M&A Announcement

Jun 10, 2021

Press Release

A warm welcome and thank you for joining us for this webcast despite the short notice. We are delighted to have announced our very latest acquisition a little while ago and look forward to sharing the rationale behind welcoming Jaime to be with you. Before I start the presentation, 2 notes. Firstly, please read the disclaimer about forward looking on the final slide of this deck. Secondly, for those of you who have asked questions, which we will address at the end of the presentation, Please put these in writing through the form you can see on your screens below the video feed. And I can say that we already have received 2 questions, so that's excellent. Please keep them coming. Now without further ado, let us turn to Slide 2 and go through the transaction highlights. Subject to regulatory approval, BHG is acquiring 92% of Jaime from funds managed by Verdeyn and from Jaime Management. Management will retain a minority stake in the business and so participate in the joint value creation unlocked by the combination. We have followed Jaime for a good while and we are delighted to now be joining forces. Jaime is a fast growing online category expert, serving customers within the Garden, Tools and Machinery, Forestry, Outdoor Life. Jaime had net sales of SEK744 1,000,000 in 2020. And with the accelerated momentum that the business is currently enjoying, we expect net sales and EBITDA for the full year to come in at around SEK1.1 billion and SEK 80,000,000 respectively. The fit with BHGE is strong from a category and customer point of view as well as from a company culture perspective and synergy opportunities in areas such as sourcing, cross selling and the exchanging of best practices abound. The initial consideration, which corresponds to SEK1.1 billion for 100 percent of the shares, when we funded by a mix of cash on hand and a directed share issue to HIMA's owners. Ferdaine and top HIMA Management will thus become shareholders in BHG. In addition to the initial consideration, the transaction includes an earn out, which is based on 2022 performance and can amount to a maximum of SEK 500,000,000. The acquisition is earnings accretive and the valuation, which corresponds to a 2021 EVEBITDA multiple of 13.8 times excluding the earnout entails a significant discount to the valuation that the BEG share is traded at. Jaime will form part of our DIY segment and Jaime's current CEO, Anders Karlsson, who is a 2nd generation family member, we'll continue to run the business together with his management team. We expect to be able to do the acquisition in early Q3 following the customary regulatory process. Let us now turn the spotlight on the HIMA business. Turning to Slide 3. HAIMA is characterized by the following traits. As an online expert, already operating at considerable scale, HAIMA runs on a data driven, tech enabled and results oriented company culture. As you can see on the right hand side of this slide, Jaime has a highly satisfied customer base. HAIMA, just like PHE, has focused on complementing its portfolio of well known external brands with its own proprietary brands. Entrepreneurship and deep category expertise and passion permeate throughout the HIMA organization. And last but not least, HIMA, again, just like BG, has a history and a culture where growth has gone hand in hand with cost consciousness and profitability. Slide 4, please. Over the years, Jaime has carved out leading market positions in core BHT categories such as the tools and machinery, forestry, outdoors life, hunting and leisure ones. HAIMA has a broad portfolio of external brands to which the business has gradually added the growing range of own brands. The latter make up around 20% of net sales today and cover a wide range of products from tools and machinery to outdoor accessories. Haima operates 3 main web shops, namely Hulte, Magrinklippet and Durb. These accounts for over 95% of the group's net sales. In addition, Heimer acquired Dogger, a small specialist outlet, as recently as March of this year. Through the acquisition BHG further strengthens its presence in important DIY categories with excellent opportunities to drive continued growth through a two way assortment exchange in Sweden as well as in the rest of the Nordic region. Moving to Slide 5. In addition to a strong fit from a category and product portfolio perspective, Jaime and BHG's DIY segment target and serve the same customer group. Our customers are hardworking, they're compassionate, resourceful, neighborly, family focused and to a large extent value an outdoors and sustainable lifestyle. Haima's strong position within its core categories and high customer satisfaction, both lend themselves well to a targeted customer communication, including through social media, where the group has a devoted following on both Instagram and Facebook. Much of this communication revolves around its brand ambassadors. The emphasis throughout all customer targeting is on authentic, genuine and credible content. Slide 6 please for the first of 2 financial slides. Aima has made significant tech and operational investments in the past couple of years, including consolidating all its businesses onto 1 tech stack and moving into a new central warehouse as recently as a few months ago. Despite these investments, growth and profitability have developed strongly and the groundwork has now been laid for an acceleration along this trajectory. It has grown well over the past many years, including organic growth of close to 30% in 2020. Growth into 2021 has further accelerated and amounted to 46% for the 1st 4 months of the year. Again, we expect full year 2021 net sales to amount to roughly SEK1.1 billion and adjusted EBIT to come in at around SEK 80 1,000,000. On to Slide 7. In our domain, besides ourselves, there are few Nordic online businesses of scale out there. However, Jaime is certainly one of these. By signing Haima with BHG further scale advantages will be achieved. On a pro form a basis, including Nordic Nest but not Haima, BHG's sales amounted to SEK9.9 billion in 2020, with the DIY segment accounting for some 57% of the total. SEK744 million of net sales leads to a pro form a 2020 picture for the combined business of SEK10.7 billion with the enlarged DIY segment accounting for just over 60% of the total. 