Swedish building materials and DIY supplier BHG Group’s M&A plans include bigger transactions and new-market acquisitions, CEO Adam Schatz told Mergermarket. The company, formerly known as Bygghemma Group, typically acquires targets turning over SEK 50m-SEK
- Aims to close further acquisitions before year end
- SEK 10bn turnover target to be achieved within next couple of years
- Considers Western European acquisition targets
Swedish building materials and DIY supplier BHG Group’s M&A plans include bigger transactions and new-market acquisitions, CEO Adam Schatz told Mergermarket.
The company, formerly known as Bygghemma Group, typically acquires targets turning over SEK 50m-SEK 250m (EUR 4.7m-EUR 24m), Schatz said. However, its balance sheet now allows it to look at more sizeable acquisitions, he said; it has SEK 366m cash, more than SEK 500m in undrawn credit facilities and a board mandate for equity issue, all of which could be used to back M&A.
BHG has a long list of potential targets, some of which are bigger companies, he said. The larger potential targets are distributed across the relevant business segments, he added.
The Nordic region is its main market when it comes to M&A and organic growth, but it is also looking selectively at other Western European geographies, beyond its current limited presence in the UK and the DACH region, Schatz said. Continental Europe is an untapped market with potential for further growth, he added. Apart from the Nordics, BHG also has operations and sales in the Baltic states and a number of Eastern European countries.
The coronavirus pandemic makes it challenging to carry out M&A processes and BHG relies on digital meetings, he said. However, as Sweden is relatively open, it can still hold face-to-face meetings to some extent locally, he said, which could potentially lead to its next acquisitions being Sweden-based.
BHG aims to close acquisitions this year despite the practical challenges of the pandemic, he said. Typically, BHG closes two to six acquisitions a year, and it has closed only one so far this year, he added. BHG acquired SEK 150m-turnover Swedish online door and window retailer Hemfint.se in February for an undisclosed amount, as reported.
The company divides potential targets into catalyst acquisitions or platform acquisitions, Schatz said. Catalyst acquisitions focus on targets with a particular niche, product category or label, he said. Labels could include a company’s own brands, or a supplier with strong, well-known external labels in its portfolio, he said. Swedish lighting company Lampgallerian and Hemfint.se are examples of recent catalyst acquisitions, Schatz said.
Platform acquisitions should add to the group something new from which it can continue to build, including a new geography or segment, he said. Examples in this category include its 2015 acquisition of Swedish home furnishing group Chilli.se; the 2013 acquisition of Swedish indoor and outdoor home furnishing group TradeMax.se; and the 2018 acquisitions of Finnish Edututor and Lithuanian-based Furniture 1, which gave the group access to the Finnish and Eastern European markets, respectively, he said.
Historically, BHG has acquired profitable companies but it is also evaluating turn-around cases or any potential fire sales that might materialise in light of COVID-19, he said. However, the online DIY sector has generally been positively affected by the pandemic and there may be only a few distressed sales, he said.
The coronavirus crisis is also unlikely to have adversely affected sector multiples in the short term, Schatz said. Generally, BHG pays 6-8x EBIT for a company, and management sees no indication of any drastic changes to this, he said.
Targets’ management should be keen to remain and grow the company on a group level, he said. Targets should also support one or more of BHG’s four pillars of growth: product-assortment expansion; scale and a growing share of sales from own brands; digital dominance; and physical infrastructure including last-mile deliveries, installation services, customer services, product experts and showrooms, he said.
The coronavirus pandemic has not made BHG re-evaluate its M&A plans or overall strategies, Schatz said. The group set a SEK 10bn five-year turnover goal when it listed in 2018, and is likely to achieve this within the next couple of years, he said. Its growth over the last five years has been split equally between M&A and organic growth, he said; it aims to grow its turnover by 5-10% annually via acquisitions, and its organic growth rate is about 15% over a business cycle.
The underlying total market grows in line with GDP, Schatz said. Online penetration in the Nordic DIY market is low, at 10%, and is likely to reach 20% in the medium term and up to 30% further down the line, where it is expected to plateau, he said, referring to figures from French management consultancy Arthur D. Little. Therefore, he said, there are huge opportunities for further organic growth. BHG is also looking at organic market entry, most notably for its home furnishing segment, he added.
Generally, there has been an upswing in home improvements and DIY sales during the coronavirus crisis, as people spend more time at home, and BHG saw its strongest ever quarterly results last month, he said. It reported SEK 1.6bn 1Q20 sales with a SEK 80m adjusted EBIT, up from SEK 1.2bn and SEK 55m respectively during the same period last year. It reported SEK 6.2bn in FY19 sales with a SEK 330m EBIT.
BHG uses an in-house M&A team, and received frequent calls from potential targets interested in being acquired, he said. Since its 2012 foundation, BHG has closed 30 acquisitions. It has no divestment plans as all acquired companies are still considered core, Schatz said.
The company listed on Stockholm Nasdaq in 2018 at SEK 47.50 per share and is trading today (10 June) at SEK 78.30, giving it a SEK 8.3bn market capitalisation. It has not yet paid any dividends, but has re-invested cash into growing the company, Schatz said. Management will only start to pay dividends once it no longer can use the cash productively, he said.
BHG went through several ownership changes before FSN Capital listed it, and was privately held prior to Swedish investment company Nordstjernan 2014 investment. Most recently, in November last year, EQT Public Value Fund and other institutional investors acquired a 27% stake for SEK 47.5 per share. Schatz declined to comment on other potential take-over interest in the company.
Its competitors include Swedish retailer IKEA and German construction-materials retailer Bauhaus, he said. The group employs 1,500 and is headquartered in Malmo.