Good morning, everyone, and thank you for joining us on a very special day today. I'm here today with our CFO, Andreas Lindback. We're very excited about the acquisition of STANLEY Security, about joining forces with this fine company and team and the opportunities ahead. This is a real game changer for Securitas and for all of our stakeholders. Looking forward today to talk a little bit about the market and also then why we believe this makes so much sense and sets us up in a fantastic way for the coming years to develop the company. STANLEY Security is a highly reputable leader in commercial electronic security, strong technology, commercial, and innovation capabilities. Securitas, we have a strong platform as a leading protective services company.
By joining forces now, we're building the foundation to being the most attractive choice for our clients as a leading intelligent security solutions partner. We will cover a lot of detail during the presentation, but let me share a few highlights. STANLEY Security is the third largest global electronic security provider globally. Total sales are nearly $1.7 billion, of which 40% is recurring revenue, and this is important because that's also a sign of the quality of the business, and also an EBITDA margin close to 12%. This makes a lot of sense for us because this enables us to take a significant step to greatly strengthen our electronic security and solutions capability, but also towards realizing the ambition that we set a few years ago to double solutions and electronic security by 2023.
It will also enable us to accelerate the differentiation from our competitors in terms of offering, innovation, and client experience, and we have compelling synergies. With this acquisition, we are very well positioned to play a leading role in a more technology-focused future. That's the reason that we are saying we're not only doing a transformative transaction for Securitas, but we also believe that we're gonna have a very positive impact on the entire industry. We're also changing the profile of Securitas from a financial perspective, and this will be immediately accretive to our operating margin. With this transaction, more than 50% of the contribution to the group operating result will come from higher value and higher growth services, so electronic security and integrated solutions.
Together with the other initiatives and the programs that we are driving, and I think those of you who follow us closely, you know we're driving quite a lot of change and modernization and digitization over the last few years. Together with those programs, this will also lead to substantial operating margin improvement over time. It's really also very much about greatly strengthening our offering, our capability, but also to set us up to drive a significant improvement of the margin over the coming years. Before we go into the details, let me just share some perspectives on the security industry and the key value drivers in the future. This section is important because these are the main reasons as well why we're so excited about the acquisition of STANLEY Security.
When you're looking at the future of the security industry, we see three main capabilities that are the most important value drivers. The power of presence, connected technology, and making intelligent use of data. We believe that the winners of tomorrow are the companies that are able to leverage and combine these assets in providing the best client experience. That is also the reason that you're seeing clients in the middle here of the illustration to the left on this slide. While these are three complementary assets, we also see significant difference in terms of value creation and growth opportunities in the next 5-10 years. Looking at the different parts of the security services industry and how different capabilities will also develop in terms of growth, but also then the margin profile.
In the right hand side here, you see for illustrative purposes then, guarding and electronic security. Here we obviously have very significant strength in guarding today. We also have been continuously building up electronic security. You also see that is also slightly higher growth, but also significantly higher margin profile. We've also over the last five, six years been driving aggressively to also integrate different protective services into what we call security solutions. With security solutions, that's obviously a based on the needs from clients to have more integrated services, to work with more capable partners who are able to manage the security equation on their behalf. That is one part of the industry that we are actively driving and developing, where there is higher growth opportunity, but also higher margin opportunity.
If you're looking from a longer term perspective and in the next couple of years, we also see data-driven security as a service becoming increasingly important. This is enabled by essentially having broad connectivity to all the equipment that we would have on client location, and then be able to drive innovation based on that connectivity, leveraging the data, contextual data, and relevant data that will enable us to optimize the security solution, but also to be able to work in a more predictive manner.
That is a part where if we talk about STANLEY Security, and I will share a little bit more about that later on, where they have also been making significant investments in the next couple of years, and we are sharing the view in terms of the importance of those growth and margin opportunities in the years to come. This is important in terms of the broader view in terms of how we see the security services industry developing. If you're then looking at electronic security specifically, this is a good market. It's a $70 billion market with good growth of around 4% annually, but where we also see that there is very significant innovation opportunity. If you then ask the question, where does the growth need come from?
Well, this is a growing market, and it's based on increasing needs from clients for more security, but also increasingly complex security solutions. There is a growing emphasis when you're looking at the longer term development of our industry that we have been talking about for a number of years on technology and data for all security solutions. We also benefit from a broader trend where technology is becoming better, obviously also then enabling better services and more intelligence, but this also means that there is more connected devices in the future.
We see very significant growth opportunities based on security as a service, where we have more and more clients that are also saying that they're coming to us with the demand as well to not only do very good guarding on site and mobile solutions, but also to be able to integrate more services based on connectivity and data. If you look at the industry, there is a number of players in the electronic security services industry locally, so on more of a national level. There are rather few players when you're looking at global electronic security players, essentially companies with stronger capability across different geographies or continents.
We believe that if you're looking at the red dot here, there is a real position for us to take with the global scale that we have and the size and capability, but also combining that with the strong emphasis on innovation and being able to scale innovation for the benefit of local clients as well as global clients in the coming years. This is also fundamentally important why we are very excited about now joining forces with STANLEY Security.
For those of you who follow us closely, you've seen these steps or the ladder before, and obviously, when you're looking at when you go upwards and to the right here, there is more technology, there is more emphasis on data-driven innovation, and with this transaction, we are taking a very significant step in terms of shifting the entire profile of Securitas in that direction. Let us now shift to STANLEY Security. STANLEY Security is the number three player globally in commercial electronic security and a leader in advanced health solutions in North America. They have a solid reputation in the market. They stand for high standards, quality, and innovation. This is a team of 7,800 highly qualified team members with deep technical and commercial expertise.
