Gunnebo continues to mull options for Integrated Security; screens market for acquisitions – CEO

23 July 2020

  • Integrated Security could be bought by one or multiple suitors
  • Acquisitions primarily sought for Entrance Control and Safe Storage units

Swedish security company Gunnebo’s implementation of strategic review regarding its Integrated Security division is likely to be delayed by six months due to Covid-19, CEO Stefan Syren said.
The group initiated the review in 2018 and ideally it would have come to a conclusion in 2020, Syren said. Implementation of the actions is instead likely to be made in 1H21, partly due to travel restrictions brought on by the pandemic, he said. The review could result in a divestment of all or parts of the unit to one or multiple buyers, Syren said.
Global firms are helping with the strategic review, Syren said, declining to elaborate.
The Integrated Security unit includes fire safety products which are manufactured and sold by Gunnebo India and fire projects in Indonesia; electronic article surveillance with Swedish Motala-based company Gateway which manufacturers anti-theft systems and provides Electronic Article Surveillance (EAS) technologies in Europe. 
Gunnebo Brazil provides similar services to the Brazilian market and installs electronic security systems in Europe and Mexico. The unit also provides support and security services to banks and cash machines. The unit accounts for 12% of group sales, reporting 8.4% EBITA decline for 2Q20.
As part of the ongoing review, Gunnebo divested its business in France, Belgium and Luxembourg to private equity firm OpenGate Capital in 2018 for an undisclosed amount.  
Global acquisitions to gain scale and innovation
Regarding the group’s other three units; Safe Storage; Cash Management and Entrance Control, it is actively seeking acquisitions for Entrance Control and Safe Storage, Syren said. 
Global firms are helping with advice on M&A as well, he said. M&A is sought to gain scale, innovation, market access and new customers and/or segments, he said.
It is looking for acquisitions globally, Syren said. Gunnebo’s key markets are in China, India, Indonesia, South and North America and Europe. It has factories in most key markets and regions, he added.
Acquisitions to Safe Storage is sought to complement strong underlying growth, he said. The sector grows by 5%-6% annually, partly due to a changing market, he said. Whereas banks used to be the main providers of safe storage solutions, it is now often consumers that are looking at differing options at their home, in transit or during leisure, he said.
The delivery and logistic chains need new and enhanced security measures as consumers increasingly buy valuables online, Syren said. New innovations and techniques are important to deal-making in this segment, he said, adding that one example includes robots that oversee the storage of personal goods in Asian tower block complexes and new banking offerings, he said.
Targets to the Entrance Control unit are sought to strengthen a geography, product segment or expand into neighboring segments, Syren said. Innovation is also of interest, he said. The Entrance Unit grows well and reports a 16.4% EBITA margin, he said.
It could also consider acquisitions to its Cash Management unit although management’s focus lies on cost efficiency measures, he said. M&A to this unit is thus more likely to be on an opportunistic basis, he said. Cash is more prevalent in certain geographies and potential acquisitions would be more relevant in these regions, he said. While cashless transactions are on the rise in certain countries, globally there is a rise in coins and notes that are in circulation, Syren said.
Gunnebo has both big and small potential targets on its list, Syren said. Start-ups with good techniques and/or innovations could be considered, he said. However, it is key that these innovation projects are scalable as small deals require similar time and effort as bigger transactions, Syren said.
Gunnebo aims to be the market leader or the runner-up in each unit and this requires scale, he said. Entrance Control has a strong global position, Safe Storage is the only global player in its area and Cash Management is number one in EMEA, he said. 
The group is unlikely to add a new unit to its current structure as it aims to be a more focused player in the advanced security sector, he said. The bigger owners, Swedish investors Stena Adactum, Vätterleden Invest and insurance company If support its strategy, Syren said. The company’s dividend policy is to distribute 30%-50% of net profit.
Gunnebo has no timeline or set target for number of deals, he said.
Financing will also depend on the case, but Gunnebo cannot today finance a bigger deal with cash due to the debt status, he said. While Gunnebo’s 2H20 net debt has decreased by SEK 300m to SEK 1.3bn as compared to the same period last year, the EBITA levels have also decreased, Syren said. It reported 1H20 3.9x net debt/EBITDA, as compared to 3.4x during the same period last year, and 3.0x during FY19. 
Its latest acquisition of Czech entrance control and access systems solutions provider Cominfo was financed via a rights issue, he said. Gunnebo carried out an SEK 360m (EUR 33.8m) fully underwritten rights issue in relation to the transaction, and paid SEK 240m for the acquisition and the remainder was used to lower its debt-levels, he said. The target had an annual turnover of SEK 140m. 
Gunnebo has been impacted by the pandemic and its sales and orders were down significantly. 2H20 net sales amounted to SEK 2.2bn and EBITA SEK 25m, compared to SEK 2.5bn and SEK 120m during the same period the year before. For FY19, the company reported SEK 5.4bn sales and EBITA SEK 321m. The company reported a free cash flow of SEK 38m, compared to SEK -31m, the year before. 
On Thursday, the company’s shares traded at SEK 18.40, giving it a market capitalization of SEK 1.7bn.
Syren took up the CEO position last year. Apart from ongoing streamlining efforts, the company has changed its structure to focus on business units instead of geographies and slimmed the executive management team down from nine to five, he said. Prior to becoming the CEO, Syren was responsible for the business units Safe Storage and Integrated Security at Gunnebo. With the new CEO appointment, the group also appointed a new Executive Vice President and Deputy CEO, while the regional structure for Asia-Pacific and Americas ceased at year-end 2019.
by Hanna Gezelius in London
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