Kingsway: "Finally Time to Play Offense"
Kingsway, the only publicly traded U.S. company employing the search fund model to acquire and build businesses, reported its 2Q 2025 results recently. Here are the basic highlights for year-over-year growth for the quarter:
Consolidated revenue increased 16.9% to $30.9 million for the three months ended June 30, 2025, compared to $26.4 million in the prior year period.
Kingsway Search Xcelerator (“KSX”) revenue increased 42.1% to $13.3 million in the second quarter of 2025, compared to $9.3 million in the second quarter of 2024.
Extended Warranty revenue increased 3.1% to $17.6 million.
But the most important news is Kingsway’s emphatic statement that, after years of investment in their KSX platform, KSX is ready to run at a faster pace.
Given the company’s heightened level of acquisition activity in the last several months, current results are not reflective of the future potential of the entire business, let alone just KSX. This is why Kingsway provides pro-forma figures and it is the primary metric to track.
Since reporting its 1Q 2025 results on May 8, 2025, here are the significant events in chronological order…
June 24 - Capital Raise
Kingsway announced a private placement of common shares (a PIPE transaction) with five long-term institutional investors who contributed $15.7 million of capital to the company. These funds have already enabled Kingsway to scale its search platform faster, which is why the company also updated the target number of acquisitions it expects to complete each year from 2-3 to 3-5.
July 1 - Ninth Acquisition
KSX completed its ninth acquisition via the purchase of Roundhouse Electric & Equipment Co. for $22.4 million. The purchase multiple was 5.3x trailing twelve-months unaudited EBITDA. KSX’s Miles Mamon is stepping into the CEO role of Roundhouse.
August 1 - Tenth Acquisition
Kingsway’s Skilled Trades platform (initial acquisition was Bud’s Plumbing based in Evansville, IN) acquired AAA Flexible Pipe Cleaning Corp., “a well-respected plumbing services provider based in the Cleveland, Ohio metro area.” This company operates under the name of Advanced Plumbing and Drain and has operated since 1926 under three generations of family ownership. Here are the terms of the deal and the unaudited financials:
Purchase price of $3.5 million, plus a potential earn-out of up to $1.5 million, for a total maximum purchase price of $5.0 million
Unaudited pro-forma annual revenue of $7.0 million
Unaudited pro-forma annual adjusted EBITDA of $0.7 million
Based on the max earn-out, the purchase multiple is 0.71x trailing revenues and 7.1x adjusted EBITDA. If no earn-out is achieved, the purchase multiple will be just 0.5x revenues and 5x adjusted EBITDA.
This is a significant acquisition as it comes under the auspices of Rob Casper. As we wrote in our prior post about Kingsway:
Asked why he decided to partner with Kingsway to build a trade services platform, Rob responded:
“So I think it’s a huge opportunity. And I didn’t mention this, I should have, this is like maybe my third aggregator model. The first couple were reasonably successful, hit about $1 billion in valuation in about 4 years. And so I think it really depends how much we want to go for it.”
—Rob Casper, CEO of Bud’s Plumbing, Kingsway’s 2025 Investor Day
Rob using the phrase “reasonably successful” to describe how he helped build two prior businesses up to nearly $1 billion valuations still tickles my funny bone!
With Rob on board at KSX, he led the acquisition of Bud’s Plumbing that Kingsway announced on March 17, 2025. Rob then sourced and completed the acquisition of Advanced Plumbing less than five months later. Given his background as an operator who has rolled up skilled trades businesses for private equity, Kingsway has given him leeway that has not been afforded to other less-experienced operators-in-residence. Currently, the Kingsway Skilled Trades platform is the one to watch over the next several years given it has the greatest potential to turn into a home-run for both Rob and for Kingsway.
August 1 - Eleventh Acquisition
KSX, via Ravix Group, completed a tuck-in acquisition of The HR Team based in Maryland. This is the second tuck-in by Ravix since KSX first acquired it in October 2021. Terms of the transaction were not shared aside from the fact The HR Team had $200,000 of annual adjusted EBITDA. For an asset-light service business, my best guess for its annual revenue is a range of $800 thousand to $1 million.
