M&A Announcement

Sep 3, 2021

Thank you, operator. Good evening, everyone. Let me just start by correcting the purpose of this call. It's, of course, to do with our recently announced, just an hour ago, acquisition of Ah Trading. A warm welcome and thank you for joining us for this webcast despite this quite short notice. If we can please move to slide 2. We're delighted to have announced our very latest acquisition a little while ago, as you've seen. And I look forward to sharing the rationale behind welcoming Ah Trading into BHG with you. Before I start the presentation, a note to all to please read the disclaimer about forward looking statements on the final slide of this deck. Now without further ado, let's turn to slide 3 please and look at today's agenda. I'll start by providing a brief update on BHGE before I turn to the main topic of this evening, namely our acquisition of Ah Trading in which I will describe the company, the transaction highlights and the rationale for us joining forces. We'll then wrap up with a Q and A session. Slide 4, please. So a quick reminder on who we are. We are the leading Nordic e commerce company. We also have a growing customer base in mainland Europe. We operate in the home improvement market through our 2 similarly sized segments, do it yourself and home furnishing. Our complete customer offering, what we call the BHG ecosystem, comprises the market's leading portfolio of well known external brands, as well as our own brands, infrastructure in the form of showrooms and product experts and complementary services. Our financial history of coupling fast growth with profitability and cash generation bears out the strength of our strategy and of our business model. In 2020, we grew by 43% to reach net sales of SEK 9,000,000,000. Turning to slide 5. So again, our approach combines organic initiatives and M and A with the synergy possibilities created between the 2. The organic approach is based on our 4 strategic pillars, namely assortment, scale and our own brands, a superior digital shopping experience and infrastructure in the form of services and support. Despite the corona induced pulling forward of online penetration, our markets still have a relatively low level of online penetration. So they are set to grow for many years to come. In addition to these secular trends, we also continue adding new categories and growing geographically into relatively newer markets for us. Our M and A approach has been perfected over the many years we've been at it. We have a proven track record and the organizational and financial capabilities in place. Our markets are still fragmented and as the natural consolidator, our long list of opportunities is extensive. We look for 2 acquisition types, category catalysts and platforms and we're working on continuing to add both flavors at a rapid pace. Over the years, we have developed a post merger integration playbook to ensure that we capture synergies in a structured and repeatable fashion. We have fine tuned how we go about integrating the bolt ons onto our platforms and the model for how the group ensures clear governance processes, centers of excellence areas and how to optimize tech, data and automation across our units. Now finally turning to the main topic for this evening, Ah Trading. Slide 6 please. In a nutshell, Ah Trading was founded in 2002 as an e com specialist. After entering the online outdoor furniture space in 2007, the business has grown rapidly and profitably and established a leading online position within its space in the German market. The company's 3 year net sales CAGR exceeds 60%. Ah Trading's HQ and warehouses are located in Notrein Westfalen, the most populous state in Germany and a convenient 45 minutes drive from Dusseldorf Airport. We estimate that net sales will amount to some €66,000,000 and EBITDA to approximately €6,700,000 for the current year, which of course translates to an EBITDA margin of around 10%. The company's product portfolio comprises both own brands and well known external brands. The share of the former is on a growing trajectory and will reach roughly half of net sales this year. Turning to the transaction itself. Slide 7 please. So again, a little while ago, we announced that we're acquiring 80% of the shares of Ah Trading. The company's founders, Aron and Birgit Holterman are retaining a 20% stake in the business and they will continue in their roles as CEO and COO respectively. Outdoor furniture and garden products more generally form real bread and butter categories for BHG. And together with the Holtermann's we see clear synergy opportunities from scale and sourcing, from cross selling and the exchanging of best practices. The initial valuation corresponds to SEK 490,000,000 for 100 percent of the shares. In addition, the transaction includes a performance based earnout which can amount to a maximum of €12,000,000 or approximately SEK 122,000,000 Finally, on transaction highlights. We have a call option to acquire the remaining 20% stake based on the company's performance in 2024. Still on this slide, turning to the financing box. The cash consideration amounts to approximately SEK367 1,000,000 and would be financed by cash on hand. The transaction is earnings accretive with the initial valuation excluding earnouts corresponding to an EV 2021 EBITDA of approximately 7.2 times. The earn outs come in the form of 2 tranches and are conditional upon the business hitting predefined targets. In this sense, the earnouts can be seen as self funded if you will. However, if we simply assume maximum earnout level and add both these future tranches on top of the pre earnout valuation. This mathematically brings us to an EV 2021 EBITDA multiple of 9.0 times. Ah Trading will be consolidated into our home furnishing segment and the business will continue to be run under the leadership of Founder and CEO, Aron Holtmann. Slide 8 please for a more complete view of Ah. KH Trading's strong online position revolves around its attractive portfolio comprising some 10,000 SKUs and a focus on delighting its well over 100,000 active customers. The location of the Ah infrastructure is perfect with all of Germany and potentially down the line additional large neighboring markets within easy reach. The company has its own in house design and development capabilities and sources its own brands from Asia where it has long standing and strong ties to its manufacturing partners. Turning to the right hand side in terms of categories, garden furniture represents close to 85% of net sales with garden houses and other products like outdoor lighting and decoration making up the remainder. Ah Trading operates 2 web shops, galtandmerbl. De by far the biggest one and the more recently launched loungedreams.com. Some 5% of net sales is generated from marketplaces primarily Amazon and eBay. Turning to slide 9 for a deeper look into the product assortment. To the left, you can see the main categories, dining table sets followed by lounge furniture and parasols make up roughly half of sales. On the right hand side you can see the 3 owned brands Outflex, the main affordable luxury brand, Vilana, the mid range brand and Outtec for products such as jacuzzis, trampolines, etcetera. These comprise some 3,000 SKUs and as I've mentioned make up roughly half of net sales. On the far right hand side you see the main external brands, net sales for which also continues to grow, however, not as rapidly as the growth of own brands, which continue gaining share. Turning to more on the fit and strategic rationale, slide 10 please. So as you've seen, A. H. Trading is a true online category within the garden space, the core BHT category with a great track record. The company in its own right has critical mass within its domain and also adds an expert on the ground team and infrastructure to the wider BHG footprint. The product portfolio including own brands matches that of our Nordic base creating clear two way cross selling synergies and we serve very similar customer groups. Always key to us, the operating model and the culture fit are both excellent. We are very happy to partner with Aaron and Birgit Holtmann who retain a stake in our joint journey ahead and we're convinced that Ah Trading in terms of their position in the garden furniture space and strong team is an excellent gateway into the very large German market. Finally the deal terms are attractive and earnings accretive. Not repeating myself on the financials, suffice it to say that Ah Trading has an impressive history and a very clear plan going forward, which we now intend to turbocharge by the opportunities that we can unlock together. Turning to the final slide before the Q and A, slide 11, please. The recipe for us continues to be to combine organic initiatives with M and A and ensuring that 1 plus 1 equals more than 2. The acquisition of Ah Trading is a natural step in our ongoing evolution along our 2 main growth axis, verticals and geographies. And it represents a first on the ground step into Germany where select other BSG units already have a growing customer base. And the acquisition of course brings us one step closer to realizing our mid term financial ambition of reaching the SEK 20,000,000,000 net sales level before too long. Turning to slide 12 please. This concludes the presentation and I hand the word back to you operator to guide us through the Q and A. Thank you. We don't have any audio questions at the moment, so I'll hand it back to you, Adam. Excellent. Well, thank you so much for calling in again at short notice, and I look forward to speaking to you over the coming days weeks. Thank you. Have a great evening.