If you're looking at the perimeter here in terms of what we are acquiring, there is almost a perfect fit in terms of the markets in North America and Western Europe that are very important markets in the Securitas strategy for the future. This is obviously something which is very positive, but also then enabling us to to add more than 500,000 clients or customers, but also then, as a combined entity more or millions of sites that we are serving. From a Securitas perspective, there is a very high strategic fit with a dedicated electronic security business, and then, as I said, with a very strong focus on key markets. If you're looking at STANLEY Security, they have very strong technical and commercial capabilities in installation, maintenance, and monitoring.
That is really the left-hand side of the illustration that you're seeing here. That is really the core part of the business today. There is also a growing emphasis and significant investments that the STANLEY team have been making over the last couple of years in terms of also driving the solutions and innovation that is highly relevant for the future. When you're thinking about this business, there is a very strong fit, there is a very strong quality, and a sound electronic security business, but there is also a lot of emphasis in terms of the future solutions when we talk more about security as a service. I should say that we acquired the operations in five markets from STANLEY last year.
These have been successfully integrated, and in those markets, we have also seen a very positive impact, not only in terms of talent and capability, but they have also enabled us to reach more critical mass and relevance in the market that has also enabled us to also greatly improve the profitability. I just want to say that I have a lot of respect for the STANLEY Security and Healthcare teams, and through the due diligence process and all the interaction that we've had, I have become increasingly excited about the opportunities ahead, and that's something that I'm sharing with all the leaders at Securitas that have been involved in this process. Let us then shift to some of the opportunities that we are seeing with this great combination.
This is all about creating the intelligent security solutions partner for our clients. Looking at this from a pure electronic security perspective, we're creating a strong global ES player with combined sales over $3 billion. This is the largest acquisition that we have ever made, and we achieve more scale capability and presence with this acquisition than what we have done with all the other ES acquisitions that we have done in the last five, six years. We have a strong complementarity in terms of client segments and expertise. Another important benefit that I touched upon before is that we also have an opportunity to leverage the depth and the breadth of technology solutions knowledge to really drive innovation and bring the most attractive solutions to our clients. The strategic fit is important.
As I mentioned, I mean, here we are highlighting Europe and North America, but as you know, we have also recently been making important acquisitions in Ibero-America and also in our AMEA divisions. When you look at this acquisition, then very high strategic fit. Because we create a strong electronic security platform, but also a strong electronic security platform that enables us to also drive more integrated solutions. This platform will enable us to accelerate growth of higher value services and drive margin expansion. Like I mentioned before, scale and critical mass are important for relevance and profitability in electronic security. In combination with our increasingly strong presence in Ibero-America and AMEA, this enables us to significantly strengthen our technology capabilities for our local as well as for our global clients.
If we then shift to the growth drivers, the main enablers to accelerate the sales growth of higher value services will be the sales organization, sharpening our offering, and then fueling this development also with innovation. If you're looking at the offering, I think what becomes quite unique when you look at us joining forces is that we will have a very attractive offering for our clients, and we will be able to manage and also to help our clients with everything from advisory and corporate risk management through technology to our great people who are on customer or client location. We have identified significant commercial and revenue synergies through active leverage of existing client relationships in guarding, integrated solutions, monitoring, and installation, and maintenance.
Like I mentioned before, this combination will have hundreds of thousands of clients and millions of client sites that we are serving, and in the future there, where connected technology becomes a very important part of the security equation. We do believe that this becomes, you know, this combination becomes more than the merger of two good companies. It is really about positioning us in a perfect way to accelerate innovation in developing the solutions for the future. By joining forces, we will be in a unique position to really drive this innovation in the years ahead. Innovation with high relevance for complementary client segments, develop and deliver leading technology and connectivity offerings, leveraging then the competence of more than 5,000 technicians and engineers.
With the combined strength in integration and monitoring, we can also then drive upselling, migrate clients to higher margin technology solutions, and where the value to the client is significantly enhanced. With that, I will hand over to you, Andreas, for some more details related to the transactions. Then I will wrap it up, and we will open up for Q&A.
Thank you, Magnus. Looking into some further details around the financial highlights and the financing of the acquisition. This acquisition is done on a cash basis. In other words, we are paying the purchase price fully at closing here. The purchase price is $3.2 billion, and that is on a cash and debt-free basis. As Magnus said here earlier, this acquisition is transformative to us, and it's also immediately changing our margin profile as a business. We also see strong opportunities to accelerate our growth in the attractive electronic security and solution market, and we also see strong commercial synergy opportunities given the strong match of geographical footprint and the large base of clients we will have together. This provides opportunities to drive cross-selling, offering solutions to our clients, and drive innovation going forward.
The acquisition also has attractive efficiency and cost synergies of $50 million, which we will realize over the coming three years, or three years from closing. Our synergy estimates has been built up through a detailed bottom-up process, throughout the due diligence process, and we are comfortable here we will be able to deliver on this $50 million. The acquisition EBITDA multiple based on 2021 is 13x, which is including the cost synergies mentioned, but it does not include the material commercial synergies or the positive strategic impact from us joining forces together. STANLEY Security's strong EBITDA margin of close to 12% has an immediate strong positive impact and accretion to our operating margin. The acquisition is also expected to be accretive to the EPS during the first full year after closing.
The cost related to the acquisition is estimated to around $135 million, and that will be recognized over 2022 and 2023. Approximately one-third of these costs are related to transaction costs, which also includes costs related to the rights issue and part of the bridge financing. The remaining parts are related to integration, restructuring, and carve-out costs all related to the acquisition. This also means we are taking a major step in our strategic ambition to double our solutions and electronic security business by 2023, as Magnus mentioned here earlier. The combined revenue from STANLEY Security and our existing solutions and electronic security business will be around $4.2 billion or around SEK 38 billion. If we then move to look into the financing of the transaction.
