In Practise reflects on some of the key lessons and major questions explored in one or more interviews each week
We continued our work on Addtech with an interview with a Former Addtech Business Unit CEO that has experience both selling an operating company to Addtech and acquiring and operating companies within the energy division at Addtech.
In 2013, Addtech purchased Rutab AB, a Nordic cable component business, a company that is very typical of the 100’s Addtech has made over previous decades. In 2012, Rutab generated ~10m EUR revenue at 8-9% EBIT margins with only 40 employees. The company manufactures and sells machine cable glands to electrical wholesalers such as Ahlsell and Sonepar. These cables are used by industrial companies like ABB and Atlas Copco within large machining and automated technology. Rutab is the sole supplier of such cables and has a mini-monopoly on this small market.
Rutab is a perfect example of companies Addtech searches for: strong historical profitability, below 10m EUR sales, very few competitors, and a good management team.
Addtech acquires companies who have strong market positions. It was extremely important they had at least five years of being profitable. We did not want to acquire companies which fell down and lost 20% of the profit in two years. They do not focus on seeing future growth or demand you grow your business by 10% annually. They want to see stable secure cash flows in the future as well as strong management teams, and Rutab ticked those boxes.
Serial acquirers like Berkshire, Constellation Software, and Addtech are all competitively advantaged buyers of companies. Each of these companies has similar M&A principles: leave the acquired assets standalone, incentivise management to stay past their earn-outs, and maintain the existing culture of the acquired company. This is very attractive to entrepreneurs who have built their business over decades.
Rutab had over 50 bidders including Addtech, PE shops, and other industrial players such as Lagercrantz and Indutrade. The executive we interviewed was the CEO of Rutab as the business was sold to Addtech. He highlights Addtech’s differentiated approach to the bidding process that was pivotal in winning the deal:
The CEO of Addtech at the time, Johan Sjö, asked the right questions. He did not say that our business model would not work in future, whereas many private equity players questioned that and told us our commodity products would probably go down. The most important question was Johan asking what the management team wanted for the future, which is an efficient way of being on the same team. They said we could be self-sufficient and create our own strategy within Addtech. They also knew about selling products to electrical wholesalers, so spoke the same language.
Addtech has built a great home for selling entrepreneurs. The bolded sentence above also sticks out. How can such a simple question be unique in an M&A process? Johan asked Rutab’s management simply what they wanted. This question alone differentiated Addtech. Too often M&A is about squeezing the best price from the seller. Competitively advantaged buyers do the opposite. They ensure it’s a win-win for all parties. Competitively advantaged buyers are working with the sellers, not against them. This is M&A done the right way.
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