Relais strengthens its workshop network in Sweden with acquisition

Translation: Original comment published in Finnish on 7/8/2024 at 7:10 am EEST.

In a transaction that is small for its size, Relais will acquire two commercial vehicle repair shops in Sweden, near Gothenburg. In our view, the value creation conditions for the acquisition as set out in the strategy are valid. We will include the transaction in our forecasts in our next company update, although the impact of such a small acquisition on Relais's numbers is quite limited.

Team Verkstad Sverige AB specializes in bus repairs and maintenance

Relais announced on Friday that its subsidiary STS has signed an agreement to acquire the shares of Team Verkstad Sverige AB. The acquired business will consist of one workshop and one repair shop near Gothenburg, Sweden. The acquired workshops specialize in repair services for buses and other heavy commercial vehicles and employ around 34 professionals. The seller in the transaction is Vy Buss AB, part of the Norwegian state-owned VY Group, which operates train and bus services. The annual revenue of the acquired business is around 69 MSKE and EBIT is around 2 MSEK. In relation to Relais' revenue and EBITA over the last 12 months, this represents 1.8% and 0.6% respectively, so the acquisition is small at Relais Group level. The transaction, which is subject to regulatory approvals and certain customary conditions, is expected to close on October 1, 2024.

Relais acquires the most interesting garages

Team Verkstad Sverige has experienced rapid growth in the 2010s, which we believe reflects the strong competitiveness of its workshops. In particular, historical profitability should be treated with caution, as we estimate that not all of the company's workshops will be transferred from Team Verkstad Sweden to Relais, and reporting as part of the Vy Buss Group may not have fully reflected the performance of the workshops as a separate business. The maintenance and repair business is also relatively capital-intensive, which means that it has the potential to achieve a high return on capital even with moderate profitability.

The expansion of the maintenance and repair services with a small add-on acquisition is fully in line with Relais' strategy and we believe that the acquired business is quite a good fit for Relais and STS. Although the purchase price of the acquisition was not disclosed, we believe that the price paid is reasonable for the quality of the target and the return on investment. In our view, this is supported by the seller's situation, where the sold business was divested for strategic reasons (focus on operating vehicles), and the preferences of the state owner, where sustainability issues such as employee welfare and long-term operational development are more important than the purchase price paid. On the other hand, an alternative buyer could probably have been found for the garages, and we do not believe that the purchase price would have been unreasonably low. We estimate that the deal also included strategic elements for Relais, such as the expansion of the workshop network in the busy Gothenburg area and the acquisition of specialized bus maintenance expertise as part of Relais and STS. In our view, these factors make it possible to create shareholder value even at a slightly higher purchase price. We will include the acquisition in our forecasts in our next company report.