Disclaimer: This interview is for informational purposes only and should not be relied upon as a basis for investment decisions. In Practise is an independent publisher and all opinions expressed by guests are solely their own opinions and do not reflect the opinion of In Practise.

I'm very excited to do this and really appreciate your time. The idea is to explore what you've learned over the years. We can weave it into some of the more recent interesting changes you've made and operational improvements. It's a chance to explore what you've learned in a different type of structure.

In the past, I've done a lot of work on larger acquirers, not only in Sweden with companies like Lifco, but also in the U.S. with Danaher, and in the UK with Halma. We've attracted many investors who understand your business model and have seen challenging and good periods, observing how these companies can emerge from them. A couple of years back, I conducted a significant study on Halma in the early 2000s, which went through a similar period as you are now. Lagercrantz also experienced this in the early 2000s. We've studied these situations extensively, and it seems to be an interesting inflection point for investing in these companies. So, that's a bit of the context.

Great.

From my perspective, it would be interesting to share how the last five years have gone, in the context of the last 20 years. Maybe discuss lessons you've learned operationally, which you've touched on in previous calls. We can make it more real for people by sharing how roles have changed and just have a good chat. Maybe just to level set and take a step back. How has it running this business for close to twenty years now?

I think it was 19. We founded it in the fall of 2006. The idea or influence came from my friend's parents, who encouraged us to start this. Those discussions began in the spring of 2006. We convinced the first two subsidiaries we acquired by persuading their owners to exchange their shares for Teqnion shares. These were the first two group companies fully owned by Teqnion when we founded it.

It took some time to persuade the elderly gentlemen that my friend Jonas and I were capable of doing this. After some discussions, they were on board, and we finalized everything in October or November 2006. From there, we started to build something, or at least attempted to build something.

What surprised you the most about building Teqnion over the last 20 years?

Initially, it was realizing the importance of being a leader who leads by example. You can get so much more out of your coworkers and staff if you motivate them correctly. They see that life is more enjoyable if they strive to excel at their work. Your coworkers and managers notice this and encourage you to do more, making work quality time.

Treating coworkers well and encouraging them to improve yields great results. It was gratifying to see that such a simple truth works. I was very operational for the first 15 years because we never took in any capital to accelerate growth until we were listed in 2019. We grew solely with our free cash flow from operations, meaning we had to wait until we had enough money to buy another subsidiary.

During that period, I got to know the people in the new companies, their business models, and every aspect of the businesses in the group. It was a great learning period, providing a thorough understanding of how to operate and make small industrial technology-driven product companies profitable. This slow learning process was very educational and continues to help me.

When I meet entrepreneurs or potential sellers of these types of companies, they quickly realize that I have experienced what they have in building a company. This builds trust and understanding between us, recognizing the hardships of building a sustainable company that lasts for decades.

How would you describe your role in the first 15 years operationally? What were you actually doing during that period?

In the first three to four years, I acted as an interim CEO in different subsidiaries. I primarily worked on increasing sales activities and sales, making the organizations more effective, meeting more customers, selling more products, and covering more geographical areas.

So this was, what, 2018? You had 300 million SEK in revenue, 28 to 30 million in operating income, and three million euros. So how many?

Yes, I mean, when we started out, I think we maybe—I don't remember exactly in 2006—but we went from maybe 30 million SEK in turnover initially. It took a few years before we reached 100 million in turnover. Then, slowly, with the free cash flow, we acquired more companies and also grew the companies we had organically. By around 2017, I suggested to the board and the minority shareholders that we should list the company and raise more capital to accelerate growth. They agreed, and we did it in two steps. First, a pre-IPO or private placement in, I think, the spring of 2018, and then the IPO in 2019. We raised approximately 100 million SEK in total, allowing us to start acquiring more companies. Instead of buying a company every other year or every year, we could buy two or three each year.

For many years, we used the cash generated by the operational business to fund new acquisitions. During the initial period, when I was more operational and my founding partner Jonas was the CEO, he targeted new potential acquisitions and ensured we had the bank's support for these acquisitions. He left in 2009. In the fall of 2008, during the financial crisis, we realized we had built something fragile because we reinvested everything we earned into new coworkers, offices, and acquisitions. We didn't have cash for a rainy day, which became evident in the fall of 2008. We had to sell half the company to external investors. That was Vixar, who still holds a significant part of Teqnion. I think they have around 10% today. They bought half the company for very little money, but we needed that money to downsize and adjust costs during that tough period in the Swedish industry.

