NYAB expands geographically by acquiring businesses from Dovre Group

Translation: Original published in Finnish on 11/21/2024 at 8:38 am EET.

NYAB announced a major strategic platform acquisition last night after entering into a conditional agreement to acquire the Global Project Personnel and Norwegian Consulting businesses of Dovre Group. The company's international expansion was expected given its growth strategy, but the overall business mix was quite surprising in some respects. In light of this, we look forward to further information from the company on its strategic plans. On the other hand, we think the purchase price is quite reasonable, which limits the risk level of the acquisition and in turn creates the conditions for value creation. 

Dovre Group's Global Project Personnel and Norwegian Consulting businesses to be acquired in the transaction

NYAB announced on Wednesday evening that it has entered into a conditional share purchase agreement to acquire Dovre Group Plc's businesses within Global Project Personnel and Norwegian Consulting. In addition, the acquisition includes a number of client contracts and related personnel that are to be transferred to the acquired entities. Of the businesses to be acquired, the Consulting business in Norway offers project management expertise for the development and implementation of large investment projects primarily in the public sector such as within transportation, construction and energy. Meanwhile, the Project Personnel business provides project professionals through e.g. staff leasing and manpower solutions for large-scale investment projects primarily in the energy, infrastructure, and industrial sectors in Norway, Asia-Pacific, North America and the Middle East.

In 2023, the pro forma revenue of the businesses to be acquired was 125 MEUR and the pro forma adjusted EBIT was 5.0 MEUR, which corresponds to an adjusted EBIT-% of approximately 4.0% (vs. NYAB, Inderes 2024e: revenue 330 MEUR, adj. EBIT 23.8 MEUR, adj. EBIT-% 7.2%). Correspondingly, the businesses' revenue for the first 9 months of the current year amounted to 84.1 MEUR and adjusted EBIT to 3.2 MEUR, corresponding to an adjusted EBIT-% of approximately 3.8%. In turn, the pro forma number of employees at the end of Q3'24 was 604 (vs. NYAB Q3’24: 487).

The closing of the acquisition is expected to take place on January 2, 2025 and is still conditional, among other things, upon the approval of the extraordinary general meeting of Dovre Group. The acquired businesses would remain under the same name and leadership. Consequently, after closing of the acquisition, the current CEO of Dovre Group, Arve Jensen, would leave his current position and continue as head of the acquired businesses at the NYAB group.

Purchase price to be finalized

Based on current estimates, the total purchase price would be approximately 34 MEUR. Accordingly, the agreed preliminary purchase price on a cash and debt free basis is 30.1 MEUR, based on estimated adjusted EBIT of 4.3 MEUR for the current year. In connection with closing of the acquisition, NYAB will pay 80% of the preliminary purchase price, which will be adjusted for the estimated net cash and net working capital position of the acquired businesses at closing. The remaining 20% of the purchase price will be paid post-closing from an escrow account, and the amount is subject to possible adjustments based on, among other things, actual adjusted EBIT. NYAB intends to finance the acquisition through debt financing and available cash funds.

International expansion expected, but overall acquisition partly surprising

Continued inorganic growth is quite expected given NYAB's strategy, and we believe that geographic expansion into Norway was also a logical next step for the company. We also think that the Norwegian Consulting business is quite well aligned with NYAB's business profile. However, the overall scope of the acquisition was a surprise relative to our expectations, both due to the rather global nature of the acquired businesses and the business model of the Project Personnel business (which we believe is closer in profile to staffing services). In general, we also see the margin profile of the staffing business as being chronically lower than NYAB's current business, which may pose a challenge to achieving the current profitability target (EBIT-% >7.5%) given the size of the acquired business.

The company itself states that the acquisition will strengthen its position as a leading player providing engineering, construction and maintenance services in infrastructure and energy and provide a platform for further expansion into new geographies both within and outside the Nordics, in line with its growth strategy. In principle, we are positive about the potential for geographic expansion, but as stated above, we still await further clarification from the company, especially on the strategic plans for the Global Project Personnel business (incl. any revisions to the strategy) before reaching any final conclusions.

Purchase price appears reasonable

Based on the current year's forecast, the debt-free purchase price of the acquisition would correspond to an EV/EBIT multiple of 7.0x, while last year's actual figures would put the multiple at around 6.0x. We consider these multiples to be quite reasonable in absolute terms and they also partly limit the level of risk associated with the transaction. The relatively low valuation should also allow the acquisition to create value if the earnings level of the businesses is at recent levels. In addition, we estimate that the acquisition has the potential to provide the company with certain small sales and cost synergies.

Overall, however, we are quite neutral on the acquisition at this point and await further detailed information from the company, which we expect to receive at least after the closing of the transaction (at the latest in connection with the Q4 result). We will add the acquisition to our forecasts in the near future.