Indutrade works according to a tried-and-tested process for analysing, executing and implementing company acquisitions. The aim is to structure the acquisition process and ensure the quality of the acquisitions that are made. This process involves five steps:
1. Identification
A list of potential acquisition candidates is continuously updated and normally contains more than 100 companies. Small companies, with net sales of less than SEK 50 million, are often identified by Indutrade’s subsidiaries or at the business area level, while Group management focuses on identifying larger strategic acquisition candidates. Indutrade strives at an early stage to engage in a dialogue with the owners of potentially interesting companies. By doing so, Indutrade is often the natural partner for the owners when discussing the possibility of a sale. At any given time, Indutrade is engaged in talks with five to ten acquisition candidates.
2. Evaluation
Potential acquisitions are evaluated according to a number of set parameters. Examples of these include market position, customers, competitors, the strategic and technical orientation of main suppliers, recurring elements in the product range, financial position, history, the continued involvement of key employees and the value-added the company can create for customers and suppliers. The aim of this analysis is to minimise the operational and financial risks associated with an acquisition.
3. Negotiation
The primary aims of the negotiation phase are to ensure:
- that the acquisition can be carried out at a price that makes it a value-creating deal. Historically, Indutrade has acquired businesses at a price of 4–8 times net profit;
- the continued involvement of key employees after the acquisition. Since the key persons are often part-owners of the company being acquired, usually an acquisition structure with an earn-out payment is used. This gives the key persons an incentive to continue working with the Group and contribute to continued growth in net sales and earnings;
- that the acquisition candidate’s main suppliers approve of the acquisition, to prevent the loss of key product agencies.
4. Implementation
In connection with an acquisition, a structured review is conducted of the acquired company. This review is focused primarily on three areas:
- Customers and suppliers – broadening of the customer base and product range;
- Organisation – streamlining with the primary aim of increasing focus on customers and sales;
- Costs, margins and inventory turnover – to boost profitability and ensure a stable financial position.
New financial targets are established and adjusted to the company's specific conditions.
5. Follow-up
Group management and the management of the respective business areas carry on a continuing dialogue with the company’s management. The day-to-day management is goal-oriented, with focus on growth, margins and tied-up capital. Normally, most key employees of acquired companies continue to work for Indutrade, even after an earn-out payment. A key reason for this is Indutrade’s company culture, with a strongly decentralised organisation that gives entrepreneurs considerable freedom to continue developing their businesses.