Todd Sullivan on Creating Shareholder Value Through Buybacks

Three ways to create value:

  1. Organic growth
  2. Acquisitions
  3. Share buybacks


Share buybacks

  1. Buyback strategy should focus on making a meaningful reduction in share count
  2. Look for managers that are consistently reducing the share count
  3. As a general rule of thumb, buybacks should be executed when the stock price is below book.  Dividends can be issued when the stock price is above book
  4. What’s the reason for the buyback?
  5. Does leadership have a history of buybacks?
  6. Companies that quietly buy backs shares vs. those that publicize usually have the best motives


Share buyback vs. special dividend

  1. A significant share buyback is always better
  2. It leads to a higher valuation, because it sends an important signal to the market – management team is very buyback focused.


General Points:

  1. Capital allocator behaves like an owner vs. manager
  2. Ensure that the buyback program is a long-term commitment to reduce stock count vs. covering options issued to managers.


Capital allocators to study:

  1. Marlon Wilkus @ American Capital
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