Deep Dive - Diploma Plc
Clear mission statement: sustainable quality compounding
Executive Summary
This new in-depth report will cover Diploma, one of the leading industrial serial acquirers focused on volume-led organic growth (which has averaged 5-6% since 2007).
Over the past decades, the make-up of its revenue streams has changed notably, both from a product as well as geographical standpoint. As a result of some large acquisitions, it’s become a worldwide technical platform business with three key segments: Controls, Seals, and Life Sciences.
Exhibit I - Diploma Overview
In many ways, we believe it’s not that relevant to focus on its long-standing performance, which is well documented on the company’s corporate website. Diploma’s got a new management team (CEO Thomson joined in 2019, Chris Davies became the new CFO late 2022), it’s revolutionarily overhauled its too generous dividend policy, and it’s stepped up its commitment to acquiring larger companies more frequently.
In this report, we’ll go over Diploma’s value-add focus and implications on profitability, recent financial developments, in particular the return economics of its large M&A, the current M&A pipeline, and our valuation model. Additionally, we’ll tie few strings together when it comes to the serial acquirer model and that whole framework of quality growth, ROIIC, longevity, and reinvestment rate. We touched on these concepts in our first serial acquirer report.
Last year, we published our deep dives on Lifco and Constellation Software which - among other things - highlighted why certain models work better than others (focus on cash flow and EBITA profitability/quality over revenue), why corporate culture is hard to define, why modeling growth through acquisitions is a lot more nuanced than many believe, and other factors.
Similar to other serial acquirers, Diploma’s focused on good decentralization.
We have a decentralised approach, which means that we have really fantastic, brilliant local management teams, they're very accountable people, very commercial, humble, and focused on continuous improvements, and they're therefore very good at execution. And it makes them dynamic, it makes them agile, and therefore they tend to do very well in volatile times as a result of that. And we saw that, I mean, I saw that clearly through the pandemic. - CEO Johnny Thomson (May 2025)
Part I - Quick Overview
Business Model and Market Position
Diploma stands as a prominent international group of businesses specializing in the supply of highly specialized technical products and services. The company operates a differentiated business model characterized by a well-diversified portfolio of high-quality businesses. This model is designed to deliver "compounding growth in good times and bad", emphasizing value-add distribution rather than simple product supply.
Exhibit II - Diploma Overview
This means the company goes beyond merely supplying products, providing specialized technical services, expertise, and often bespoke solutions. This approach typically fosters stronger customer relationships and enables better pricing power, contributing to the company's consistently higher and steady profitability compared to traditional distributors.