It took approximately nine months to cut everything back to showing positive figures. By the summer of 2009, we were on somewhat firm ground again, but we were much smaller, about half of what we had been a year before. Jonas, being a true entrepreneur, said, "Now we did what we promised, now we do something else," and he quit. I'm more stubborn and felt this was not what we set out to do, so I stayed on and have been here ever since. I've been the CEO since the summer of 2009. From that day, I had to learn Jonas's skill set and reach out to potential sellers and entrepreneurs who wanted to sell their life's work, persuading them that Teqnion would be a good permanent harbor for their life's work. It was tough, especially when we showed what we had done before—built something that collapsed—and now we were doing it again. It was a tough sell initially.

And so when Jonas left and you were then acquiring companies, what was the process? Was there an investment committee or a big shareholder involved in vetoing the acquisitions, or how did that process work?

I reached out initially after we more or less restarted in the summer of 2009. At that time, we weren't really seen as serious contenders, so brokers weren't interested in talking to us. It was mostly me cold calling potential businesses we wanted to acquire. We were limited in size because typically, people expect money when selling their company.

One significant difference was that I focused only on companies that didn't need fixing, even if they were small. Jonas and I started with very limited capital, so we decided the first rule of building a company group like this is to buy companies that don't need fixing. These companies had a solid history, were good at earning money, and offered a good return on capital. However, we couldn't afford those, so we ignored that rule initially, being young and driven. We bought whatever we could find, which often meant turnaround cases, requiring me to work operationally in these companies.

After Jonas left, I decided to adhere to the first rule of serial acquisition—buy things that don't need fixing. We tried to stick to that, and as we've grown, we've been able to target better companies because we've had access to more cash, allowing us to afford higher-quality companies.

You mentioned that. Let's dive into that. How would you describe how the acquisition criteria evolved from the period you mentioned, 2009 to 2019? And probably when Daniel came on board. How has that changed?

When we started, it was more or less purely a distribution company. We had the right to sell a specific product manufactured abroad in the Scandinavian market. It was similar to the Bergman & Beving style.

We had the exclusivity to sell a specific German electromechanical component brand in the Swedish or Nordic market. Initially, these were the companies we could afford, so we learned their pros and cons thoroughly. Over time, I began looking at other niches. After a few years, brokers started approaching me with opportunities they wanted to sell. I began to look more broadly for companies selling physical products in industrial niches.

During this period, I purchased companies where I felt we could add value, even if I didn't think too far into the future. We acquired a few simplified distribution companies that didn't have exclusivity but offered something unique, like assembling components into kits and delivering them just in time for production lines. These companies added value to simple industrial products and can be great, but they are tougher to scale compared to owning your own brand or product. Owning your brand and product gives you bigger moats.

I also acquired a couple of contract manufacturers, which I felt at the time weren't aligned with what Teqnion should be doing. However, the price seemed good, so I was thinking short-term. In retrospect, these decisions were not wise, as they don't meet our criteria of being non-cyclical, having light balance sheets, high return on capital, good margins, and strong pricing power. These are the qualities we've always sought, but I was focused on the present and the deals seemed cheap at the moment.

In hindsight, when you reflect on your psychological state at that time, what do you think drove that short-term thinking? Clearly, that's not typical for you.

It's a very interesting question because there are so many different aspects that influence you, especially when you come from founding a company and growing it slowly. Along the way, you're constantly trying to do it really cheaply, saving on everything. I'm a stubborn person, which means I wanted to understand everything myself, teaching myself everything. I asked for very little outside help or consultants. I also waited perhaps too long before bringing more coworkers into the head office. We were just two people from 2009 until 2018. These factors maybe forced me to try things that other people or colleagues could have advised against, saying, "We don't have to try that. We've tried it before, and it doesn't work."

Many aspects drive you to make these decisions, like showing progress to your shareholders and the board. Some acquisitions I shouldn't have done were also to show myself, the team, and the minority shareholders that we can grow and it's worth bringing this to the stock market before an IPO. It was about showing that we can grow, buy companies, and handle a versatile group that spans different sectors. That is somewhat true, but I wouldn't do it today.

You mentioned something interesting that I'm curious about. In your Q3 2024 earnings call or report, you reviewed some older acquisitions, like Hem21, the builders. You said you bought Hem21 because you loved the product and believed people could run it efficiently, even in such a cyclical end market. Can you share more about that worldview you had at the time, maybe still have now, or how you've refined it?

