Indutrade: Growing Through Strategic Acquisitions

Indutrade, a Swedish serial acquirer founded in 1978, has established itself as a significant player in the field of technology and industrial business. The company’s success is, among other things, rooted in a strategic approach to acquisitions, focusing on entrepreneurship, decentralization, and sustainable, profitable growth. As of January 2024, Indutrade is a $9 billion company, comprising over 200 companies globally. It has grown earnings per share (EPS) at a 15% compounded annual growth rate (CAGR) and returned around 50x (dividends reinvested) to investors since its 2005 IPO. Let’s explore this quality compounder in more detail.

• Strategic acquisitions: Indutrade’s growth to a $9 billion company has been largely driven by strategic acquisitions, focusing on companies with high technical expertise.

• Entrepreneurial philosophy: The company’s business strategy is built on entrepreneurship, decentralization, and sustainable, profitable growth.

• Diverse portfolio: As of January 2024, Indutrade comprises over 200 companies globally across five business areas, including Industrial & Engineering, Infrastructure & Construction, Life Science, Process, Energy & Water och Technology & Systems Solutions.

• Comprehensive acquisition process: Indutrade follows a detailed process for acquisitions, including identification, evaluation, negotiation, and integration.

Through the years, Indutrade has grown significantly through acquisitions, focusing on well-managed and profitable companies with high technical expertise. After getting its current name in 1989 when it was acquired by the Swedish $13 billion (as of January 2024) investment company, Industrivärden AB, the company started focusing more on its technology sales operations. Then, after severe economic turndown in the early 1990s with following extensive cost-cutting measures, Indutrade acquired Alnab. This marked the company’s entry into the flow technology sector.

Indutrade companies visualized

It’s safe to say that the rest is history, and acquisitions is a natural component in today’s Indutrade. The company – typically acquiring several companies each year – mainly sources its deals through an extensive network of customers, suppliers, and other market actors. As of January 2024, Indutrade consists of over 200 businesses active in a wide range of niches, spanning from medical technology and industrial flow measurement solutions to construction tools.

Acquisitions are also expected to contribute to reaching future growth goals, and here are the eight key attributes that Indutrade is looking for in its acquisition targets:

• Only B2B companies

• Shared values and a management team that wants to stay involved after the acquisition

• Annual sales of 50–500M SEK ($5-50M)

• Stable, good profitability

• Both manufacturing companies with a proprietary product range and technical trading companies

• Sustainable leading market position in a well-defined niche

• Products with a high technical content that create added value for the customer

• High percentage of repetitive sales

By only looking at companies matching these criteria, Indutrade enables itself to be long-term owners of its various businesses. As the focus lies on acquiring companies with annual sales between $5-50 million, Indutrade can be sure the Managing Directors (MDs) of each subsidiary is able to have overall control over operations and quickly adapt to customer’s needs.

The firm belief of Indutrade is that the best decisions are made by those who are closest to the customer. This is why its philosophy since the inception in 1978 has been to maintain a decentralized organization where operational responsibility is delegated to the individual subsidiaries.

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According to Indutrade, the process of acquiring companies can sometimes take several years. They meet management and employees of the companies, evaluate whether it’s a “Indutrade-company” and try to initiate early discussions regarding what they expect from the acquisition. They describe the process as following:

Indutrade’s approach to identifying potential acquisitions is proactive and relationship-focused. The company engages in early dialogues with owners of companies that may be of interest, an approach that positions Indutrade as a natural partner when these owners consider selling. It maintains a steady flow of potential acquisition targets, sourced both from its internal network, as well as from external brokers and corporate advisors.

When evaluating potential acquisitions, Indutrade looks at a multitude of factors, including market position, customers, competitors, strategic and technical orientation of suppliers, environmental impact, and financial history, among other things. Thorough preparations and getting to know each other are described as key factors of the process, which is why Indutrade has great patience with each acquisition – it simply takes time, and it’s better to do the right thing from the onset.

During negotiations, the primary objectives include ensuring that the acquisition is value-creating for both parties, securing the ongoing commitment of key personnel post-acquisition (often achieved through an acquisition structure with additional purchase prices based on post-acquisition profitability), and obtaining consent from the target company’s partners, which is crucial for retaining key suppliers.

Once the acquisition is complete, Indutrade ensures that the new addition finds its place within one of the existing business areas, based either on geography or product offerings. This creates an environment with potential of generating collaborative value and building robust networks. Central to this integration is the formation of a new board, thoughtfully composed to meet the specific needs of the acquired company.

The post-acquisition period is also marked by a thorough analysis of the new company. This evaluation goes deep into critical aspects, such as exploring the potential for customer and supplier base expansion, assessing the integration of sustainability in the company’s core operations, and looking for ways to streamline organizational efficiency with a sharper focus on customer relations and sales. Additionally, financial aspects like costs, margins, and inventory turnover are scrutinized to identify opportunities that could enhance profitability and investment returns.

In the follow-up phase, Indutrade maintains a continuous dialogue between the management of the acquired company, its newly appointed board, and the managers of Indutrade’s business areas. This involves regular reporting on sales, financial results, and other crucial financial indicators to Indutrade’s central management.

Guided by a goal-oriented approach, the focus remains steadfast on growth, margin optimization, and effective capital utilization. A significant portion of the year is dedicated to ensuring the development of competencies, meticulous succession planning, and the rigorous evaluation of sustainability initiatives across its subsidiaries, underscoring Indutrade’s commitment to its role as an active and responsible owner.

Indutrade’s transformation into a $9 billion company through strategic acquisitions is a prime example for those interested in understanding serial acquirers. Its focused approach on sustainable growth and decentralized entrepreneurship has proven fruitful over the years. The company’s strategy, characterized by careful selection and integration of over 200 companies, highlights the impact of a well-executed acquisition model.