UFP Technologies is a good long-term investment because it has successfully shifted from industrial to medical manufacturing, offering a valuation arbitrage and demonstrating strong acquisition capabilities by management.

But we have been investing in a company called UFP Technologies since 2020. UFP Technologies is a medical device manufacturer and operates as a contracted third-party manufacturer.

Therefore, companies like Stryker contract with UFP Technologies to manufacture their products on their behalf.

Today, the majority of UFP's business is with Intuitive Surgical. They manage , I mean produce, all the bags and covers for the "Da Vinci" robot. They do this from the Dominican Republic,

but what initially caught my attention was that UFP Technologies had a market value of around $200 to $250 million at the time , and its business was classified as industrial. They were slowly shifting from manufacturing space products, for example, to doing more manufacturing medical devices.

About 60 to 70% of their work, maybe 60%, was in the field of medical devices and the rest in other fields. But their industrial classification code (GICS) was still "industrial".

So, as an investor in the healthcare sector, I had never heard of them before . I think most healthcare investors at that time didn't know who they were. But I could see that they were transforming into a healthcare company.

I could also see that the price-to-earnings ratio they were trading at was much lower than that of medical device manufacturers. Therefore, there was a kind of arbitrage between being an industrial factory and a medical device factory.

At that time, they were trading at a price-to-earnings ratio of between 14 and 15 times. They had plenty of cash , and they had no debts.

But what was unique and interesting about the management team there, and going back to the paramount importance of management , was that they had a history of acquisitions. Very few companies possess the DNA and culture that enables them to continue to be a positive and outstanding acquirer of other assets over time.

Most companies fail at that. I believe this has been proven experimentally. But this company had a proven track record of success, and because the sector was so fragmented, consisting mainly of small family businesses , you could clearly see that they had long-term opportunities to make further acquisitions.

The management team had a very attractive work algorithm. They were buying assets at prices equivalent to four or five times their earnings before interest, taxes, depreciation and amortization (EBITDA).

They incorporated those assets into their businesses with one goal only: to always increase their value to their customers. I truly believe that their culture has driven much of their success.

Let's always make ourselves more valuable to our end customers.

What has happened since 2020 is that today they are 90% specialized in medical manufacturing. Therefore, they are now viewed as an external manufacturer for healthcare, which has led to improved profit multiples.

Their profits have grown much faster than expected because they have added incremental acquisitions over time.

Therefore, it was a very good stock for us. We have sold a large part of it at this stage, but it is still represented in the fund, which is something I think we may hold onto for another 5 or 10 years, because again, we are not even close to the end of what they can do in terms of consolidating this sector.