When building a relationship with a potential seller of a company, we try to get to know them well in the initial process. You can tell early on if they're true entrepreneurs who have done this out of passion and learned the tough lessons needed to make something sustainable. In some cases, when you see someone who has been through several economic cycles and survived, they often tell you in the first conversation how they can sustain a future downturn. They don't talk about endless growth and a fantastic future. Instead, they say, "If this happens, we lay these people off, close this factory, do this and that, and we'll still earn money in an economic downturn." Such a person is lovely to do business with because they consider potential future challenges.

It seems like you mentioned the importance of people, which are crucial in every business. You emphasized that point a lot. It seemed like you were implying that when you acquired these contract manufacturers, despite other influences related to preparing for the IPO, you believed this team could manage the business through its cyclicality.

Yes.

Is that what you meant when you said this is how you view the world in terms of the value of people and their ability to run any business?

I strongly believe that the right people can manage almost any business through tough times without losing money. However, that's not the way to build a versatile group like Teqnion with many companies. We can't have someone like Leo Messi playing every position as a subsidiary CEO. We need competent individuals who can handle normal situations, which should be sufficient for a good return on our investments. Building something that requires the best player in the world in every position would be very fragile.

To answer your question more directly, I've been, in a way, seduced by charismatic people because many entrepreneurs are very likable. As long as these individuals are passionate about building or continuing their life's work, you don't have to worry much. You just need to be there occasionally to support them and acknowledge their good work. They don't require close monitoring because they make the right long-term decisions and have control over everything. However, they won't be there forever. Eventually, they will retire or want to spend time with their grandchildren. At that point, we need to bring in someone new who won't have the same skills, experience, or relationships. This new person should have adequate skills to run the company well enough. The business model and procedures should be simple enough to understand. This is a typical criterion for us when searching for new acquisitions. We need to understand the business model and how they generate cash early on. If it's too complex, we move on. It should be simple enough that I could run it.

This is where I was going with this topic of people versus the business. When acquiring a small business, as you've mentioned before, it's often centered around the founder or entrepreneur who has built the company over the last 20 to 30 years. How do you weigh the person, knowing they won't be around forever, versus the business itself? How has your opinion on this changed when acquiring?

Looking back, with all the facts now clear, I can definitely say that I focused too much on the person. Fortunately for me and for Teqnion, it's not just me here. We have Daniel in charge of the acquisition process, and he focuses much more on the numbers, data, and business aspects. Then he brings me in to assess the person, which means we complement each other fantastically. He's the investor, the numbers guy, the super brainy one, and I handle the softer aspects.

How has the acquisition process changed? Let's talk about generating targets. Who runs that process? How much is proprietary versus broker-led? How does that work today?

Today, it's been cyclical, as we've already discussed. In Sweden, we've tried to reach out ourselves, especially over the last five years or so, because the business model of serial acquirers has become so popular.

There are so many of them.

Yes, people have been out there acquiring everything. So, we target ourselves. When Daniel convinced me or gave me the confidence to look abroad, we started traveling in Europe, exploring potential acquisitions. It was exciting to realize that good entrepreneurs exist in any language and geography. They're the same type of individuals, which was fantastic to discover firsthand. We acquired our first company outside Sweden in the UK, and after that, we decided to stay in the UK.

Now you're acquiring everything in my hometown.

Yes, but we feel it's a significant step for us. We're a small company, learning as we go, and entering a new territory with different legislation, culture, and language. We aim to build a body that's self-sufficient before moving to the next country or area. Right now, we focus on Sweden, but also the Nordics, as we're confident we can continue growing in the Nordic region, not just Sweden. We've been in contact with many potential companies in Norway and Finland, but haven't found the right one yet. That might happen in the future, of course. For now, we stick to the UK, where we have a strong pipeline of potential acquisitions. You asked how we find them. In the UK, Daniel initially tried to do his own search and outreach, but found it too slow and insufficient. So, we've built strong relationships with brokers who know us and find us easy to deal with. We're straightforward, respond quickly, and stick to our promises. These relationships have led to better and better leads.

As we have built the group bigger and hopefully established good relationships along the way, we are really happy when some of our coworkers or previous coworkers, or someone who sold a company to us, meets with friends. They might tell someone with another company, who then reaches out and says, "I listened to this person who sold their company to you and they're happy. I also have a company. Would you take a look at it?" That is fantastic, of course, and we are really humbled by that.

Is it just Daniel doing outbound, or does he have a team that helps with outreach?

Daniel is doing 99% of the work, like building the pipeline, having initial conversations, and selecting between all the leads. When he feels it's time for a sanity check, he brings me in to see if it's something we should pursue. Then I continue to have a few ongoing conversations, mainly in Sweden, regarding potential future acquisitions. But Daniel is the driving force behind the acquisition process.

