Welcome to the ITAB Investor Presentation. For the first part of the conference call, the participants will be in listen-only mode. During the questions and answer session, participants are able to ask questions by dialing star five on their telephone keypad. Now, I will hand the conference over to the speaker, CEO Andréas Elgaard, and CFO Ulrika Bergmo Sköld. Please go ahead.
Thank you very much. Big welcome everybody to this extra presentation, and thanks for taking the time with short notice to listen a little bit to us. We are going to be quite brief today. There's been a lot of information that was shared yesterday evening with the market, where we have communicated our intention, and perhaps the presentation today will be a little bit dry, but I will try my best to make it come to life, and also then we will have a Q&A, where I think things will really come to life, so I will be the one speaking today, and then Ulrika is available, and she will jump in if I forget something or if something needs to be added.
And when we come to the Q&A, Ulrika will, of course, be there as well, to support and to help answer the questions. So we're going to briefly then today talk about the intended acquisition. I will start by going through just some of the kind of big points. I will then give a very high-level overview on HMY as a group, and then of course spend some time in describing what is the strategic rationale behind, and what is the impact that people should expect from us before we open up for Q&A. And then on top of this, I will also talk a little bit as a voiceover about the process and what we have seen and so on.
It's important to say that this is an intended acquisition because the acquisition is of course pending the appropriate approvals, as always when you do a deal of this scale. I'm just reminding everybody about that. We have entered into a binding put option, and this is a construction that is due to French legislation, where there needs to be... Once this is signed and communicated, like yesterday, there needs to be a consultative process with the appropriate works councils. It's not the same as we have in Sweden with the MBL, but it is a similar type of process, and it's very important to respect that.
And also, as always, the labor unions and work councils, et cetera, always have the company's best interest in every company, so this should be an important perspective to add on as well. We've made a bid on HMY that is a cash bid of EUR 320 million, and that is on a debt-free basis. This corresponds to a multiple of 6.4 on the Adjusted EBITDA for 2023. That's how we valued the company, and that is before synergies. And then after synergies, it is equivalent to a multiple of 4. So this is an industrial deal.
It is two companies of equal size, so of course, there will be opportunities to drive efficiency, to coordinate purchasing, and complement each other commercially, and strengthen our offer to the market, and make one plus one truly equals more than two, more than two. So we are super. I will come in a little bit later to the rationale behind this, but it is both strategically and financially compelling. It will be financed through a combination of new debt and new equity, and we are also complementing our partnership that we have today with Nordea and Swedbank on the debt side, with also welcoming Danske Bank into the mix. We've had a really good process with our bank partners to be able to finance this deal.
And it's not just about debt, it's also about the conditions for the debt and how we get supported in a good way when we work on delivering the synergies. Because everybody knows that taking synergies out of a company also requires that you invest a little bit cost to do that. And then, of course, we also want to keep our balance sheet healthy, so we also bring in new equity equivalent to 75 million EUR or approximately 850 million SEK. That depends on which day you count the euro to Swedish exchange rate. And we could also communicate this yesterday. It was through an accelerated book building and all the money was raised successfully.
There was more interest than what we needed to bring in. So, there's also been an allocation that has been communicated on top of that. So we are really happy that we succeeded to get interest to this deal, and we're also really happy that we managed to broaden the ownership structure of ITAB. I think that is important to create the long-term interest and long-term dynamic, and also use the power of being listed. And it's also a really strong sign from the current main owners in how they have supported this deal.
All in all, I think we have a super strong ownership base both before and afterwards. It becomes more diverse, and there will be a new level of a higher bar of requirements and expectations on ITAB, and that is good because it helps us to mature. So I'm really looking forward to working with new and existing investors. Just to be a bit formal, the intended acquisition is, of course, conditional then on signing of the definitive SPA, and this happens when the works council process comes to an end in a few weeks.
