Addtech: Managing a BU, M&A Funnel & Incentives

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What's your feeling about the incentive bonuses being capped at a maximum of 30%? Was that an issue?

They are really striving to avoid intervening because that's a significant challenge of running a business unit. It has a lot to do with the decentralized structure. If you have the experience, you might be tempted to suggest changes based on what other companies do, but then you are undermining the decentralized model with every operational step you take into the company, in my opinion. That's the kind of balance where the CEO and the management should feel full ownership of their business, as long as they deliver on the metrics. As a business unit manager, you can go back and say, if you don't deliver, do it again, do it right. But maybe you can't go in there and tell them what to do instead. That's the point where the decentralized model stands. So, that is the challenge, I think, many times, because it's not natural for everyone to just take their hands off and not tell the companies what to do. And those people who go too far into operational mode sometimes have to leave Addtech because it simply doesn't align with the culture. That's the biggest challenge, in my opinion, to balance that.

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That question often comes up among investors, who are concerned about the possibility of running out of acquisitions. But there is always a substantial funnel. Before we move on from the topic of brokers, you mentioned that one advantage of using brokers is the time saved, as they are ready to sell. What are some other pros and cons of using brokers? I understand that one downside is likely a higher price, but are there other issues you can think of?

Ultimately, I believe it's beneficial that brokers are out there seeking mature sellers, as this helps maintain momentum in acquisitions. Relying solely on proprietary acquisitions can lead to complaints about insufficient EBITA growth due to not acquiring enough. It's a good combination, and I've already seen examples of this. For instance, Lagercrantz has a higher share of acquisitions through brokers, while Addtech, at least during my tenure, found acquisitions through brokers less appealing compared to opportunities where you've known and followed a company for years. That approach was generally seen as more advantageous. I'm not sure if it's still the same at Addtech, as it's been about two to three years now, but they really valued proprietary acquisitions and took pride in that. This is where you see differences among various players in the industry.

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