You mentioned you're very stubborn. How did Daniel persuade you he should Teqnion?

We were looking for a new CFO, and I got a text from someone I didn't know. It was a cryptic message, and I thought, "What do you want?" I texted back, asking for an email with clear intentions. Daniel sent a very nice letter describing who he was and how he found Teqnion. Intrigued, I called him and invited him to our office. We talked for about three hours about life, business, and everything else. By the end, I said, "You should work with us." He asked what he should do, and I said we'd figure it out. He agreed.

But you weren't specifically looking for someone in M&A?

He realized we were looking for a CFO, and I told him he wouldn't be the CFO, but would do other things. He started looking into potential acquisitions and reaching out to potential sellers in Sweden, involving me in almost every interaction. After a month, he humbly suggested that it might be more effective if we worked separately to reach twice as many people. I agreed, but internally felt a bit of a sting, as it took me 15 years to learn this business, and he grasped it in a month.

However, he soon returned frustrated, saying it was better when we worked together. That warmed my heart, knowing I could contribute something. Since then, we've been working parallel in almost every decision. He was, of course, made deputy CEO of Teqnion last spring or so.

Why does it seem like you have struggled to hire or retain a CFO?

We have covered this many times, and there's no secret to it. When we were listed, we hired a very nice and competent individual who worked well in our culture. Unfortunately, he had to move to the southern part of Sweden due to family reasons, so he had to quit. Neither we nor he wanted that; it was circumstances outside of work that led to it.

Then we had another person who didn't quite fit in but did a good job. She left to become a CEO in her father's company. After that, we hired a new person who was extremely competent and very good but didn't fit into our culture. We tried hard to make her feel welcome, but she was used to doing things a certain way, and we don't follow the conventional methods. She felt this was not for her.

We've tried a few people, and some didn't like us. Now we have Jonathan, who has been with us for a little over a year. I hope I don't jinx this, but it feels like he really enjoys working with us, and we enjoy working with him. He's a big part of what we do, both in strategy and operations. So far, so good.

Let's look at an example in the acquisition process. You are potentially more of a UK company now, though originally Swedish. If you continue growing, say I bring a UK company, how does that review process work? I imagine it comes to Daniel. What is he typically looking for today?

The first process is very quick. We look at the data and financial numbers.

Do you look at three years, five years, or how much data do you review?

We look at whatever we can get our hands on. Even if it's just a year or a couple of years back, you can see where they are in terms of earnings. If they are high enough, we may look further to see what type of business it is. Is it a light balance sheet? Do we get a good free cash flow ratio from those earnings? Then we start to look at the type of product they sell and their business model. Is it cyclical or non-cyclical? Is it business-to-business? It's a very quick process, taking just a few seconds to evaluate if it's worth digging deeper.

You mentioned if it's high enough. What do you consider a high margin?

That has progressed over time. Right now, we're looking at businesses with at least 10 million Swedish in earnings per year. When we started, it was more like a few hundred thousand Swedish in earnings per year.

And what about the margin? Do you look at a minimum operating earnings?

We look at earnings before and after tax.

Okay, so you want at least 10 million krona.

Yes.

In absolute dollar bill numbers. What about margins or return on capital? For instance, if you've got 10 million krona but a billion in sales, it's quite different.

Absolutely. We're not as fixed there, but you should at least have over 15% on the net. Preferably, it should be much higher, of course.

Was it last fiscal year that the companies you acquired had roughly around a 14% EBIT margin? How do you approach return on capital in this first phase of valuation, or do you mainly focus on margins?

It becomes more of a return on investment consideration. If the balance sheet is light enough and we achieve the margins discussed, and most earnings can turn into cash, we then negotiate a reasonable price tag for the company. We aim to recoup the investment in five years.

Do you communicate that to the entrepreneur?

Yes. Of course, many factors come into that discussion. We try to be quick since we're strict on valuation rules. We talk to many good companies to find a few that value selling to us over others who might pay more. We lay this out quickly to save everyone's time, as we meet with many companies annually to find the right ones.

When would you start the valuation conversation? After I send you my financials for five or 10 years, Daniel reviews them, checks the margins and balance sheet. Do you then have a conversation with management, or do you try to discuss valuation before that?

It depends. Normally, we like to have a conversation if the numbers look correct or the financials are good for us. Brokers familiar with us know our pricing. Usually, after the first meeting with the seller's management, we lay this out so they know what to expect and don't invest more emotionally or time-wise.

How do you communicate that exactly?

