The process can be divided into the following five steps:
Indutrade strives at an early stage to engage in dialog with the owners of potentially attractive companies. By doing so, Indutrade is often a natural partner for the owners when discussing the possibility of a sale. At any given time, Indutrade is engaged in discussions with several acquisition candidates.
Potential acquisitions are evaluated on the basis of such parameters as market position, the attractiveness of the market segment, customers, competitors, the key supplier’s strategic and technical focus, repetitive elements in the product offering, financial position, history, the continued commitment of key individuals and what added value the company can generate for customers and suppliers. A thorough evaluation minimises the operational and financial risks associated with an acquisition.
The primary purpose of the negotiation phase is to ensure that:
The acquisition can be completed at a price that generates incremental value. Indutrade conducts acquisitions using multiples, which means they contribute to the Group’s results from the very first day.
The commitment of key individuals continues after the acquisition. Since the key individuals are often partners of the company that is acquired, an acquisition structure with contingent earn-out payments is usually applied. Key individuals are thereby provided with an incentive to continue working in the Group and to contribute to continued growth.
Upon acquisition of trading companies, the acquisition candidate’s key suppliers must consent to the acquisition. This is essential for ensuring that existing key product agencies are not lost.
In conjunction with an acquisition, a plan is established for how the acquired company can be further developed after the acquisition is completed. The action plan is focused and primarily targets three areas:
Customers and suppliers – broadening of the customer base and product range.
Organisation – efficiency, with the main objective of increasing the focus on customers and sales.
Costs, margins and capital efficiency – to boost profitability and ensure a stable financial position.
New financial targets and activity plans are adopted. The targets are adjusted to the company’s conditions.
Group management and the management of each business area engage in ongoing dialog with the company’s management. The operational management is target-oriented with focus on growth, margins and working capital management.
Growth with unique acquisition model
Indutrade comprises nearly 200 companies and most have become part of the Group through acquisition. Over the past three years, Indutrade has acquired about ten companies per year on average. Each company has its own MD, who is ultimately responsible for managing the operations. A typical Indutrade company generates annual sales of between £4-16m STG (€5-20m EUR) – an amount that enables each MD to maintain overall control and quickly adapt the business to customer requirements. All companies define their own profitability and growth targets, which means that while some may be cutting back on costs, others are investing in more personnel.
The two keywords – Acquisition and Develop – summarise how we work.
The best decisions are made by the people who best understand customer needs and processes. Since its inception in 1978, our philosophy has therefore been to run a decentralised organisation, in which financial responsibility is delegated to the subsidiaries that generate the business transactions, earnings and cash flow.
All of our companies are responsible for their own profitability, which promotes flexibility and a strong entrepreneurial spirit.
Remain independent after acquisition
Our companies enjoy considerable freedom, which promotes customer adaptation and flexibility and provides ideal conditions for retaining an entrepreneurial spirit within the organisation. Moreover, the self-determination exercised by the MDs of our subsidiaries is also an important factor for retaining key employees in acquired companies. In our acquisition model, acquired companies retain their name, culture and management when they become part of the Group. Acquired companies are not divested.
Strong culture characterises the Group
We conduct a thorough assessment of potential acquisitions. In addition to meeting requirements for financial performance, the acquired companies must also have a highly skilled management team, be characterised by a genuine entrepreneurial spirit and possess deep technical expertise. They should preferably hold a leading position in their own particular niche. The most important factors in an acquisition process are possibly culture and values. Indutrade therefore devotes a great deal of time in the initial stages to meeting the management team and key employees in order to create mutual awareness and understanding. It is vital that acquired companies understand how Indutrade works. Acquisitions can only be successful when both parties have a similar understanding of our basic values.
Agencies and proprietary products
We strive for a balance between companies that primarily conduct sales of technological solutions, and companies with their own products and brands. The proportion of Group companies with proprietary products has gradually grown and now accounts for nearly 40% of consolidated net sales.
We focus on sales of products in niche markets where a leading position can be achieved. Our strong market positions are usually a prerequisite for high profitability. They also make it easier to attract the best suppliers, which further consolidates our position.
Established companies reduce risk
Our business risk is minimised by acquiring companies with established customer relationships, high profitability and a market presence. This is also strengthened by companies that share our culture and business ethics.
Our companies vary in size, but usually comprise 15-40 employees, most of whom are sales engineers or technicians. Most companies have developed deep and long-standing relationships with customers and suppliers over a number of decades, and have gradually become specialists in their field of technology.
The business of technology sales companies usually revolves around a few strong, well-established suppliers, complemented by a number of small agencies. Manufacturing companies are also characterised by long-standing relationships with customers and subcontractors, and refine their focus to a limited number of product lines.
Focus on profit margins and growth
The role of the Parent Company and the business areas is to support the companies with industrial expertise, financing, business development and performance management. Performance management focuses on the objectives of growth, profit margins and capital efficiency. Our companies can also benefit from comparisons and an informal exchange of ideas and experience between each other. In 2006, an annual internal benchmarking system was introduced in the form of a ranking list to clarify the objectives for the companies, and to keep the companies’ MDs informed about best practices in other Group companies.
Our goal is that products and services meet or exceed customer expectations. As a result, high quality is always prioritised. Customers should associate Indutrade with quality products, reliable delivery, excellent technical support, and positive and professional service.