The acquisition will, from the start here initially be funded by a fully committed bridge facility that has been provided by SEB. After the closing, we will do a takeout in the equity and long-term debt markets. The equity component of the refinancing will be via regular rights issue that we will start as soon as possible after we have the closing in place. The amount of the rights issue will be approximately $915 million. We already have strong support for the transaction and the rights issue. In total, shareholders representing more than 44% of the share capital today have given commitments or declarations of intent to support the rights issue.
Three of our main shareholders here, Latour, MSAB, and EQT, have committed to take up their pro rata share of the rights issue and also guaranteed an additional 21.9% of the rights issue. Didner & Gerge Fonder, Carnegie Fonder, and Länsförsäkringar Fondförvaltning have declared their intention to vote in favor of the rights issue and also subscribe for their pro rata shares of the rights issue. All in all, we have strong support here from our larger shareholders, both for the transaction and the opportunity to transform Securitas. As most of you know, our balance sheet before the acquisition has been in very strong shape with a net debt/EBITDA of 2.1 and no covenants in our facilities.
We have intentionally been strengthening our balance sheet over time to ensure we are in a strong position when a transformative opportunity fitting perfectly with our strategy arises. We are basically at this point here today. This means we will increase our leverage temporarily while we are committed to, and we also expect to remain investment grade. The rights issue will of course be supportive to also maintain this objective. The transaction will now go through customary regulatory approvals and is expected to close the first half of 2022. As I said here earlier, we will then start with our takeout process as soon as possible thereafter.
Lastly here, this is a very exciting and important moment for all of us at Securitas and STANLEY Security, where we immediately are changing the margin profile of Securitas, but we also have a strong platform to continue to drive in growth, innovation, and driving our margins even further going forward. Subject to closing here, of course, but I also want to take the opportunity to welcome many new clients and colleagues to Securitas in a very exciting journey ahead. With that said, I'm handing back to you, Magnus.
Many thanks, Andreas. To wrap this up before the Q&A, joining forces with STANLEY Security is a game changer. It is about creating a winning team in the security services industry. Like Andreas said, we're really excited to welcome the new team members at closing. We're shifting the profile of Securitas in terms of the offering, but also in terms of the value creation. Immediately margin accretive, over 50% of the contribution to the operating result will come from the higher value and the higher growth security solutions and electronic security. We will accelerate the differentiation from our competitors in terms of offering, innovation, and client experience. From the perspective of key trends in the industry, we will be very well positioned to play a leading role, more connected technology, and data in the years to come.
Together with initiatives and programs that we are driving over the last, especially the last 24 months, this will lead to substantial operating margin improvement over time. This is a milestone. We are shaping the new Securitas by joining forces with STANLEY Security. In the future, where presence, connected technology, and intelligent user data will be the key drivers of success, we are taking a gigantic step in creating the leading intelligent security solutions partner for our clients. With that, I would like to thank you for joining us for this session, and I am now happy to open up the Q&A session.
Thank you. Our first question comes from the line of Rahul Chopra of HSBC. Please go ahead. Your line is open. Rahul, if you have your line on mute, you'll need to unmute. Okay.
Hello? Yes. Hello. Good morning.
Hi there. Okay, we can hear you.
Can you hear me?
Yes, we can.
Okay, thanks. I have three questions, if I may. Good morning. First is in the growth profile for STANLEY Security business. It seems that the business has underperformed, compared to 4% growth, which you're alluding to for the security business. Can you just give us more comment on, how do you think the growth profile for the security business will be under Securitas umbrella? Second question is on the degree of maybe some sense of customer or service overlap between the two companies and maybe some opportunities for a cross-sell that will be helpful. My final question is on the leverage side. You think the leverage will be 3-3.5 times. How what it really means to your capital allocation policies and your appetite for small bolt-ons after the M&A? Thank you.
Yeah, thank you very much. I'll cover the first two questions, and then I think, Andreas, you can comment if you like on the leverage. First of all, if you're looking at the growth, STANLEY Security, they have been investing quite a lot in their business and also driving transformation programs in the last two to three years in a similar way to what we have done. I think they have also seen the importance of modernizing, digitizing, and also then investing quite a lot in the future electronic security solutions and security as a service. They have also done very significant changes in terms of leadership team, and I see strong organization, a very strong team.
I think to your question in terms of the growth profile, electronic security as a market is growing or expected to grow around 4% per year. We should be able to grow faster than the market based on the strength of our offering, based on the strength of the team, that is a clear expectation. Obviously always protecting value and our margins in that journey. I think the second question is a very important one, and that is then coming into the kind of the revenue or the commercial synergies. I think you asked about cross-selling. From a Securitas perspective, we have around 150,000 customers today, if we are excluding monitoring only clients, and serving hundreds of thousands of different client sites.
If you look at STANLEY Security, they have around 500,000 customers, serving combined then between the two of us, millions of client locations. When you look at this from kind of a commercial synergy perspective, there are many clients who need guarding, on-site guarding or mobile guarding or the type of response that we bring. If you're looking at almost all business clients, almost all of them need technology and electronic security. When you're looking at this client base and our protective services offering, we are very well positioned to be able to work with our clients, develop new and more integrated services based on their risk, based on their need.
That is obviously tremendous opportunity that we are unlocking as well with this significant addition in terms of competence of the STANLEY Security team, but also the presence. I think we are in a very good position to drive and to develop this business with existing clients, but we should also be able to attract new clients and customers in the years ahead. Do you want to comment on the leverage, Andreas?