We communicated that we would like to get our investment back in five years. We do this more or less at the free cash flow level. Since it's hard to put into an Excel sheet, we use the earnings after tax. We believe that should be close to the free cash flow. We then perform a valuation of that.

Normally, the company is on a growth trajectory, becoming better and better. We have an earn-out that incentivizes the seller to stay on and ensure the company continues on that positive trajectory. If it becomes more profitable in the future, they will be compensated for that future profit. We try to minimize our risk as we take over the company, and the cash upfront is limited to the five-year valuation at that stage. If we see strong growth in the coming two or three years, they will be paid accordingly.

So, if it has a 15% margin, you effectively pay six to seven times for this. With the current earnings, that will give you your money back in five years.

Yes.

Anything above and beyond that becomes part of the earn-out, and they capture a portion of that at that level.

Exactly. It's just a rough sketch, but you're correct. It varies a bit. If it's been very stable or on a steep trajectory, maybe we shouldn't be there at all because we want stability. There are many factors that need to be risk-adjusted. If we see big risks, there's less money upfront. No risk means more money upfront.

What's typically the transaction structure with the upfront and earn-out on average?

On average, we pay between 60% to 70% upfront, and the rest is on earn-outs.

Okay, so the earn-out is quite significant.

Yes.

Around 30% to 40%.

Correct.

Over how many years is the earn-out typically?

It varies a bit, but we normally have three years, sometimes two years.

Could you do longer?

Yes, but we have only one example of that. We try to keep things simple and stick to what's been working, avoiding too many different constructions of earn-outs.

What percentage of the entrepreneurs or sellers, over the last five years, have left after the earn-out, just a rough estimate?

We usually discuss these matters thoroughly before acquiring a company, focusing on what the seller envisions for the future. Typically, when they sell the company, it's because they want to pursue something else or reduce their involvement in running the business. In such cases, we agree to find new management within three years, hoping they enjoy working with us and choose to stay on in some capacity. They might continue for a day or two a week, or a few days a month, to maintain relationships with customers or suppliers and serve as a cultural ambassador for the company. We often invite them to join the company's board, even if they're not operationally involved anymore. Some individuals express a desire to continue working, which we appreciate. Although we don't formalize this in writing, they might commit to five years before reassessing. If they decide to retire, we collaborate to find new management. However, some are ready to retire immediately upon selling, and they communicate this early on. In such cases, we ask for a certain amount of time to work together to find new management.

Is there any correlation between the performance of your companies, whether they're struggling or thriving, and whether the original entrepreneur is still involved?

Yes, I believe so. Although I haven't analyzed it in detail, I would bet that having the founder or entrepreneur still involved reduces the likelihood of things going wrong. It's all about the people. While there are many technical products to sell, it's always the relationship between the seller and buyer that makes a deal possible, regardless of the product. Dealing with people is complex, and founders possess invaluable knowledge and relationships that aren't documented. You can't expect an outsider, no matter how skilled, to fully grasp these intricacies immediately. Therefore, it's crucial to acquire businesses that are straightforward to run and understand.

It's almost paradoxical, isn't it? It's all about the people, yet you need to acquire something that doesn't rely heavily on them.

When we founded this back in 2006, we thought, "An industrial company, small, building a company group. Very boring, unsexy, but easy. Let's do it for a few years, get rich, and then move on to something fun." For me, the opposite happened. It's extremely difficult and very fun. It's neither easy nor boring.

How do you, regarding the point on people, encourage or provide the infrastructure for entrepreneurs and sellers to train the next tier of management and pass on their knowledge?

That's an aspect we now examine in more detail when acquiring companies. We look at whether there is a second level that can take on more responsibility in a few years. It's crucial to have a plan for this. An important process step is collecting data from all subsidiaries in the same manner with the same KPIs. This allows everyone in the organization to see the KPIs we follow, the trends, and what's important for maintaining a sustainable group and subsidiary. We make these success measurements visible to everyone all the time.

Hypothetically, if my UK company becomes a Teqnion subsidiary, how would you measure my performance on a quarterly or monthly basis? What do I need to send you, and how does that process work once I'm part of the group?

We collect the P&L and balance sheet monthly from each subsidiary. We also have a CEO report where they input numbers, some of which may be found in the P&L. We want them to focus on these numbers as well. It's not complex; it's common sense. We monitor earnings, EBIT for the last month compared to the budget and last year's month. We also track sales, order intake, backlog, gross margin, net margin, and other metrics. A competent CEO should fill this out in two and a half minutes per month or have it top of mind daily. We collect the same data monthly, regardless of whether it's a quarter or a month.

