Today we publish a report onImtech in which we asses the impact from Imtech’s acquisition strategy on its ROIC.
Imtech’s M&A strategy is fairly consistent, with management only buying companies that enhance the network. Reasonable prices imply value creation from day one with an average initial ROIC (post-tax) of 10.4%. However, our analysis shows that returns on acquisitions typically improve over time. As such, there is more value creation in store than current earnings capacity suggests. On a stand-alone basis our 12-month target price is € 31. Additional upside could come from new acquisitions and proof that current operating margins are sustainable.
M&Atech delivers on a consistent basis:
In the period 2002-2011, management acquired 73 companies with an initial return of 10.4% on average (post-tax). This is obviously value accretive from day one, but it is below the group average of 18.8% over that same period, and below the 15.7% from 2011. However, our analysis shows M&A is not dilutive as returns generally improve over time, driven in particular by cross-selling and to a lesser extent by cost savings.
Recent deals still need to mature:
Germany & Eastern Europe was able to boost returns from an acquired pre-tax level of 17% to 41% in 2011. If we apply its template to the recently-established Nordic division, we see potential for that unit to improve to 19% pre-tax or 14.6% post-tax. Finally, a small acquisition in Hungary was so heavily bombarded with contracts by Imtech clients from other countries, that profits in its backlog exceeded the acquisition price after only four months of consolidation. If only all acquisitions were that successful!
Buy rating with a € 31 target price:
Our target price is based on the fair values from our DCF-model, historic multiples, and multiples from strategic transactions in the sector.