Absolutely. I mean, as I said here initially, we have a strong balance sheet in place, and, we are also utilizing that fact here in the acquisition, but also in a responsible way. Also important to mention here, we are committed to remain investment grade here. leverage is going up through this acquisition. focus for us over the coming year, the coming time here will be to also deleverage, focus on good solid cash flow management to also get back to a more normal leverage position in the midterm here. looking then on the M&A side of things, we will of course, after closing, in the short term after closing, focusing on deleveraging, so there will be less acquisitions.
There might be one or two smaller ones depending on where they are in the pipeline, but focus is on deleveraging. If you're looking more mid to long term, when we are seeing positive deleveraging effects, we might continue with bolt-on acquisitions going forward. Obviously, we do not have any plans for any transformative acquisitions or what we have announced here today. In all, committed to investment grade, we'll focus on cash flow management and deleverage in the short term.
Thank you so much. Thanks.
Thank you. Our next question comes from the line of Anvesh Agrawal of Morgan Stanley. Please go ahead. Your line is open.
Hi. Good morning. I just got three questions. First, on synergies. I mean, the SEK 50 million of cost synergies, you said it's sort of based on bottom-up analysis. If you can shell out further details, like what are the various parts that you are making within that SEK 50 million synergies, and will those be back-end loaded in your three-year program, or you sort of expect them to split evenly across the first three years of the program? Then can you just give some color on the CapEx profile of the STANLEY Security business? I mean, you've given the EBITDA number, but it would be helpful if you can sort of give the EBIT margin and, how should we think about the CapEx.
Finally, just, I mean, on the leverage, what is the sort of sensible leverage that you again plan to come down to, after which you can again start to do the acquisition or how you're thinking about the capital allocation? Thank you.
Thank you, Anvesh. In terms of the synergies, yes. We feel very comfortable about these synergies. There will obviously be some overlap in terms of of us now building more critical mass in existing footprint. I think there, obviously that would be mostly focused on more back office, common shared systems and so forth. The most important thing here is obviously that this is a transformative acquisition. When you're looking at the synergies, this transaction has an immediate positive impact in terms of our operating margin as a group. The real value creation is gonna come through the integration effort and the value that we are creating by combining forces here.
That is definitely the source that will be the most important when you're looking over the next 3-5 years.
On the questions here on leverage and CapEx, and if we start with leverage here, I mean, we have a target of around 2.5 in leverage on net debt to EBITDA, and that is what we would work to get back to in the mid-term here. Related to the CapEx, you should expect in this business that this is a business that is having a less CapEx need than Securitas today, I would say. I mean, we are running then, as we have communicated earlier, less than 3%, but you should expect the levels to be less than that going forward. We can come back here also later on with more exact information.
Okay. Isn't the electronic security more higher CapEx than the guarding business? Why would STANLEY Security have a lower CapEx than Securitas?
Well, it is because we are very focused on also investing into solutions, but we are investing into the client contracts, and we do that to a larger extent than STANLEY Security today.
Okay. Fair enough. Thank you.
Thank you. Our next question comes from the line of Rory McKenzie at UBS. Please go ahead. Your line is open.
Morning. Just two questions from me, please. Can you talk more about how you plan to combine the products and services in the two companies? Do you see this as kind of broadening the menu you can offer, or will you take the best of both portfolios into one streamlined offering? Maybe actually you could talk about the experience so far after you bought those five country operations in Europe. Now what stats can you give us on the kind of post-acquisition growth or post-acquisition client interest, once you've combined those offerings? And then secondly, I appreciate the strategic importance of the deal, but it does look a relatively expensive price. You know, excluding synergies it is something like 20 times 2021 EBIT.
Can you talk about the returns hurdles that you judge this against, and when you expect this to be value accretive, rather than just EPS accretive? We estimate that maybe you're talking about a kind of pre-tax return on capital of only 7%-8% even by 2024. What are the comments on the returns profiles, please?
Thank you, Rory. If you're looking at how do we combine this? Well, first of all, the important thing is that we build a very strong core electronic security business. There, it's the combination of installations, capability, monitoring, and maintenance. There, our experience to your question in terms of the five other units is that what we have achieved there is more relevance in the market, more of critical mass in terms of capability, what we are able to offer to our clients. That we have then seen together with some synergies in the back end, because we are continuously investing and protecting in all the technical and commercial capability, when we do this work.
That has also materialized in a very good way, in terms of the client offering, but also the profitability profile. That is the first aspect. It's really the core electronic security capability where we are building, you know, further or significantly strengthening, I should say, our capability in terms of doing enterprise-level electronic security integration work and then maintain and serve that for our clients over time. The other aspect here, which is obviously very interesting, and that's something that we have been looking somewhat at that, but where we will also put a lot of emphasis post-close, is how we also leverage the platform because we will have a very significant platform of connected devices, obviously connected clients.
Through that, we also see a number of promising activities from STANLEY Security as well that they have been developing. We are doing quite a lot as well, as you know, in terms of our intelligent services. Here it's really about making sure that we are speeding up that innovation effort for the benefit of our clients as we go forward. I'll let Andreas come in on some of the more detailed question you asked about towards the end here. But in terms of the purchase price, yes, this is a full price. But this is also where this type of an asset would be trading from my perspective. This is a very significant platform. It's a transformative platform for us. It would be a transformative platform for other interested parties.
If you're looking at the valuation here, I agree in terms of higher multiples, but we have very strong confidence in terms of the cost synergies. We have very high confidence in terms of the commercial opportunities that we're able to create here, in terms of generating very good value and leverage this as a platform to really expand and substantially increase our margins over time. That is really the main kind of perspective that we have taken. I would also say that if you compare valuation of these types of assets today compared to 10 years ago, they are more expensive now. The question then is for us as a team, we are the finest security services company in the world today.