Regarding the balance sheet, does it include working capital, or is it only income?

We track that as well, but the CEO only reports it on inventory as of today, I believe. What we have done for about a quarter now is implement a collector sheet that we present to everyone. We want to ensure that all KPIs have green flags. These are simple measures, focusing on earnings and margins, ensuring they are on the right trajectory over time. We measure over a longer period, such as three or six months, to ensure we are moving in the right direction for each subsidiary. Additionally, we monitor return on assets, excluding the cash component, as we continuously collect cash to allocate elsewhere. We aim to ensure improvement and avoid negative trends.

How often do you pull cash from the subsidiaries?

It's not on a specific date or time. We do it when we see there's too much cash in a subsidiary or when we need it, to ensure there's no cash lying around unused.

So it's a judgment on the excess cash at every subsidiary level?

Yes, it is.

Reflecting on this, you've spoken extensively over the past year about the changes you're making to address underperforming companies. Historically, how would you evaluate how you were tracking the performance metrics of subsidiaries? How would you review that?

I think we've been tracking them in a similar way, but now we have an extra layer. We look at trends more specifically. We used to do this before, but now everyone sees it at least once a month, or even daily if they want to. Previously, I was doing a lot by myself, which meant I had control over many things, maybe with the help of Excel. As we grew and expanded the head office, I wasn't good enough at ensuring my coworkers collected or checked the same amount of data that I did when the group was smaller. When I let go of some responsibilities, I wasn't a good enough leader or manager to ensure we had systems in place to collect the right amount of data at every moment. This was necessary to see trends and take action to correct things as soon as we noticed them.

It relates to what you mentioned about the people aspect. If you see something going wrong, you talk to the individual or company, hear their plans, and trust them without following up closely enough. In a small group, it was possible to manage this way. But as we grew to 36 companies, maybe around 20 or 25, I lost control over tracking working capital. I didn't ask anyone to take over that responsibility.

You lost it when you brought the CEO coaches in, you mean?

Yes, a little bit like that. Slowly, as I eased up, they took on more of what I had been doing. We lacked structures to capture data effectively, which made us slow and ineffective. Over the last year, we've put more safety measures in place to detect issues early and implement actions quickly, not just for the future but for immediate improvement. We now take action on a much shorter notice than before. It's simple, and maybe you can hear it in my voice, but it's shameful to admit we didn't do this sooner. It's just common sense.

So what was the mistake, in your view? You had these things in your head, tracking working capital intuitively. As the company grew and you had CEO coaches, were these coaches not ingrained in your way of working or close enough to the data? What was the issue?

This is just my perspective, but I think when people come in and observe how I interact with the subsidiary CEOs and the companies in our group, they might subconsciously try to mimic that. Even if they would have done a better job being data-driven, we haven't established that framework. They might see my interactions as soft, personal, and friendly, which may seem more important than pushing for actions and results. This might have become too dominant. While it may not be the whole truth, I believe there's some truth in it.

Were you too soft in your approach?

Can you be too soft? I'm not sure. I think you can manage multiple things simultaneously. You can be friendly and nice, but also very firm when it comes to demanding results. That's why we're here—to make money. Otherwise, we should pursue something else. You can embody both qualities.

Did the company lose focus on results as it scaled?

Yes, I think I lost direct contact with individuals in the subsidiaries. Perhaps I wasn't effective enough in establishing safety nets to gather data until it was too late, and I was questioning why we were in that situation.

Maybe they didn't feel accountable, even the CEOs, without your direct touch.

Yes, and I think it's somewhat risky to discuss these matters because it might sound like the only truth. Many factors contribute to this situation, and this is just one aspect that comes to mind. There are numerous reasons we've underperformed for a while, and I know we could have done better earlier if we had better systems and processes in place from the start.

How do you evaluate the role and performance of a CEO coach?

To be completely honest, if the subsidiaries they are responsible for are earning more money than the previous year, then they are doing a good job. However, if a subsidiary is struggling within its niche, perhaps due to a cyclical downturn, and they manage to turn it around, even if they haven't made more money than the previous year, they can still be considered a very good CEO coach.

The issue on my side is that I have not established a stringent system for reporting and action. It has led to a bit of individual ways of working. Now, we have pulled everything back and established a standardized approach. We follow specific KPIs, and when we notice something is going wrong, we require immediate actions. These should be presented to top management, who will continue to follow up on the issue until we are satisfied with the results or see a turnaround.

