On the 17th of November, NIBE announced that the company has acquired 70% of the shares in LS Control A/S, a Danish company specializing in the production and sale of electronics for control and regulation for the ventilation and heat pump industry. In our opinion, the target seems strategically reasonable for NIBE in general. However, the undisclosed purchase price makes it challenging to assess the deal's valuation.
Even though we're in the dark about the price, the financial data provided by LS Control paints a promising picture with an EBIT-% of 16% in the fiscal year 2021/2022. This is well above the average EBIT-% of companies within Element that NIBE has historically acquired over the past 5 years, hovering around 10%. However, the deal is small compared to NIBE’s scale, and it does not have an immediate significant impact on our estimates or view of the company. We will update the acquisition to our estimates in connection with our next report. Our previous report published in connection with NIBE’s Q3 can be read here.
The purchase expands the Element product family
LS Control is primarily engaged in the development, sale, and manufacturing of electronic equipment and components used for management, regulation, and control purposes. The company’s focus industries encompass ventilation, heat pumps, and laboratory equipment, with a key presence in the European market. Some products are tailored in consultation with customers, resulting in customized solutions which we believe create customer lock-in and high switching costs. Furthermore, the retention of local management aligns with NIBE's decentralized approach, which we think improves the chance of the deal being successful.
Established in 1969, LS Control directly employs 55 individuals with an additional 30 people engaged through partnerships. The company is generating annual sales of approximately DKK 100 million (~SEK 150 million) at an operating margin of 16% in the fiscal year 2021/2022. Noteworthy is LS Control's substantial earnings growth over the past five years, representing a CAGR of ~60%.
LS Control will be consolidated with NIBE from 1 December 2023 and the remaining 30% of the shares are to be acquired in two stages by 2028 at the latest.