Etteplan To Acquire Semcon. The Best Option For Semcon

/ August 29, 2022/ Core ER&D Services, Embedded Systems, Etteplan, Ettteplan, Finland, M&A (large, with revenues above $50m), Mechanical Engineering, Semcon, Sweden, Technical documentation

Etteplan To Acquire Semcon to Gain Scale

Etteplan, the ER&D services vendor headquartered in Espoo, Finland, will acquire Semcon, its peer in Göteburg, Sweden. The company offers SEK 2.7bn (USD 253m), a 32% premium over Semcon’s last trading day.

Semcon had 2021 revenues of SEK 1,711m (USD 160m) and a 10.2% operating margin. The company brings 2,112 employees. Semcon has a Swedish client base (75% of revenues), especially in manufacturing (~57%).

With Semcon, Etteplan achieves its financial objective of revenues of EUR 500m by 2024 and an EBITA margin of 10%. The acquisition gives birth to a Nordics giant. Etteplan will have 2022 estimated revenues of EUR 539m (USD 535m), a 10.2% operating margin, and 6,000 employees. Sweden will become NewCo’s largest geography (43%), ahead of Finland (34%). Etteplan will also have a presence in Germany and Poland.

This is by far Etteplan’s largest acquisition ever, which in the past had not acquired firms above 330 employees. This lack of experience probably explains Etteplan’s limited synergy objective. Etteplan targets a limited level EUR 5m in synergies, primarily cost ones. Intriguingly, the company has not provided any timeline for this objective.

Finally An Exit for Semcon’s Shareholders

Etteplan’s offer is an excellent exit for Semcon’s shareholders. Semcon’s largest shareholder, JCE (25.9% of shares), and other investors (Nordea Fonder, Otus Capital Management, and Ennismore Fund Management), representing 21.7% of shares, will participate in the offer. Semcon has financially struggled for the last decade, despite the very favorable market conditions of the past five years. Under a new CEO, Semcon doubled its operating margin to 10.2% from 2017 to 2021. Organic growth was flat until 2019. Worse, in 2021, Semcon failed to rebound (+1.9% organically) despite a 12.7% drop in 2020.

In an attempt to maximize shareholder value, Semcon announced last year the spin-off and flotation of Product Information. Product Information, a technical documentation unit, was a small business with SEK 628m (USD 59m). It had, however, a good margin level (15.3%) thanks to its software product-centricity. The spin-off would have left Semcon’s other unit, Engineering & Digital Services, even smaller (revenues of SEK 1,089m, USD 102m), and without the track record, it could compete as a standalone business. We think the consolidation of Semcon was inevitable and even pursued by Semcon’s shareholders.

The hard work now begins for Etteplan, which needs to invest in Semcon and revitalize it. We will keep on investigating Etteplan.

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