That's why we have implemented a new structure in the UK. We have Dave Barton there now, who is a regional manager or UK manager. He is a CEO coach, but also the regional manager for the UK, which gives him more authority than a typical CEO coach. He can adjust the reporting requirements from a subsidiary in the UK. He is responsible for delivering a complete package each month to the top group management, ensuring it has the right quality and numbers.

For all of the UK?

Yes, for all of the UK. We are planning to implement the same structure in Sweden. However, since we have 25 companies here and only 10 in the UK currently, it will likely involve a couple of CEO coaches and a regional manager. They will have similar roles, but one will oversee the others and ensure they report according to our standards.

Are these CEO coaches full-time employees?

Yes.

Are they salaried employees, and do they receive bonuses based on their group's performance? How does the bonus system work?

The bonus for these individuals is based on increased earnings compared to the last three years. They receive a percentage of that increase, provided we meet our financial targets and generate sufficient free cash flow from those earnings.

So they receive a profit share based on the increase in profit from their group?

Yes, as long as earnings increase, they receive a percentage of that.

I recall you mentioned Håkan, who has done a great job with the builders. Why wasn't he originally involved before seeing the opportunity? I think he ran one of these businesses since 2018, right?

That's a very good question. I would love to have a straightforward answer. Unfortunately, there isn't one. We were too slow to act, and eventually, I had to ask him to do it. We believed the people involved were on the right track and promised results soon. Until I reached a point where I had to say, "Please do it," and now he's doing it.

So, he was too lenient on him, the CEO?

Yes.

Even though he knows the business?

Yes. Maybe that's part of it. It's hard not to be involved in the details if you know the business thoroughly. You know exactly what needs to be done, and you can instruct someone who is paid to know it as well. It's a human thing; it's complicated. If we had the system we have now in place a few years ago, we would have saved a lot of money by taking action earlier.

Because you would have seen the data?

Yes. We've also educated ourselves and all our CEOs on what we look at. As long as you have a green flag in the sheet, you're free to do as you like because you're on the right track. When you have a red flag, you lose some autonomy. We'll step in and tell you what to do. First, tell us why we're on red and what you'll do to get back to green. If we don't believe you, we'll tell you what to do. I know I'm free as long as I'm green.

Can these CEO coaches be the CEO of a subsidiary and act as the chairman of other subsidiaries in their group, similar to what Lifco does?

Yes. We have someone from us, a CEO coach, or me, or Daniel, or someone else who sits as the chairman of each board. We might also have a previous owner or another CEO from a sister company on the board. We try to keep the board small, with a maximum of two or three people. We focus on setting targets and strategies as guidelines for management to run the company.

Lifco does that, with a super decentralized approach. I don't know how they manage it. They typically have a former owner or entrepreneur who grew up in Lifco, sold the business to Lifco, and then takes on more businesses. They are usually the CEO of one company and the chairman of up to 10 or 15 other companies. I don't know how they manage so many.

It's possible around that number, maybe a bit more, but you need structured reporting in place.

Exactly.

It's impossible to treat each subsidiary and person individually. It must be clear for everyone what's expected and what happens if expectations aren't met. Lifco has been around longer in the trade, like Addtech and Lagercrantz. Companies that originated from the original Bergman & Beving, like Lagercrantz and B&B TOOLS, had KPIs and reporting in place for a long time. Maybe Jörgen Vig improved it over time. It's not magical or a secret sauce; it's straightforward. You have to follow it and execute it.

It's like creating your own divisions without giving them irrelevant names.

Exactly. You're correct. The key is that anyone can impose layers of reporting and guidelines, but then people stop being entrepreneurial or making fast decisions to develop their businesses. You have to find the balance. As long as it's simple, straightforward, and applies to everyone, the rules are clear. Keep it green, and we won't interfere. Just continue developing the company in your preferred way, ensuring you make more money than the previous year.

It's like the philosophical question of balancing your decentralized model with centralization guardrails. You have to do it this way, but you can achieve it in any way you like.

Yes, we measure earnings per share. We want a good return on investment, and as long as we maintain and increase that, you will build. I strongly believe in this decentralized model because there are many great minds. You just need to ensure they are targeted in the right direction and not towards something foolish. People shouldn't pursue foolish ideas because sometimes that happens. It's human nature. Not every person needs to try all ideas. Many ideas have been tested before and proven ineffective, so don't repeat them.

Let's say I'm a technical subsidiary, and I want to improve my factory, spending 500k. What's the level of spending you need to approve? What are the guardrails around that?

