the past year. Was the $18.5 billion acquisition of Livongo by Teladoc. This was August of last year of 2020. I think that helps them, helps Teladoc become the player to watch in healthcare in general, honestly.

I think we’re going to be looking at a transformed healthcare landscape where it’s going to include telehealth and wearables, so combining the two, I think just made…