SJR
SJR - Value-creating acquisition of WES (ABG Sundal Collier)
2018-12-19 14:11
Instant EPS addition next year
No synergies needed to rationalize transactions
Good company fit
WES – strong performer within its nicheOn 30 November, SJR announced that it was acquiring Women Executive Search (WES). WES is a recruiting firm focused on female executives and board members. Last year, WES had revenues of SEK 21m with a net profit of SEK 4.6m. The founders and management will stay with the company and grow within the SJR group. The initial payment is SEK 8m and 200,000 SJR shares, with an earn-out of a maximum of SEK 21.6m and 185,552 shares, based on WES’s performance in 2018-2020. WES will be consolidated on 2 January 2019. We have been conservative with WES’s numbers (no details of the earn-out have been given), and we will adjust estimates as it performs in the SJR group. On current numbers, the deal valuation on 2019e is an EV/EBIT 5.7x for WES, based on final total deal price of SEK 38m, compared to the top earn-out level SEK 48m.
Structural tailwinds to set long-term value for WES
Our view is that WES is a strong company in its recruiting niche. The company benefits strongly from structural trends where companies are becoming more aware of the gender staff mix. This should drive WES’s growth and profitability. WES grew its sales by 21.5% in 2017 with a profit margin of 21.5%. In all, this increases our EBIT for the SJR group by 12.3% next year, and with EPS growth of 18.5%. SJR has been focused solely on organic growth and therefore has no M&A track record. Our view is that this was an opportunistic move triggered by the seller, possibly resulting in stronger mutual incentives to succeed. We see few risks with the integration, as WES will operate as an independent subsidiary within the group.
EBIT and EPS up, and valuation down…
SJR is currently trading below 10x next year’s EV/EBIT, which is below its historical valuation of the last 2 years. Simultaneously, on our estimates, its EPS growth looks set to be strong both in 2019 and 2020.
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