Normally, it's a couple of hundred thousand Swedish krona. Investments must be included in the budget in the fall, and the board decides on that. If it's approved for the coming year, it's in the budget. If something happens within the year, we review any substantial investment, even if it's a new machine or forklift truck. If the old one breaks down, we may need to buy or lease a new one. But normally, everything goes through here to prevent it from slipping away.

So you do budgeting in the fall. The CEO builds a budget, presents it to the chairman, who signs it off, and that goes into Teqnion budget?

Yes.

It was crazy. Per at Lifco made an interesting comment a few months ago, saying, "We don't do budgets." Everyone was like, "How is this possible? How do you balance that?" How is it possible to not do budgets?

I agree with the fundamentals of not doing a budget. However, I think it's necessary for a CEO to have full control of the P&L. This means you must always monitor your costs and ask yourself, "Is this the right price to pay for this? Do we actually need to pay for this?"

He said, "If you need to budget, you don't trust your CEO."

Correct. And maybe that's also good for a CEO or for me. If I couldn't present the budget to my board, should they trust me? Maybe, maybe not. Perhaps I could make poor decisions. It's a sanity check. If done correctly, income should be activity-driven. It's not enough to assume customers will buy more because they usually do. We need to plan visits, trade shows, and send out quotes. Be critical of costs. Do we really need to have this cost? Yes. Okay, how big should it be? I don't know. When you've done that once thoroughly or twice, then of course that CEO, if it's a good person, will do this really, really quickly and just say, yes, I know, I look through this. This is new, this is old. Keep this, let's remove this; let's try doing without this and see what happens. So I think it's too blunt a tool to say you don't need a budget, because you need something.

Maybe they just call it something else.

You definitely need a budget because you need to know what you're talking about.

Perhaps Lifco just calls it something different, so they can say they don't do budgets.

It might be like that as well. To some extent, I understand what he means when he says that. Absolutely.

I think his point was that those CEOs, or group managers as they call them, are crucial. They're effectively managing and running these companies with almost full autonomy, within guidelines. How do you think about finding or training new CEO coaches?

It's much easier if you have a company like Lifco, Lagercrantz, or even Teqnion to some extent. I don't see it as a problem at all. We attract very talented people who reach out to us. We probably miss a few fantastic individuals because we try to keep the company small, knowing we can do much more with our current headcount. So, I don't see that as a problem as long as we strive to improve and attract young, talented people.

You've got four CEO coaches now, is that correct? I'm just checking.

Yes, we have one in the UK and currently two in Sweden, soon to be three. We have a new person joining in September.

So you have Patrick and Anna-Karin. Are they still with you?

No, Patrick only works a couple of days as a consultant for us. He's like a red team guy. Anna-Karin is still on board, as well as Håkan.

And Mona is not with you anymore?

No. Mona is leaving, and we have someone new coming in September.

So you have three in Sweden and one in the UK?

Yes.

And you have around 35 companies?

Yes, 36.

They're managing about 10 each?

That's correct. You can manage more, but since we are in a process of reorganizing, we'll see in about six months how many people we need and what roles they'll have. We are definitely planning to have a regional manager, an elevated CEO coach, starting maybe at the beginning of 2026 for Sweden as well.

How involved are you at the subsidiary level, like in improving sales or reducing costs? How involved do you get right now?

A little too much at the moment. Normally, not so much. Currently, I'm working closely with a handful of companies. The idea is that once everything is in place in six months, I should be supporting Daniel more with acquisitions and growing the group.

What do you enjoy doing?

I enjoy that we constantly encounter new things to learn from. That's why I still find this fun; it's extremely challenging because you're constantly reminded that you need to evolve. Even though I've been doing this for 19 years, it feels like we're just beginning to build something significant. Now, it feels like we're going to grow big, and that's a fantastic feeling.

Do you think you have another 19 years in you?

I definitely hope so. I feel like it. Absolutely. As I mentioned earlier, when Jonas started out, we initially thought it would take three years. I said it would probably take five. That was the time horizon. Now, I realize this is what I want to fill my days with, as long as I can contribute. Of course, I wouldn't want to be here if I felt I wasn't sufficient for the role. But as long as I feel I can build this company bigger and better, I would love to do it for as long as I breathe. What should you do with your life if you're not working? I don't know. It's easy to romanticize about going to Hawaii and learning how to surf. But after six months, what would happen? It's not a naive thought; it's a young person's fantastic dream. I don't want to talk down on that, but feeling that you can contribute and create something is so much more valuable to me than just sitting around doing hobbies.

I agree. Well, here's to another 19 years and hopefully plenty more.

Yes, I would love that.