We are significantly distancing ourselves from the competition with this. Here it's also a matter of, you know, who do you really want to be in a future which is much more tech-focused and enabled, and also where intelligent use of data will make a significant difference to the client proposition. We wanna take that position, and in that perspective, and context, this is the right time to make a transformative, I agree, aggressive move, but it will really set us on a different path for the future.
I fully agree here as well, and I think it's important also to look into the value creation that we are mentioning here as well around the cost synergies that we are having material opportunities within. We have also not included any of the commercial benefits in the multiple of 13 here as well. I can just fully align here with Magnus.
Can you just comment on maybe just the normal business kind of return hurdles, you know, as you're weighing up investing in acquisitions or organic CapEx in general? It maybe sounds like this was tested against a different set of criteria given it's so transformational. Is that fair to say?
We are always looking at good returns and return on capital employed as well, right? But as Magnus is saying here as well, when we are assessing this case, we have the effects of cost and commercial synergies, but we also have a really strong effect here into how we can transform Securitas going forward as well. Looking into that business case overall, this will also generate good returns over time.
Okay. That's very helpful. Thank you.
Yes.
Thank you. Our next question comes from the line of Stefan Knutsson of ABG. Please go ahead. Your line is open.
Thank you and morning. News just broke that Standard & Poor's are considering to lower your investment grade rating. What would a change like that have an impact on you? And then secondly, can you give some more flavors on the commercial synergies? And if you have a ballpark number, what that can mean in terms of U.S. dollars?
As we have said here related to our rating, we are committed to still remain investment grade. If there would be a decline there with one notch, that would not have any material impacts to us. In essence, if it would be downgraded one notch, no material impact to the business here going forward.
Stefan, to your question in terms of the commercial synergies, I mean, we have very strong complementarity. So when you're looking at the segments where we have strength versus segments where STANLEY Security have strength, there is a really good complementarity. There is also then obviously the opportunity to leverage the different protective services for existing and also for new clients. So we're not breaking out specific numbers in terms of commercial synergies, but like I said earlier, that is really the main piece that will help us and accelerate the growth of high-value services, but also to help us and expand margins over the years to come.
Okay. Thank you. Just one follow-up, and correct me if I'm wrong here, but a large part of STANLEY Security stem from the acquisition they made in 2007 of Niscayah, which has a history from Securitas. How much has that part evolved since it was acquired from by Stanley and STANLEY Security?
Yeah, I think it's almost 15 years since the separation from Securitas as a company. There has obviously been an evolution. I think when I look at this, two key points that I would make. One is that we've been following closely, of course, and also looking in much more detail what's happening in the last 12, 24 months, because that is really the more relevant for where we are right now and also the basis for the valuation going forward. We see very significant investments, sharpening of the business in terms of strategy and focus and also increasing confidence in terms of the direction going forward. I think that is very positive.
I should also say that, no disrespect here to Stanley Black & Decker as a company because they are obviously a fantastic company as a group. This type of a business from my perspective, one significant difference is that when you look at STANLEY Security, this will be at the center of our strategy and the development for years to come. That is something which is very important as well, when you are core to the business or if you're just one of the businesses. I think that is one that will make a difference.
It will make a difference internally for people because everyone will also know that I'm really at the center here of the development of the new Securitas for the next 5 - 10 years, essentially. It will also make a difference for the clients, because they also know that our full focus is on security and safety, on bringing the best integrated solutions and intelligent security solutions to our clients in close partnership. Those are important. I would also mention one other aspect, and that is that to your question about how has this developed, we bought five entities last year in Germany, in Portugal, Switzerland, Singapore, and in India.
All of these have been very well integrated, very strong integration in terms of leaders and competence, but also from a cultural perspective. If you're looking also from a financial perspective, they've also enabled us to build this critical mass that I referenced a little bit earlier that has also enabled us to greatly also enhance the profitability in this market. You can say that we were kind of warming up in a way with those, but also then high degree of confidence after that experience and the transaction there that we made together with Stanley of those five entities.
I can add on there also with that experience where we have been working together with Stanley on integrating these five countries. Obviously, that experience and it's actually the same teams as well, will be very important for us here when we are planning for the integration over the coming months before closing, and also for us to be able to, post-closing, integrate in a fast way, but also be able to execute on synergies effectively.
Okay, perfect. That was all for me.
Thank you.
Thank you. Our next question comes from the line of Viktor Lindeberg of Carnegie. Please go ahead. Your line is open.
Thank you, and good morning. A couple of follow-ups from my side and maybe starting on two more high-level topics, one being your ongoing transformation programs and how we should think of the ongoing focus as these are sizable programs, and also, I suspect, you know, taking management capabilities at the end of the day. Obviously, the targets you have set up for margin accretion going into 2022 and 2024 in Europe will be positively affected now by the margin mix. Underlying, operationally, how will this be impacted? Second, in some markets, you may become a bit more of a dominant player now. How should we think about competitive authorities' view on this transaction?
Any red flags or yellow flags that we should be mindful of, and how this potentially can be mitigated from your side, and if there is in that sense, tilt and synergies to any specific markets that we should be mindful of? Starting off on those two, maybe.
Thank you, Viktor. I can take the second question first because I think that's a quicker answer. I mean, we have analyzed this in quite some detail. We feel comfortable. When you're looking at security services industry, it's generally not a very consolidated market. There are many different players, and there are also many different types of services that you could provide. So obviously subject to customer regulatory approval, but we feel comfortable from that perspective. Coming down to the first question and the relationship to the ongoing transformation programs. Those programs we are running and driving, as you know, with full attention, and that doesn't change.