2020 pro form a adjusted EBIT, including both Nordic Nest and Heimler, would have amounted to SEK 826,000,000. Operationally, this additional size and heft will translate into tangible benefits. Moving to Slide 8. And these tangible benefits will include improved scale in terms of sourcing and purchasing power. Further as in a majority of BHG acquisitions and perhaps especially relevantly in this case, assortment exchange and cross selling between HIMARS' strong web shops and dedicated customers and BHG's major platforms with our vast audiences present a clear opportunity for a sustained growth boost. Additional growth opportunities will arise from Jaime's nascent expansion into the neighboring Nordic countries with the recent launch into Finland and with Denmark next in line. BHG has a very strong position in these markets, which will help fuel to Heima's geographic expansion. And finally, BHE has a lot to offer Heima in terms of key digital aspects such as state of the art traffic generation approaches and the two way street actually exchanging best practices in areas such as big data and customer centricity is wide open. Slide 9. As I believe is made evident in the preceding slides, at least for those who have followed BHG over the years, Jaime shares many of the traits that also characterize us and the Jaime management team has taken a similar path to that of BHGE at key junctures. This has resulted in BH and Jaime sharing very models, having a strong cultural fit and each being well positioned to boost the others growth platform. Decentralized entrepreneurship, aligned incentives and a shared road map all provide the foundation for our next joint to face profitable growth. Summarizing before we open it up for the Q and A, Slide 10, please. Together, we will further strengthen several core as well as adjacent PHC categories. HAIMA has a strong and complementary portfolio of own and proprietary brands, and we serve the same customer groups and together further strengthen our relevance with ease. We are joined by our history of profitable growth and Jaime will further scale the HD platform. 6 areas include sourcing as well as cross selling, geographic expansion and exchanging best practices. Jaime has a very strong management who are highly incentivized along the road ahead. And both Verde and Heimer Management will also become BHT shareholders. And finally, the transaction is earnings accretive. This concludes the presentation. And so let us turn to any questions we may have received in writing. And I welcome Jesper on to our little stage here, and we will turn our attention to the written questions, just trying to take them in the order that we have received them. So firstly, a question from Frederic Alsang at EBG Sundal Collier. And Fredrik's question actually is twofold. One aspect of Fredrik's question is to do with the valuation and the other aspect has to do with the categories that we are now about to including to BHG and the degree of fit between our focus and HIMARS' focus. So let's take those in that order. Firstly, when it comes to the multiple, we've already referenced the 14.8 times EBITDA based on our expected 2021 EBITDA in the business excluding the earnout. Now looking a couple of years ahead, 2 things of course will happen. 1 is that we're expecting EBITDA to grow and even excluding synergies, which again are plentiful. That is one core aspect to answering the question. And the other core aspect which should also be remembered is that we will have this has been generating cash flow for a year and a half before we reach or actually 2 years before we reach the point in time in which the year end outage is paid. So if we take both those into account, the round numbers sub-fourteen times EBITDA is actually what we're looking at for this transaction including the Arnott as well. Now the second question is whether the acquisition takes us into significantly to categories. Now, the majority of the Haima categories are actually a very, very on fit with what we see as our core DIY categories. There are also, as we've mentioned in the presentation already, some areas that are adjacent to the core DIY categories and we can lump them together perhaps under the leisure label. And looking at that leisure category, this is a category that we've been actively putting our customers with for a number of years already. So on our major DIY platform sites, the ledger category is actually 1 of 6 or 7 or 8 main categories in our category 3. So in that also in that regard, I should say, the addition of HIMAS product assortment fits extremely well into our stated strategy. And I'll also just point to the fact that if we compare ourselves with some of the really big players on an international scale such as Home Depot for instance, You can see that the categories that they serve their customers with are actually inclusive of such adjacencies as the leisure category. So I hope, Fredrik, that answers your question. If not, please add further questions to the trail of questions that we have here. Now the next question comes from Niklas Ekman at Carnegie. And Niklas' question is, how much of Heima's sales has generated online versus stores and Heimer just like BHG is an online first business. And just like BHG, we have our showrooms also has 1 store actually per brand. So that's essentially 3 stores for the 3 main brands. And the rough split there is 80 plus and 20 minuteus online versus stores. So vast majority is generated online and the stores