Translation: Original comment published in Finnish on 07/23/2024 at 9:38 am EEST

 Due to Harvia’s strong balance sheet, acquisitions have been expected from the company, either in the US infrared or steam solution markets to accelerate growth. We assumed organic expansion on the steam market would be slow for Harvia due to the different distribution network needed in the steam category compared to the other sauna category, which, we believe is more focused on wholesalers of plumbing supplies. ThermaSol with a revenue of 14 MUSD (in 2023) is a small complementary acquisition in Harvia’s scale (2023 revenue 151 MEUR), but we see prerequisites for the Group to scale the acquisition item.

The debt-free transaction price is 30.4 MUSD, which prices ThermaSol at 2.1x the 2023 revenue and 12.2x the actualized adjusted EBITDA. The multiples paid for the acquisition target are not low, but clearly below Harvia’s own multiples and the valuation picture turns more positive when we consider the strategic compatibility and Harvia’s historical track record of the ability to raise the profitability of acquisition targets after the transaction.

ThermaSol is a family-owned manufacturer of steam rooms and showers

Harvia announced on Tuesday that it will acquire the premium steam room and shower manufacturer ThermaSol Bath. Established in 1958, ThermaSol is a family-owned company that employs around 40 people and is one of the largest players in the US residential steam solutions market. The acquisition target's head office, design and assembly facilities are located in Texas.

In addition to steam rooms and showers, the company’s product portfolio also includes steam generators, steam and shower heads, and digital control units. The company is also a distributor of indoor and outdoor saunas as well as traditional sauna heaters and has previously been a customer of Harvia. Due to the customer relationship, we assume Harvia knows the acquisition target particularly well.  After the transaction, ThermaSol will continue as an independent brand as part of Harvia Group, which follows Harvia’s previous playbook in acquisitions.

Figures have fallen from 2021 levels in recent years

ThermaSol’s revenue and adjusted EBITDA have been in a slightly downward trend in recent years, which we estimate is caused by weakened demand in the industry after an exceptionally strong 2021.

In the acquisition, Harvia’s management sees potential to expand steam solutions to different price categories supported by Harvia’s volume production, and we expect ThermaSol to invest more aggressively in growth under Harvia’s ownership. ThermaSol currently operates only in the US, where according to Harvia’s management, steam rooms account for about 20% of the local 800 MEUR sauna market.

Annual synergies of 1.7 MEUR are expected from the transaction by the end of 2027

Harvia’s management expects the transaction to generate annual synergies of 1.7 MEUR by the end of 2027. According to Harvia, the main sources of synergy are procurement and logistics, marketing, cross-selling, distribution, and joint management of Harvia US companies. Jennifer Thayer, who heads Harvia’s US business, will also become the CEO of ThermaSol and ThermaSol's current CEO joins Harvia as a strategic advisor. Non-recurring costs of 1.4 MEUR are expected from the integration. With the 2023 result and estimated synergies, the adjusted EBITDA ratio for the transaction would be 7.2x.

Harvia expects to complete the transaction during July 2024. The transaction requires that normal conditions are met, but we do not consider those terms to be an essential obstacle due to the limited overlap of the businesses and the market position.