The programs that we have been driving when you look at North America, as we previously announced, we're ending that program and also the global IT program at the end of this year. That is obviously from a timing perspective good because it means that we've done a lot of the heavy lifting. There, we're shifting emphasis more to benefit realization to make sure that we are optimizing and achieving all objectives that we set out to achieve or preferably more. Looking at Europe, we are now kind of one year into the more detailed work here, and they are obviously going into more critical time in terms of moving to more harmonized ways of working, accelerating solutions capability, et cetera.
All of that work and we will also serve us in a good way because it means that we are we will be operating based on more modern platforms, and that we also expect will also generate significant advantage also when we look at the integration effort over the coming 12-24 months. I think the last question that you asked then in terms of how should we think about the targets. Well, those targets that we set for the transformation programs we have full focus on delivering those. So that is number one. If you are then looking at STANLEY Security and this acquisition, this obviously has, as we highlighted, Andreas and myself, an immediate positive impact on the margin.
Also with the clear expectation, we will be in a good position to substantially improve margins over time. When you think more about those details, we obviously need to make sure that we drive now all the work between signing and closing, and then we will come back with further updates on those topics. I would say that the timing is quite good for us, given that we are quite a long way into the transformation and the extensive modernization that we have been driving over the last couple of years. We have a stronger platform today in large parts of the business, and then also very clear roadmap when you look at Europe and Ibero-America in those two programs where we are now fully at work.
Understood. Thanks for clearing that. On your transaction costs, you mentioned here you have M&A related costs of, I think it's about $135 million. It's quite sizable in context of the total purchase price and also looking relative to the earnings of what you acquire. Maybe can you just tell us a bit, you have, I think, in the past also have had quite high integration costs. What are these related to? Is it employee related efficiencies systems or a combination of many aspects here? Because I think they stand out a bit compared to other companies that I have covered over the years.
I think you can say, as I said here earlier, one-third of this is then more transaction related cost. Your question here is more related to the second part here. You can say, in essence, it consists of three things. It consists of integration cost, which is basically when we are integrating Stanley into Securitas. One example would be rebranding there. Then it would also consist of restructuring costs to achieve this cost synergies that we have put in place.
It is also in this situation, given that this is a carve-out acquisition as well, there are also some costs related to that carve-out in itself to make sure that we are standing STANLEY Security up in a really good way coming into our structure as well. Those would be the three key components of the costs here.
Understood. Thanks. Finally, nitty-gritty two things. Can you just confirm, you had a question on the synergies and the three-year realization here, and you mentioned Magnus, it's overlapping existing footprint. Is that where we should see the SEK 50 million coming from? Second, you will raise equity maybe beginning of next year. How should we think about dividend for the fiscal year 2021? I think consensus is expecting about SEK 1.7 billion cash out of the company while you are asking for about SEK 8 billion new fresh money. Just curious here.
Yeah. Thank you. On the cost synergies, yes, confirming this is primarily within that existing footprint, where we see the most of those opportunities. Dividend is obviously a question for the board and for the owners, but we have a clear policy, and up to this point, we have not discussed changing that policy as a result of this transaction. I think that is the most important message at this point in time.
Okay. Thank you.
Yep.
Thank you. Our next question comes from the line of Sylvia Barker at J.P. Morgan. Please go ahead. Your line is open.
Hi. Good morning. Firstly, could I just ask a little bit on the background of the transaction, how long have you been in discussions? Did you look at other assets? Clearly, you know the assets from owning it previously in its previous iteration, but it would just be helpful to have a bit of background on that. Then if we think about your competitive environment at the moment, are Allied and G4S changing their strategy at all? Have they been investing in more electronic security? Could you maybe just elaborate on how you see yourself as a relative player in the U.S. and in Europe after the acquisition were to close? Then could I just check quickly on interest?
What interest should we assume on the bridge facility, and how quickly are you looking to repay that? Thank you.
Thank you, Sylvia. On the background of the transaction, when I took over as CEO, which was in March 2018, this is one part that I saw very clearly would be a transformative shift in terms of accelerating the development of Securitas. It's obviously one thing to have an interest in buying and being able to close a transaction like this one. If you're looking without going into too much detail, we've had a good dialogue. We had a very good experience with the five entities that we acquired last year. Now then very happy to be able to finalize this. I say that because this is a very high fit. It's the ideal combination from a Securitas perspective.
There is no other company, there has been no other company, there is no other company that we would rate more highly in terms of the value of this combination based on joining forces, the complementarity, and all the other aspects that I mentioned, earlier. There obviously, if you put this in perspective to all the other acquisitions that we have made, we have been quite active, doing around 20-25 acquisitions since 2015, I believe. If you look at this one, this is obviously significantly larger than all those other acquisitions combined. There is also a certain learning journey from my perspective when you do something like this. I would also say that we know electronic security a lot better today.
We have a lot of really strong leaders in electronic security, who together with the STANLEY Security team will be able to lead this business in the future. Those are also kind of enabling factors that also enabled us with confidence to really say, "Now is the time." They're obviously bringing that up as well with the seller to make that case. I think that is also important in terms of, you know, how do you do this? This is not just about buying a company. There are so many other aspects. Buying is just one. The real value creation, I think, we are building in the integration and what we are creating together for the future, because this is about creating something which is new, something which no one else has anything similar.
I think that brings me very much also into the second question, and that's the differentiation. I mean, focusing on us, I see that we are distancing ourselves significantly from the competition with this transaction. With this transaction, if you look at this one, I don't see anyone else without going into any detail going with as much conviction and momentum down this path as Securitas. That's something that I'm looking forward to also talking to clients, because many clients have also said that, "We have a tremendous relationship with you, but we would also like to see that you have stronger technical capability across key markets." Well, this is something that we're also now enabling.
While many other players are kind of building more of a portfolio within more of the traditional guarding. I think there is a difference in terms of strategy. I'm convinced that this strategy is a winning strategy for the future, where we can drive that differentiation immediately, but also then make sure that we are accelerating as well the innovation in the coming years. I think those are the main comments. If, you know, coming back to this transaction, there has been very good coordination together with Stanley Black & Decker as a seller.
