The shareholder’s become increasingly concerned that accelerating commercial use of generative, inference, and agentic AI could trigger business dynamics- and market demand-related disruption of many of ROP’s software enterprises (75%+ of ROP revenues). Moreover, the shareholder believes that ROP is too large to be nimble, but too small to the generate enormous amounts of investment capital needed to compete with AI innovations and ecosystems developed by the much more profitable software behemoths. In addition, most of ROP’s software businesses cater to mature end-markets, limiting the potential for outsized sustainable organic revenue and earnings growth, a concern, given the high multiples ROP’s been paying for acquisitions.

Amplifying this last issue, it seems ROP’s been overpaying for many of its mature end-market software companies. Based on the few acquisitions for which ROP discloses acquirees’ earnings before interest/taxes/depreciation/amortization expenses (EBITDA), ROP’s paid between 15-23 times estimated forward EBITDA, despite low probabilities of acquirees generating sustainable 10% organic revenue, and 20%+ earnings growth and Return on Invested Capital (ROIC) needed to justify these multiples. Moreover, as EBITDA overstates true operating earnings performance by excluding depreciation & amortization (D&A) costs—in ROP’s case, almost 30% of total operating expenses—it’s possible ROP’s paying 20-30+ times operating earnings for acquisitions, after adding back D&A expense.

Unfortunately, ROP’s shown little for its cumulative $22-billion-cost software business transformation-by-acquisition strategy. From 2018 (when current senior management took the reins) through 2024, organic revenues grew only at a six-year compound annual growth rate (CAGR) of 5.6%; operating earnings (including D&A expense) rose at an anemic 6.4%, versus a 16-year CAGR of 18% under prior CEO Brian Jellison. Free cash flow (FCF) only grew at a six-year CAGR of 8.9%, versus a 16-year CAGR of 17% under the Jellison era. Moreover, Return on Invested Capital (ROIC), also declined, from a 16-year average of 8.3% under the Jellison era, to the latest six-year average of 6.7%. ROIC is a key profitability driver, because in tandem with earnings generation, it’s one of the two engines that power retained earnings performance (a key proxy of intrinsic value performance). Consequently, given the drop in earnings growth and ROIC, it’s not surprising that retained earnings CAGRs also fell, from 21% during the Jellison era, to 18% from 2018-2024, to around 8% during the last two years.

Unfortunately, ROP’s mediocre financial performance has cascaded over to material share-price underperformance: From 2018 through 2024, ROP shares rose at a 13% CAGR, versus a 27% CAGR for the Nasdaq 100 and a 16% CAGR for the S&P 500. Year-to-date 2025 through December 24th, ROP shares fell 13%, a versus 22% and 18% expansion in the Nasdaq 100 and S&P 500, respectively.