There is also pre-filing going on to the appropriate authorities in terms of getting the right governmental approvals, and then the formal filing will happen at the same time as the Share Purchase Agreement is signed. If all goes well, closing is expected to occur during the end of this year or the beginning of next year. Some words about HMY. This is a company that I've had my eyes on for quite a long time, and it's not strange because they are one of our most competent colleagues in the industry, a really strong European player. They are the leaders in Spain. They are the leaders in France.
They are active in U.K., in Central Europe, they're active in South America, and also in the Middle East. They complement us geographically really, really well. I believe there are very few commercial risks in this transaction, and I mainly see opportunities. Of course, there are always risks in a transaction and the merger of two equals, but I have seen a culture that is similar to us. I have seen passionate people, diverse teams. I've seen assets that are in good condition.
We have seen that there is some competencies that is more mature than what we have in some areas, and I have also seen that there's maybe a learning opportunity at HMY to learn from us, just like we will learn from them. So it is really, truly a merger of equals. HMY has a different story than ITAB. If ITAB is the story of a company that grew rapidly through mainly acquisitions until, I would say, maybe 2017 , and then we have done a restructuring of those acquisitions, HMY has a different story. They have a story of two companies coming together, Hermès Métal from France and Yudigar from Spain, and then they have mainly grown through organic growth.
So they have a different pedigree compared to ITAB, and I think that's also something that will complement us. They have in recent years been really strong in developing sales to global brands and fashion brands, and so on. Just like us, they have their core in the grocery business and do-it-yourself, and I'm really looking forward to seeing this intended acquisition coming to its completion, and that we can work together. Throughout the process, we've done a very, very thorough due diligence. It must have been frustrating at times to be on the other side of that because we have gone deep into labor questions, environmental questions, financial questions. Most stones have been turned.
Myself, I have visited five of the major assets and seen that they are well invested, focused on health and safety, passionate teams, so that has created a lot of confidence in me and in my teams. And we've also had really strong advisors to help us in this process, who had the best possible local help, the best support possible from our banks to also help us with everything around financial risks. And we've had internationally acclaimed partners to help us to validate also the synergies for both groups. The synergies is not something that comes from one part of this transaction, it's something that comes from the combined asset. I think I stop there and go to the next slide.
So starting this process, I would say it started in end of 2022, and at that time, we and I have been thinking about this for quite some time, and it's obvious when you look at where we have our different strengths and geographic footprints, that we are very complementary. So that was a given. But would it be also a given when you start to explore the culture in the company, and would also the finances start to add up? Would there be something behind the top line and the bottom line that actually could increase the value of the combined assets. And through the process, we have seen, of course, as in all companies, that there have been some question marks, especially before entering into the process.
But throughout the process, most of those question marks have been straightened out, and we have also learned that the culture is similar to ITAB's. It's very result-oriented, very close to customers, very entrepreneurial. The passion shines through the people, which is the same as on ITAB's side. So I think we have a really good opportunity to merge leadership and to merge people, and to bring out the best from each other and to the benefit of our shareholders and our customers, and most important in this case, when many have emotions, to all the employees. Working together to stay strong and to become strong. So the synergies in this deal will come from, of course, efficiencies on both sides. More than doubling of the purchase portfolio is going to clearly help us to deliver synergies.
And then also there's some clear commercial upside. ITAB has some, some things in our portfolio that HMY do not have, and we know also that some of those things are high-margin products and high-margin solutions, and we know that they are something that the market is interested in. And we believe that this interest is going to also come from the combined assets customer base. So we have seen and calculated approximately 10 million EUR in commercial upside on EBITDA level, and approximately 20 million in efficiencies coming out of this. Mainly on cost and, of course, the big part from purchasing. This is a deal that when you look at 2023 numbers is highly accretive.