That's something that work that we have been doing together between the two teams is also very good foundation for making sure that this becomes something very positive for our employees in the new entity, but also then for clients and all the stakeholders that we have.
On the takeout there, I mean, this is obviously very, very much depending on when we will close, which is then subject to when we are getting the approvals from the authorities here. There, after that, we will basically execute on the rights issue as soon as possible thereafter. There should not be a long time lag in any way there. Then as the rights issue is sold, we will also go out to the debt market very quickly.
I would not expect this to be a long period between closing until we have the takeout done. On the terms there, I mean, we're not talking about the commercial terms, but you should expect normal sort of commercial but competitive terms in place for the bridge facility.
Okay, thank you. Can I just check on the EBITA margin? I know that someone asked earlier, but can we just double check that that is around 10%, it sounds like, just based on the EBITDA and the capital intensity that you've given?
Well, the EBITDA is 12%, and then you've got the CapEx guidance there, and the depreciation will be in line with the CapEx guidance there. That's what we can say at this point in time.
It's 2%-3%. Yeah. Okay. All right. Thank you.
Thank you, Sylvia.
Thank you. Our next question comes from the line of Stefan Wård at Pareto Securities. Please go ahead. Your line is open.
Thank you. Two questions from me. One is regarding the profitability of the STANLEY Security business. Is it correct that this is defined completely 100% as electronic security services? And if so, it looks like that is substantially above the profitability that you have on your electronic security services. I'm a little bit curious of why that is and how you can sort of improve the Securitas part of electronic security. That's the first question, and the second one relates to when we combine this. This will go into the solutions and electronic security part of your business, which currently is at around 22%.
I just want to confirm that this moves to about 31% of total sales, and also if this electronic security is about 70% of that total? Maybe a bit, detailed questions, but if you could give me some color, I would much appreciate it. Thanks.
Yeah, on your second question here, yes, this will be the part of the electronic security and solutions. That is correct. I need to come back on that percentage, 70% that you mention here. What you are saying in terms of the percentage this will consist of the total sales seems to be about right from the. I think you mentioned the 31% there. On your question related to profitability of STANLEY Security here compared to our own, I mean, a couple of points.
At first, it's important that we are then measuring the same things, so to say, where Stanley Security is close to 12% EBITDA profit, and we have communicated earlier in the Capital Markets Day that we have an EBITA profitability of around 10% of the business. From that perspective, I mean, the difference is not that large. Obviously, you also have the health business in which is a smaller part. It is a small part of the Stanley Security, but also a profitable part. Foremost, I would also say the profitability of an electronic security business is also very much about how much recurring revenue you have.
Here, STANLEY have a really strong base with more than 40% of RMR, which is also driving the profitability.
Thanks. One follow-up there then. If I take the SEK 1.3 that you mention is electronic security of your total SEK 2.5 billion, how much of that SEK 1.3 would be recurring?
That we have not disclosed before.
It is a lower percentage.
Yes
than what we are buying from Stanley, so-
Yes
Obviously, and that's. I made that comment in passing before. The recurring revenue is one important focus area for us in terms of improving. I would say it's a sign of the quality of the business in electronic security. That is one that we also have a lot of emphasis in terms of improving over time organically. We've also done some acquisitions that have also helped this in a positive way.
Yeah, taking a step back there, I mean, this is very much also, like Magnus is saying, has been part of our focus both organically and through acquisitions, also before Stanley Security here. As you have seen as well, we just released another acquisition, a much smaller one with Supreme Security here as well, very much focused on RMR generating business.
Okay, thank you. On the existing Securitas electronic security and solutions business, if you combine that, is it the same sort of profitability level across the three different business areas, would you say? Or is it a big differences between Europe and North America and Ibero-America in that specific segment or part of the business?
I would say on average, it is fairly similar. When you look at that, electronic security then, being a roughly 10% margin business, when you look at solutions, and integrated solutions, that can vary a little bit. Depending if you're talking about a larger integrated on-site solution versus a smaller, SME, or we would call that more of a mobile solution where the, technologies and monitoring is a significantly bigger part of the overall, there you could see significantly higher margins, on larger integrated on-site solutions than, probably below that average. If you look across the geographies, profitability levels and impact, fairly similar.
Okay. That essentially means that the overall margin in the solutions and electronic security part of the business should stabilize as electronic security increases from roughly half to north of 70%. That's the same figure I referred to earlier. Electronic security will increase as part of total electronic security and solutions, right? That should help margin stabilize a bit?
I agree with your reasoning.
Okay.
I think it's important as well. I mean, we highlight proactively the fact that more than 50% of the margin will be generated from electronic security and solutions, and we do that because it's higher growth and also higher value. That is also where we need to put a lot of the emphasis also in terms of how do you think about Securitas going forward? What is most important in terms of the financial development and the margin development? There we feel that we are very well positioned with this platform essentially that we are now building and all the competence in electronic security and solutions.
Thank you very much.
Thank you.
Thank you. Our next question comes from the line of Johan Eliason of Kepler Cheuvreux. Please go ahead. Your line is open.
Thank you. I have a couple of questions. First of all, you mentioned here several times you bought some units last year from Stanley and was it sort of a test balloon from Stanley's side or from your side? Then secondly, I mean, it looks like you paid less than one times sales for these initial units, and now you pay almost two times sales for the rest of the business today. Were there any significant differences there? Thank you.
