Solwers subsidiary complements HVAC expertise with acquisition

Translation: Original comment published in Finnish on 12/19/2023 at 8:40 am EET.

With the acquisition, which is in line with the group-level strategy, Meskanen will almost double the number of its experts. The business to be acquired has developed quite steadily in recent years and is very profitable. We estimate that Solwers maintained the reasonable valuation level seen in previous acquisitions, although the purchase price was not disclosed. Against this background, we consider the acquisition to be a very justified move.

Engineering expertise from the North

Solwers announced on Monday that its subsidiary Meskanen has signed an agreement to acquire the entire share capital of the HVAC engineering company Plan-Air Oy. With a long history in Oulu, Plan-Air's clientèle consists mainly of real estate investors, public developers, key retail chains and construction companies. The area of operation is concentrated in the provinces of Oulu and Lapland and Finland's largest cities.

According to Enento, Plan-Air’s revenue has stood around 0.7-0.8 MEUR in 2020-2023 (note the different financial year) and an EBIT of around EUR 150,000. In other words, the business has been quite profitable, with an average EBIT margin of just over 21% in recent years.

With the acquisition, Meskanen will strengthen its local operations in northern Finland and roughly double the number of experts. We estimate that the combination of the existing business and the new operations offers some scalability potential in terms of administrative costs, as the normal overheads of the business are spread over a larger number of billable employees. Given this and the qualitative factors of the business, we consider the acquisition to be a very sensible move and in line with the group's strategy.

Purchase price was not disclosed, but we believe it was in line with previous acquisitions

The purchase price of the acquisition was not disclosed, but we believe that the transaction was made at moderate valuation multiples of 5-6.5x (EV/EBIT) that Solwers has historically paid and that it generally targets for acquisitions. The transaction price would therefore be roughly in the ballpark of just over 0.5 MEUR, which would provide good conditions for value creation. As we wrote in our previous company report (available here), Solwers has strong cash reserves and thus we estimate that the company financed the acquisition with these funds. The acquisition is small by Solwers' standards, as the revenue of the acquired company is about 1% of our current year consolidated revenue forecast and about 2% of the corresponding EBITA forecast. Thus, Solwers' prospects for continued inorganic growth remain good even after the acquisition. We will take the acquisition into account in our forecasts in the next company report.