I want to start by saying that my investment thesis on Perimeter Solutions (NYSE: PRM) has changed.
I originally wrote about the company on May 12th, 2025. You can read the full writeup here: Perimeter Solutions: The Little-Known Monopoly Dominating a Critical Niche. Perimeter Solutions has a unique advisory agreement similar to private equity investments.
In the article, I wrote:
“Since Perimeter is operating like a private equity firm in the public markets, this Founder Advisory agreement is similar to a typical “2 and 20” fee structure found in hedge funds and private equity firms. Perimeter Solutions founder advisory agreement is a 1.5% and 18% structure, but the difference is that the founders are electing to take a majority of their fees in shares which should align their interests with shareholders.”
At the time I wrote about Perimeter Solutions, the stock price was $11.82 and I thought the business was worth around $22 per share based on a conservative discounted cash flow model.
From my original writeup on Perimeter:
“Capitalizing the $172.9 million in free cash flow by the cap rate of 4.55% leaves an estimated enterprise value of roughly $3.8 billion. Subtracting net debt of roughly $468 million from the enterprise value of $3.8 billion leaves an implied equity value of $3.328 billion, or $22.37 per share. (~89% upside from current price of $11.82 as of May 12, 2025).”
Today, the stock trades close to $28.
This is sort of difficult for me to write since at the time of my writing, Perimeter was one of my higher conviction ideas. It has by far been my best performing investment for 2025.
My goal is to be transparent about what I am buying and selling and let my readers know how I think about my investment process.
Let me be clear, I still think Perimeter Solutions is a great business and that management has every intention of executing on their strategies. I just think that at today’s prices, the 3 - 5-year rate of return may be subpar due to the performance drag from the founder advisory agreement.
When I initially purchased Perimeter stock, my 3-year projected IRR was near 33% and the net IRR (after deducting the performance fees) of 25.7% was still above my long-term goal of 20%. At today’s current prices, I don’t see long-term net returns exceeding 20%. I could be wrong.
Due to the Founder’s advisory agreement, Perimeter’s executive team gets paid 1.5% each year until the end of 2027, regardless of business performance. Moreover, the 18% performance fee runs through 2031, and I think that the stock will not provide outsized rates of return given the performance drag from the advisory fees.
For instance, Perimeter Solution’s goal is to deliver 15%+ returns. Let’s say they do 20%, the net return after the performance fees would be 15.2%. 20% - 1.5% = 18.5%. 18.5% * (1-18%) = 15.2%.
But if they can only deliver 15% gross returns, then the net return falls to 11.1%.
Not bad, but I think there are higher return investment opportunities available.
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Spot on analysis. What really hits is the honesty in updating the thesis because the price changed, not the story. Most people can’t separate “great business” from “great entry point,” but you nailed the difference.
The way you lay out the advisory agreement — basically a private-equity style 1.5% + 18% fee drag — is something most public-market investors miss. Your math makes it obvious how much those fees cut into the real IRR, even when the business performs.
clean logic, no hype, just valuation discipline.
Posts like this are why serious investors read Substack.