Yeah. Thank you, Johan. Well, one could only speculate in terms of how things would work out, but like I said, I mean, we've had a good dialogue. I have personally been also quite active in terms of reaching out and sharing our interest. We got the opportunity with those five markets, and we took that opportunity. Those markets were smaller markets, and I would also say more kind of subscale in terms of their operations. That worked quite well for us because we were also subscale in a number of those markets, like in Germany, for example, or in Portugal, or in Singapore. The combination there enabled us to do something quite different.
If you're looking at this transaction and different pricing, et cetera, well, there is a different type of profitability here. This is really a platform. If you're looking at this collection of markets with the presence in North America, which is the world's largest electronic security market, that is a high value asset. Same thing with the European presence. The good thing for us is that we have experience. We know that we are dealing with a serious company on the sales side. Obviously we had an opportunity also to get to know each other and I believe also built a lot of trust in the process as well by doing the first five markets in the first transaction.
Okay. Excellent. Just on this, margin coming back to the 12% EBITDA, you obviously point out that, the Stanley's U.S. GAAP and your IFRS 16 with the leasing accounting. This 12% will it be sort of that moving over to the IFRS 16 accounting, or should we expect sort of just a mechanical higher or lower sort of when you start reporting it? And in line with that, these $50 million of cost synergies, are those basically 100% cash? Well, net the tax impact, then obviously. Thank you.
Starting there with the cost synergies, I would say that that would be 100% or in all material respects, cash. Yes. When it comes to the GAAP to IFRS conversion outside the IFRS 16, here we see limited impacts generally. There will be an impact here coming from IFRS 16 that we will have to get back to as well. We also see that this one will not be very big.
Okay. Excellent. I just had a final follow-up a little bit. You mentioned that the CapEx profile of this business you acquired was more attractive than what you are currently running on. You mentioned that you were investing in customer solutions more and that's the reason behind it. I guess that implies that you sort of own more of the equipment at the customer site than Stanley’s would do in their business model. At the same time, they seem to have a higher share of recurring revenues. Isn't that an odd combination? If you take more ownership of equipment by the customer, shouldn't you have better opportunity to have more recurring revenues, or am I missing something here?
This is very different business services. First of all, I mean, see, Stanley. First, the core services that they do is system integration, where you're basically installing equipment on the sites and that you do not put on your own balance sheet outside possibly some inventory. When it comes to our solutions, we are really investing into the sites, taking different kind of services or investments into our balance sheet to get a longer contract with higher customer retention and better margins. That can be a combination of many different type of services overall, our six protective services.
When it comes to the recurring part of the STANLEY Security business, that is mainly related to monitoring and maintenance services, where you have recurring contracts with your clients, but you do not have a CapEx need to invest into to get those recurring services, so to say. These are different services, hence the difference here also in the CapEx requirements.
Okay. Understood. Many thanks.
Thank you. Our next question is from the line of I an Martin at Jefferies. Please go ahead. Your line is open.
Thank you. Morning, all. I've got a couple of sort of quite specific ones first of all, if you just bear with me. I've been asked by a few investors. First of all, what is the tax rate that we should assume attached with the business that you're acquiring?
Do you want to take them one by one or shall? Related to the tax rate here, we will have to come back to you on this further on. You should not expect any sort of surprises here if you're looking at where the operations and the profitability are in STANLEY Security today. We will need to come back with a sort of stronger guidance on that going forward.
Okay. Sensible assumption at the moment is just to use sort of the Securitas tax rate currently, yes?
That can be a starting point, but you also need to-
Yeah
look at where STANLEY Security have its operations as well.
Yeah, agreed. Secondly, when you assessed the transaction, what was the post-tax weighted average cost of capital that you assumed for your hurdle rate for returns?
We are not disclosing the expected returns that we are using here, so that one I will not be able to answer.
Okay. If we look at the slides from earlier, is the correct interpretation from some of your slides that this business should deliver sort of mid- to high single-digit trend organic revenue growth, and if we add in sort of synergies and a bit of operational gearing, we should be looking at an EBIT margin in sort of the low- to mid-teens over a sort of 4- 5-year period?
I mean, if you're looking at the growth profile, electronic security as a market, we believe is growing around 4%. We are focused on value and quality, but we believe based on the strength of this combination that we should be able to grow, slightly faster than the market, so north of the 4%.
Okay.
The-
On the margin, please.
When you're looking at the margin, I mean, we have given indications in terms of how we look at the market in the material. When you're looking at guarding, there is a certain range because that differs quite a lot between different markets around the world. Looking at electronic security, around 10%, but where we also then see that with security solutions on average in that type of range, but with a faster growth profile. There obviously the emerging but very important more connected technology security as a service and more data-driven solutions, we expect that to be a faster growing segment in the years ahead. That's obviously a place where we also wanna take a strong position.
Okay. Thank you very much.
We currently have one further person in the queue. That's Arnold Ian from [Samsung Technologies]. Please go ahead. Your line is open.
Thank you very much. I have a question regarding healthcare, and that is, what is the future plan of STANLEY Healthcare within Securitas? Thank you.
Thank you. Yeah. There is a smaller part, but which is a fine business. Essentially, two different types of solutions here. One solutions that are technology solutions for hospitals, primarily focused on the North American business. There is another solution which is more focused on elderly care. This is a fine business. Intention is that we will keep and continue to develop this business over time.
Thank you very much.
Thank you.
Thank you. As there are no further questions in the queue, I'll hand back to our speakers for the closing comments.
Yeah. Thanks a lot to all of you for joining us. It is really a very special day and moment for Securitas and for STANLEY Security. We are very excited about closing and being able to welcome the new team members and also obviously with the important ambition of really making sure that what is already a fine company in this industry will really set the agenda in a positive way as a leading intelligent security solutions company for the future. Thanks a lot to all of you for joining us today, for the good conversation and questions, and looking forward to continuing the dialogue in the months ahead. Thank you.