And, those of you that follow us, you know that we don't like to give forecasts about the future. The future is always bright, of course. That's what we want to believe, but we also know that the future is a bit. It has been very dynamic the last couple of years. And we will continue to be careful when it comes to giving forecasts about the future. We have now given a forecast about the synergies that we will deliver, and we are going to stay very focused on that, so we make sure that we deliver the shareholder value. Both ITAB and HMY have, in recent years, gone through, I would say, really big challenges, and both companies have done that in a really good way and come out stronger with improved profitability.
And I am really looking forward to when this deal gets closed, that we will be able to work together and learn from each other and continue to drive value. The strategic rationale is quite simple. We work with really, really large customers that are very mature. We know that CSRD reporting is becoming more and more important. We know that retail is going through a lot of transformation, and it's a really, really dynamic environment, where you need to be quick in applying new technology, and new technology or new solutions are often connected. It means that you need to be able to deliver data. You need to be able to leverage data.
You need to do that in a timely manner and in a very agnostic way, so you can be integrated too easily, and you can deliver your data easily. It also means that there are new demands on data safety, security, and beyond that, environmental reporting. All these things that puts bigger demands on us as suppliers to our customers are also the dynamic that drives the need to mature our industry. Our industry truly needs to mature. It is very fragmented. There is a lot of great companies, but most of them don't have really the scale to be able to be at the required level that you need to be when it comes to environmental reporting, safety, traceability, and data security.
So you really need scale here in order to be able to invest in that, and you also need scale in order to be able to keep up with the relevant R&D developments. So you can bring your own technology or your partner's technology quickly to the market. So scale is important, and I. My prediction is that our industry will consolidate, and it will continue to consolidate. And even if this is the merger of two leaders in our industry, the combined market share is still small, and there's room for us to grow in Europe. There's room for us to grow also in other parts of the world. So I think enough said there. You all have access to the material. You can see that we will double in size.
Maybe just an explanation on the potential synergies. It says 20 on the sales line. That is then, of course, on revenue side, and then the EBITDA effect will be 10 out of that, so you can imagine that we are expecting it to come from high-margin parts of our business, so by that, I stop for a minute, and we open the floor for questions and answers, and I ask you, Mats, to help out to be the moderator.
Yes, thank you very much, Andreas. I think we can move over to any-
If you wish to ask a question, please dial #5 on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial #6 on your telephone keypad.
... The next question comes from Carl- Johan Bonnevier from DNB Markets. Please go ahead.
Yes, good morning, Andreas and Ulrika. And first of all, congratulations to a transformative deal. I know this has been talked about for quite some time, so fantastic that you seem to make progress on it. Just a couple of questions from my side. When you look at the top 15 clients of HMY and compare it to the top 15 clients from ITAB, is there a lot of commonality or is it just purely complementary?
I would say that there is some commonality, but it's mainly complementary. But then it's they are all of the same nature. Not all of them, but the majority of them are of the same nature. So they are from retail segments, retail customer segments that we're well familiar with. And I think that's also something to think about when people outside assess this deal, that it is two industry leaders that comes together, and it's not two companies that are in that starts from a position of weakness. It's really two companies that start from a position of strength and with good customer relations, long-term customer relations, and so on.
So you wouldn't expect any risk of, say, clients wanting, having a say, second-source supplier, if you put it like that, looking at the bigger retailers, and that would be a risk to negative the ultimate use, if you are looking at from that perspective?
I mean, this is one of the risks that we have also taken into account. And, of course, there's always risks. First of all, the deal is not closed yet, so I think that it will be first when we can practically talk about this with customers, that we might find out. We are not really stepping on each other's toes all that much. But of course, there is a couple of clients where we do that. And so far, what I've heard reactions from when customers have heard about our intentions, so far they have been positive. Also from one of the shared customers that is maybe the one where we have maybe most business from both sides together, the reaction has also been positive there.
We are already complementing each other, and you know, all these very large companies, they have often dual, triple, quadruple sourcing. So, what is important for us is to not just be time and material supplier, but to be a strategic supplier to them, and I think this truly increases our opportunity together to be that.
