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Talenom: Acquisitions in Sweden - Danske Bank

Talenom acquires two companies in Sweden. The companies have good historical growth profile (25% y/y growth L12M) and low valuation of 0.8x L12M sales and up to 1.4x if additional purchase price is paid. This is clearly below Talenom's own multiple of 8.8x 2020E and 7.6x 2021E. This is positive news: acquisitions at low multiples create value and we believe Talenom can over time improve profitability of acquired companies closer to its own.

The acquisitions are positive from strategic point of view, creating a larger platform for Talenom in Sweden, which enables localisation of its software, and in turn, profitability closer to levels that Talenom has in Finland. We estimate that revenue in Sweden is approaching EUR 10m after these acquisitions. Before today's news, Talenom has done three acquisitions in 2020 (combined sales ca. EUR 4.3m), of which two in Sweden.

Talenom pays part of the price with own shares, which in our view makes sense given the high multiples. We expect more deals going forward, both in Finland and Sweden. In 2021-22, entry to a third country is also likely, because Talenom has flagged higher ambitions for internationalisation since the Q3 20 report.

We remain positive on Talenom and expect it to continue growing at double-digits for many years. Valuation is high at 45x 2020E EBIT, but for a good reason in our view.
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