Solwers grows with a small acquisition in Finland

Translation: Original comment published in Finnish on 07/05/2024 at 8:08 am EEST

 In principle, we are positive about the small transaction, as the acquisition target seems to be of high quality and we also consider investing Solwers’ hefty cash assets in acquisitions in line with the company’s strategy sensible from the point of view of efficient capital use. The transaction price was not disclosed, but we trust it was moderate considering Solwers’ strategy and previous acquisitions. We will include the acquisition in our forecasts in connection with the next company report, but the impact of a small transaction on the Group’s revenue and EBIT will be a few percent.

The acquisition target is Finland's oldest architect' office

Solwers announced on Thursday that it had signed an agreement to acquire the entire share capital of Siren Architects Ltd. The acquisition target is Finland's oldest architect's office, with a history dating back to the early 1900s. The buildings designed by Siren Architects Ltd are versatile and vary from public buildings to residential buildings and holiday homes. The company has 18 employees. In accordance with Solwers’ acquisition strategy, the share transaction causes no changes in Siren Architects’ business and it will continue independently under the leadership of the current CEO Jukka Siren.

Siren Architects' revenue in the financial period March 1, 2023 to February 29, 2024 was  1.75 MEUR, with an adjusted EBIT margin of 13.5%. Relative to Solwers’ revenue and EBITA, these correspond to 2.5% and 3.5% shares, so as typical for Solwers the acquisition target is small compared to the Group. In the 2020s, the revenue of the acquisition target has developed steadily, and EBIT % has on average been around 12%. We believe the fairly stable revenue development and profitability indicate a rather high-quality acquisition target. However, the profitability level of the acquired target should be approached with some reservation, as the compensation of an entrepreneurial company may have focused on dividend distribution.

The transaction price was not disclosed, part of the payment will be in Solwers’ shares

The transaction price of the acquisition was not disclosed, but we believe that it was made at moderate valuation multiples of 5-6.5x (EV/EBIT), which Solwers has historically paid and generally targets for acquisitions. The transaction price would, therefore, be around 1.5 MEUR providing good conditions for value creation. Part of the purchase price has been agreed to be paid in Solwers Plc's shares. The number of shares to be given to the seller is 103,632, corresponding to approximately 1% of the total share capital (value EUR 377,000 at yesterday's closing price).

Our overall view of the announced acquisition is positive although such a small transaction has a limited effect on the Group. We will include the acquisition in our forecasts in the next company report.