Sounds promising and logical. Looking at those things that you still describe as conditions to close the deal, I understand you're looking to do this works council process within the next couple of weeks, and then can you file with the competition authorities before that, or you need to close the deal before being able to do that? Just to understand the timeline when different kind of things happen here.
Yeah, it's a really good question. So, when it comes to filing, we will do pre-filing, and that's customary. That is to let the authorities know that something is going on, and also to have an opportunity to have a dialogue. So the whole filing is done in the best possible way with all the relevant information and so on. We have, of course, had the best of counsels to help us to assess this before we made our offer. So we have good hopes that this is going to pass through.
But as all of us know, sometimes things take more time than what you might have planned, and that's why we keep our estimates a bit open and say end of this year or beginning of the next year. So we don't believe it will be later than the first quarter of next year, but we have high hopes that it will be already this year.
Sounds good. And when you look at the process of using this, say, put option to the owners, have LBO France given you some sort of, yeah, commitment to finalize the deal if all the requirements are met and given you some sort of commitment to, yeah, exclusivity, so to say, in the deal process?
Yeah, we have the confidence that we need to go out with this, and then also we need to respect the law in France. And I know maybe for some in Sweden, it's not always so easy to understand, but it's similar. It's not the same, but it's a similar mechanism as we have in Sweden with MBL, where there is a requirement from the company to consult labor unions before you make any major decisions. So it's a similar type of process, but. And that process needs to play out. Probably going to go and meet with some of these representatives as well, because they will be curious about the future and our intentions.
But we expect that process to take the normal amount of time that it should do, and also that it will maybe deliver some valuable insight to us in the continued process, and then as soon as that is done, it's the signing of the SPA, and then formal filing happens, and then we wait for the government approvals before the deal can be closed. I want to remind everybody that until the deal is closed, we're still competitors, so we're not jumping the gun in any way.
We need to respect everything, and it also means that our communication to colleagues, to customers, to suppliers, is going to be business as usual, and we are still competitors until the day that the deal is closed, and then we will be colleagues, and we will explore these opportunities together.
Sounds promising. Looking at the financing you have set up for this, yes, it's not a bridge loan, it's a proper financing. Could you give us some details about the conditions for it? What kind of interest rate margin you are paying and or you're expecting to pay when this comes close?
I'm not sure if we have communicated that, so I must lean a little bit on Ulrika. We normally don't communicate the details in our financing, but it is on the debt side, Nordea, Swedbank and Danske Bank that take equal parts in this. We believe that we've got good market conditions that you should expect. We have had a long process of negotiations with them, so we believe we also got good covenants that makes us able to focus on getting the job done and not worrying too much about things or not meeting the requirements from our banks.
We also have been able to get, I would say, good conditions in how we calculate, the covenants, and so we can really take the cost out and invest the appropriate cost that is needed to release some cost, without being punished for that when you then, calculate, the covenants, and all in all, I think we've had an excellent process, been a long process, a lot of dialogue, and we've been talking about all sorts of financial risks and so on, and also then we bring in quite a big piece of equity, not just in order to have a healthy balance sheet, but also to broaden then the ownership base that we think has been a priority.
We've had that priority for quite some time, and I think that for us to be able to do that, it required something exciting to be able to open up the ownership base in ITAB, and I think this was that exciting piece of event that was needed, and we're super happy with the outcome.
I fully understand that and appreciate, but maybe asking the question like this then, does the terms of this, from a cost perspective, change very much compared to your, your historical credit lines? It's about the same kind of margins that you used to have.
Yeah, I would say, yes, and Ulrika, would you like to complement by giving some more flavor?
No, I think I support what you said, Andreas, and we haven't communicated the exact conditions, but I would say that it's basically in line with the current. But of course, we also have what we say a period of time where we need to invest in taking out the synergies, and that's also, of course, reflected in the agreement with the banks.