of course also to play a role in terms of supporting the brand in a more general sense just like the BHG showrooms do. Next, again from Niklas, is a question on synergies. And We have chosen actually as we have in all of our past 35 acquisitions not to communicate quantification of those, but we can point to the areas that will definitely generate synergies. We've mentioned our combined strength from a purchasing point of view, not least when it comes to the services that we purchase like logistics, etcetera. We've mentioned the two way assortment exchange, which is a typical BHGE synergy for most acquisitions and very much so in this case. So it will be a great opportunity to drive growth off the HIMA web destinations as well as the major PhD platforms. Next in line, we have the geographic expansion opportunity the HIMA business. The HIMA business is by and large all based on Swedish consumers today. And as I mentioned, HIMA just recently took a step into Finland and that's still a nascent initiative for them. We have an extremely strong position within DIY in Finland and we also have strong positions in Denmark, which is the next market for Heimat to address as well as of course Norway, which is somewhat down the line but will also be addressed here. So geographic expansion is the 3rd synergy I'd point to. And the final one which can sound a bit fluffy, but it is very real is in exchanging best practices. And here I mentioned from PhD to Jaime, our best in class digital traffic generation approaches. And I think also we can take a leap or 2 from HIMSS session and the degree of customer loyalty that the HIMSS team has created. So those are the main synergy areas. And let's see another question from Niklas. Niklas is asking basically what earnings contribution is required for the full earn outs to be met. And we won't give you a number to us, but what I can say is that we always for acquisitions such that it is a tough target to meet, but at the same time, we have full confidence in the team and we also have full confidence in the trajectory that the business is enjoying. And again, we have the synergy upsides that we just talked about. So in our opinion, with these elements. The full earn out is achievable. But of course, that would be based on an EBITDA that has grown from the levels that we talked about now. We will not disclose a number there. Let's see. We have some of our hopefully incoming colleagues following the Competition Authority approval just cheering us on here. So thanks for that Filip at Maguenklepert. And a question or I think a couple of questions from Gustaf Hageeus at SEB, where the first question is to do with the fact that Heimer has been run as a family business and has a track record of being extremely customer centric. How do we ensure that we keep this sold on the secret sauce? And this is a great question. It is absolutely critical that we succeed in this regard. But I would say that it is not so different from the majority of acquisitions we do. As you know, Gustav, we have a very clear central strategy process. But within the frames that we define for our platforms, we give the management of those platforms a lot of room to maneuver. And we again have one of the actually key assets that made us so convinced that this combination was attractive is the Heimer management team with Anders Karlsson at the helm of it. So We will definitely ensure that Anders and team continue to feel that this is their business. This is our business. It's their business that's how all of us in BHG feel and I have no doubt actually and that we will manage to keep that Jaime ethos in place. And as I already mentioned, I think you rightly point out the extreme customer centricity of the company and the position it's established there. And I again say that that's an inspiration to many of our other businesses, which we will definitely leverage also. And the final part of that first question Gustaf asks here is how do we ensure that we have alignment post the 2022 earnout. And here the way we've structured the transaction, we have for management including Anders' CEO. They have retained a minority stake and that minority stake will be longer than the 2022 or not. So that's the answer to that question. Secondly, Gustaf is asking about our market share in a specific for a specific set of products and good so that's one we will have to come back to on and finally, Gustaf's question is about private label the Jaime's private label outside of Sweden and Finland. And again, in Finland, this is really new for Jaime. And we will most certainly help accelerate the trajectory in Finland. But I think as your question is alluding to, it doesn't stop with Sweden and Finland. We definitely have clear and present opportunities in all of the Nordics. And convinced that once we've taken a stab at those and established a base in all of the Nordics. We do have clear and present opportunities also in Mainland Europe for a significant part of that very interesting and attractive range of proprietary brands. And we have one final question unless we will have any more coming in here from Mark Debsich, sorry if I mispronounce your surname there Mark. But the question is basically how the business is performing right now. Very specifically, Mark is asking about May 21 versus May 20 and we won't disclose a percentage there. But as we mentioned, year to date growth into April at plus 46% and that trajectory is very much continuing. So no hard and fast number there, Mark, but The business is continuing to do really well into May. So we will wait for another minute or so to see if there will be any final questions or perhaps half a minute not to have this late call drag out for too long. Okay. So thanks a lot again for attending and thanks especially to those of you who also asked questions and we look forward to interacting with you in the days to come. Thank you and good evening.