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Digia: Acquisition in Sweden - Danske Bank
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Digia: Acquisition in Sweden - Danske Bank

Conclusion
We estimate that the acquisition adds 9% to Digia's 2021E sales and is margin-dilutive initially (4.8% EBIT margin in 2019 vs. Digia 2020E 9.6%). We estimate 2021E net debt / EBITDA of 0.7x after the acquisition vs. 0.1x before it. Therefore, Digia can afford to do even more bolt-on M&A going forward. Valuation on EV/Sales is rouhgly in line with Digia's own, but on EV/EBIT above Digia's due to lower margins.

We were expecting Digia to continue growing through acquisitions, but not in Sweden, because the company has been almost fully focused on Finland and has not indicated internationalisation in its strategy. We spoke with the CEO and understand that the acquired company's capabilities in data-driven business consuntancy was the main logic behind acquisition; and the presence in Sweden was a plus, as it opens the way for Digia to grow more in this larger market. Digia has not had explicit targets for internationalisation earlier, but it has not ruled it out. After today's acquisition, Digia is now more in line with its domestic mid-size IT peers who all have expanded internationally: Gofore, Siili, Vincit, and unlisted Solita.

We see Digia as a growth case in the Finnish IT services market. The expansion to Sweden brings a new international growth angle to case, although we expect Finland to remain the key driver for Digia for a long time. See our latest report here: Download Digia: Strong margins offset slower sales

The facts
Digia acquires Climber International AB, which is a Swedish company providing consulting and solutions for the development of data-driven business. The acquisition includes Climber's operations in Sweden, Finland, Denmark and the Netherlands, but not in the UK. We understand that Sweden is clearly the largest market for Climber.

The acquired business had ca. EUR 12m sales in 2019 (Digia: EUR 132m). The total Climber including UK (which is not part of deal) had 8% EBITDA and 4.8% EBIT margin in 2019, well below Digia's 11.4% and 7.3%, respectively. The UK business might have diluted margins, but we do not know for sure. Digia did not give any synergy target in connection with the acquisition. We believe the target is to improve margins along with growth and higher scale.

Digia pays EUR 8.1.m + an additional price of up to EUR 5.4m depending on achievement of certain targets, which were not dicslosed. The price implies 0.7x 2019 sales and up to 1.1x if the full additional price is paid. Digia's 2020E multiple is 1.25x. Due to lower margins than Digia's own, EV/EBIT multiples are higher at 14-23x compared to Digia's 2020E of 13x.

The deal is expected to close on 7 January 2021.

Finwire / Börsvärlden

Publicerad 16 December 2020, 08:40
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