Yeah, and I guess with the new issue you just did, on completion of the deal, I guess on pro forma basis, you will already be below two times net debt to EBITDA, if I understand it right, so.
Excuse me?
One final from me, and then as well. If you're looking, I heard that you don't want to talk about future and these kind of things, Andreas, that's normal. But if you look at the year development for ITAB, obviously very strong progress in the first half, maybe also if that trend seems to be continuing for you and maybe also a word or two, if we see the same thing going on in Hermès at this stage.
Yeah, we have not given any details about the future for HMY or for us or the combined group. I mean, we know that for... If I talk only about ITAB, we know that we've had a fantastic start to this year. I think I have reminded everybody all the investors that I met after our when we closed 2023 also when we had our Q1 and after our Q2 that I reminded them about the nature of our business, that it's project-based. Sometimes a deal ends up in the right side of the quarter, sometimes the product makes this really attractive, sometimes it's not. I reminded everybody about that.
So, I do think that people, what they should expect from us and what they should expect from the combined group is that, year on year, there will be improvement from one year to the next. I think that is super important that we should be able to deliver that. So, as you know, we don't share our crystal ball with the market because it is more difficult than ever to predict what's going on. We all know that there's a presidential election coming up. We're still in a recession economy, so we are a bit careful. When we look into the future, we don't extrapolate one or two quarters.
We have our plans that we set for the year, and those are the ones we are executing on, and sometimes they are not always the same as maybe what you guys that are on the outside try to then estimate. So I know I give a politician's answer here, but that's just the nature of how things are that we are really careful about giving too much information about the future. We know that the market is very, very dynamic, and the macro situation is also quite dynamic. At the same time, interest rates were in Sweden are going down. Interest rates in U.S. are going down. If this continues, there's good hopes to see a recovery coming, and I think that will be good for everybody.
Just to complement that, as you say, Kalle, what we have communicated is an illustrative leverage ratio after the completion of this intended acquisition, and that we are expected to be including synergy at the leverage of 2.0, based on the financial year of 2023. So that was communicated as an illustrative example.
Yeah, and at the start, around the 2.7, so-
Yeah, two point six in the press release.
Yeah. Based on 2023 figures. So, yeah, we will not give any further information on that.
Thank you very much for the extra color, Andreas and Ulrika, and good luck. I hope you can close the deal. I know it's a dream deal coming through for you, so good luck out there.
Big thank you. Mats, do we have somebody else?
As a reminder, if you wish to ask a question, please dial pound key five on your telephone keypad.
Mats, do we have another question?
Just, there doesn't seem to be any more questions on the telephone conference. So then, I have received two questions. They're very similar. The first one is, "Can you say anything about how HMY's financial has developed during H1 2024 ?" The second one is, "The transaction is based on 2023 numbers, but we are nine months into 2024 . Can you say something about the development in HMY this year?
No, I will not say anything about that because that is information that we have not disclosed and I want to remind everybody that, of course, we have looked into these things. We have done our proper analysis, and we have looked at everything, but we are still competitors, and I don't think it's my place to reveal their current trading but of course we feel secure with what we have seen in the other company, and that's why we made this big bet so I answer like that.
Okay, then I haven't received any more questions, so with that, maybe we can close the presentation and remind everybody to please reach out to us if you have any further questions. We are available through email is the best and telephone as well, so please reach out to us if you have any further questions. I don't know if you have any closing remarks, Andreas.
No, it's more that this will be. I mean, it, the information that we now is recorded and will be available, and it is important to also just I just send this with you, that it's an intended acquisition. It needs to pass all the approvals. We have good faith in that that is going to happen, but until that happens, we're still competitors. Thank you for listening. This is exciting times for ITAB, and I'm sure it's exciting times also for potentially new colleagues at HMY, and I think, to be honest, for the whole industry. Thank you. Bye-bye.
Yeah. Thank you. Bye-bye.
Thank you. Bye.