Semcon - Putting the cash to work
Acquires Swedish IT company Squeed Had SEK 105m in revenues and 13% EBIT margin in ‘20 Acquisition price of EV/S 0. 95x inc. max earn-out Strengthens Semcon’s digital offering Semcon has acquired Swedish IT company Squeed AB, which had a turnover in 2020 of SEK 105m, with an EBIT margin of 13%. The acquisition without any growth assumption will add ~5.
5% to our ‘22e sales estimates and be accretive on the EBIT margin (13% vs 9. 9%). On paper, it looks like a good addition to the Group that complements Semcon's digital offering, adds new sectors and broadens the Group's customer portfolio.
The acquisition is another step towards Semcon’s new financial target’s, which include top-line growth of 10% per year including M&A. It will also further diversify the revenue mix, with new exposure towards retail and finance and even less exposure towards the automotive sector. Squeed has grown profitable since 2017 Squeed has grown profitable every year since 2017, from sales of SEK 68m in ’17 to SEK 105m in ’20, representing a CAGR of 15.
5%. The company has close to 100 employees, is headquartered in Gothenburg and has an additional office in Stockholm. Squeed has a strong market position in software development and agile change management.
Paying with available funds and holdings of own shares The acquisition price is an EV of SEK 61m, of which SEK 56m will be paid in cash and SEK 5m will be paid in Semcon shares, both covered by available funds and existing holdings of own shares. In addition, earn-outs of up to SEK 39m can be paid out if certain criteria’s for operating profit is met for the period ’21-’23. This results in EV/S multiples of 0.
58x excl. earn-outs and 0. 95x incl.
earn-outs. Semcon currently trades at a ‘21e EV/S of 1. 1x.
We highlighted Semcon’s strong cash position of SEK 260m in our latest post-result comment and there is more room even after this acquisition. We think M&A will become more frequent for Semcon going forward than we have seen historica.