With all the acquisition activity, KSX is now down to two “operators-in-residence” from four at the beginning of the year. The remaining two OIRs, Paul Vidal and Peter Hearne, have been searching since January 2024 and May 2023, respectively. For Kingsway to achieve its goal of 3-5 acquisitions annually for KSX, I expect 2-3 new OIRs to be announced before the end of 2025 with another one or two announced in the first half of 2026.
Kingsway Results: Reported vs. Pro-Forma Run Rate
Below is a chart showing Kingsway’s total adjusted EBITDA (for KSX and the warranty business) for both its pro-forma trailing-twelve month run rate and for its actual reported trailing twelve-months. You can see the pro-forma run rate, which includes acquisitions under KSX as if they had owned the acquired business for the prior twelve months, has been higher than actual results. You’ll also see that actual reported TTM results have been slightly declining since 2Q 2023. The reason for the decline in actual results is almost entirely due to weakness in Kingsway’s extended warranty business.
However, the warranty business is now back in growth mode as of the last two quarters. But, due to accounting methods, this also means a few more quarters of seemingly poor results. Kingsway’s CFO Kent Hansen explained why on the 2Q 2025 call (emphasis mine):
“As we’ve discussed in previous earnings calls, many in the extended warranty industry prefer to use a metric called “modified cash EBITDA” when assessing and valuing extended warranty businesses. This is because under GAAP accounting, growing extended warranty businesses often see their EBITDA penalized, while shrinking extended warranty businesses often see their EBITDA boosted due to the timing differences in how revenue is recognized.
Kingsway's extended warranty businesses are back in growth mode and a gap has recently opened up between adjusted EBITDA and modified cash EBITDA. Compared to one year ago, trailing 12-month modified cash EBITDA for Kingsway’s Extended Warranty businesses, which is how we assess the performance, is up 1.9%. In contrast, compared to one year ago, trailing 12-month adjusted EBITDA for Kingsway's Extended Warranty businesses is down 25.9%. Over time, adjusted EBITDA and mod cash EBITDA converge, and we expect the same to occur for Kingsway.”
Summary
Kingsway has raised new capital (hopefully the last for a good while). They boosted their target annual acquisitions for KSX from 2-3 to 3-5. Before 2025 is even done, the company has hit the upper end of its new annual acquisition target range—and there is still time for another acquisition given how long their two remaining operators-in-residence have been searching. Finally, the warranty business is back in growth mode. All this points to actual reported results finally accelerating to catch up with the recent growth in Kingsway’s pro-forma run rate in the coming years.
I’ll let Kingsway’s CEO, JT Fitzgerald, close out this post by quoting his concluding remarks on the 2Q 2025 call:
“Well, to close, I’d like to express my thanks and appreciation to Kingsway’s employees, partners and shareholders. It’s truly a new day for Kingsway. We have an amazing team, a wonderful set of operating businesses. We added funding to deliver our multiyear growth ambitions, and our KSX platform is ready to scale.
After years of building the foundation, it’s finally time to play offense. The energy at Kingsway is palpable, and I look forward to sharing more good news in the second half of 2025.”
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Disclaimers for this Substack
The content of this publication is for entertainment and educational purposes only and should not be considered a recommendation to buy or sell any particular security. The opinions expressed herein are those of Douglas Ott in his personal capacity and are subject to change without notice. Consider the investment objectives, risks, and expenses before investing.
Investment strategies managed by Andvari Associates LLC, Doug’s employer, may have a position in the securities or assets discussed in any of its writings. Doug himself may have a position in the securities or assets discussed in any of his writings. Securities mentioned may not be representative of Andvari’s or Doug’s current or future investments. Andvari or Doug may re-evaluate their holdings in any mentioned securities and may buy, sell or cover certain positions without notice.
Data sources for all charts come from SEC filings, Koyfin, and other publicly available information.