Nekkar

* Limited recurring revenue: The company is working to increase its share of services and spare part sales, but currently lacks a larger base of recurring revenues.
* Cyclicality risk: Syncrolift's business is subject to cyclical fluctuations in commercial shipyard financing and marine/defense budgets.
* Concentration risk: Nekkar remains heavily dependent on Syncrolift's project-driven business, lacking a diversified revenue base.
* Industry profitability: The related industrial technology sector typically does not generate high returns on invested capital (ROIC below 15%). Even if this has been the case with Syncrolift. 
* Recent performance concerns: Syncrolift's weaker performance in 2024, losing two out of three deals, raises potential concerns about competitive positioning.

* Strong market position: Syncrolift holds a 60% market share in shoplift and transfer systems, demonstrating category leadership and value capture.
* Sustainable competitive advantage: The company has cost-leading position in a market at efficient scale, with technology superiority likely to last for decades.
* Alignment with secular trends: Well-positioned to benefit from ocean-based technology trends focusing on efficiency and sustainability.
* Operational independence: Decentralized business model reduces key person risk, with subsidiaries managed independently.
* Customer-centric innovation: Close collaboration with shipping and offshore companies drives product development and adaptation to market needs.

* Lack of consistent operating margin growth over three consecutive years, potentially signaling challenges in cost management or pricing power.
* Return on Equity (ROE) below 20% for the last five years, indicating potential inefficiencies in utilizing shareholder capital.
* Absence of stable earnings growth over the last 10 years, suggesting potential volatility in the business model or market conditions.
* Free Cash Flow conversion below 80% over the past five years, which may indicate challenges in converting profits into actual cash.

* Strong profitability with a gross profit margin above 40% and an operating margin exceeding 20%, indicating pricing power and operational efficiency.
* Consistent revenue growth outperforming the industry average over the last five years, suggesting market share gains and competitive strength.
* Robust financial health with current assets 1.5 times greater than current liabilities and manageable debt levels relative to cash flow.
* Healthy earnings quality, low one-time charges, and strong operating cash flow conversion.
* Attractive dividend yield between 1 and 2.5 times the market median, well-covered by cash flows, indicating a commitment to shareholder returns.

* Short tenure of the senior management team, potentially limiting institutional knowledge and proven teamwork.
* Lack of extensive prior success in similar positions for current management, reducing confidence in their ability to drive long-term value creation.
* Limited management ownership stake in the business, potentially weakening alignment with shareholder interests.
* Absence of founder involvement in the business, which could impact corporate culture and long-term vision.
* Uncertainty regarding sustainability-related performance incentives, potentially limiting alignment with ESG goals and long-term risk mitigation.

* Strong leadership with CEO inspiring long-term vision and challenging conventional practices, focusing on sustainable ocean-based industries and value creation.
* Lean, decentralized organization promoting accountability and innovation across independently-run subsidiaries, with synergies in experience, technology, and sales.
* Consistent delivery of promises and well-defined strategy for growth and diversification, including opportunistic capital allocation and share buybacks.
* Transparent and timely investor communication, focusing on long-term business value and improving disclosure practices.
* Significant insider ownership, particularly the Skeie family's 30% stake, aligning management interests with shareholders and demonstrating long-term commitment.

Intro to Globetech 
Nekkar has entered an agreement to acquire Globetech which provides IT infrastructure, connectivity, and support services to the global maritime sector. The offering is a complete solution for onboard network infrastructure, including hardware, tailored architecture, and integration for satellite communication with an emphasis on cybersecurity. The customers are ship owners and ship management, within shipping and offshore. The revenues are generated at installation and once operational, generate recurring license fees for software and support services. The company has today a broad base of more than 150 customer vessels including tankers, offshore supply vessels, anchor-handling tug supply vessels, etc. Nekkar sees solid prospects for continued growth, both by adding new customers and with growth in customer fleets. The company was founded in 2011 and located in Kristiansand with around 28 employees. In 2023, revenues amounted to NOK54m with a 20% EBITDA margin.
Globetech will become a new stand-alone platform within the Nekkar group, and the company sees mainly commercial synergies. The founders and key management will remain in the company and are incentivized for continued performance, based on share payments as well as earnouts.
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Solid financial track record 
Globetech has a seemingly solid track record of growth and profitability development and has delivered profitable growth for the last 10+ years. Between 2019-2024e (Nekkar estimate), the company has posted a topline CAGR of 22% and for the last three years, the EBITDA margin has ranged between 20-24%. Globetech is expected to deliver revenues of more than NOK70m in 2024, with a margin of 20% on EBITDA level. Up from 2023 levels of NOK54m in sales. Around 50% of Globetech&#8217;s revenues are repeat business which adds a solid stream of recurring revenues.
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Transaction 
Nekkar has agreed to acquire 100% of Globetech in a two-step deal, which at this point values to company to NOK120m equaling an EV/EBITDA multiple of 7.7x (LTM EBITDA). In the first step, Nekkar acquires 67% of the company for NOK64m in cash and NOK15m in equity. The remaining 33% of the business will be acquired in 2027, and priced based on an EBITDA earnout for 2027 figures. We estimate that the earnout multiple will be near today&#8217;s multiple if the company sees continued progress. Nekkar will use its treasury shares for the equity payment and deploy some of its available NOK200m in cash.
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Solid deal 
The transaction is estimated to be finalized in the third quarter of 2024, so we await the finalization and inclusion date into the Nekkar group to incorporate the acquisition into our estimates. Anyhow, we can state that based on our initial take, we expect the acquisition to have a 2% impact on our 2024 figures (impacting only in Q4), while contributing around 9% to our 2025 EBITDA figures. In this contribution, we have excluded the EBITDA attributable to minority shareholders.
We are encouraged by the acquisition in several respects, mainly as Globetech has a proven financial track record and a steady base of recurring revenue. Furthermore, we argue that the price tag of 7.7x EBITDA seems fair, which is in line with Nekkar’s own 2023 multiple. Moreover, we like that the founders are still in the company and are now incentivized both with partial share payment (with 2-year lock-up) as well as earnout based on 2027 figures. While we are positive about the acquisition in several respects, we will not make any direct adjustment to our fair value range as it was acquired in line with group multiples.