Yesterday, Addnode announced the acquisition of US-based Autodesk Platinum Partner Team D3. With 200 employees, the company will be a part of Symerti in Addnode’s Design Management Division. Together with Team D3, Symerti becomes one of the largest Autodesk partners worldwide. The acquisition of Microdesk (March 2022), which has been a success so far, established Symetri in the US. While Microdesk is particularly strong within the AEC segment and on the East and West coasts, Team D3 adds presence within Manufacturing, Process & Power, and the Midwest. Thus, the acquisition of Team D3 makes Symetri ‘s US offering complete, adding new industries and geographies.

Although we generally prefer smaller acquisitions in serial acquiring companies due to the lower risk, Addnode is an exception. In addition to significant valuation-multiple arbitrage (5-6x EBITA on targets vs ~20x for Addnode), Addnode has a track record of extracting value from acquisitions by using its expertise and selling add-on software to the acquired companies’ customers and cross-selling acquired software to its old customer base. The substantial margin improvements in larger low-margin acquisitions such as Transcat, Excitech, and Microdesk are evidence of Addnode’s ability to extract value from large acquisitions. We expect Addnode to raise the margins of Team D3 over time for the reasons mentioned above.

We raised our Base Case to SEK120 (110) following the increased EPS forecast combined with Addnode’s solid record of large acquisitions. On our revised forecasts, Addnode is trading at 20x EBITA, excluding capitalizations, roughly in line with other high-quality serial acquirers.

For 2024, where Team D3, will be consolidated for the full year, we have raised our sales, EBITA and EPS by 16%, 10% and 7%. We assume Team D3 has an EBITA margin of 7% and expect it to reach ~9% over the next 2-3 years. Considering the strong momentum in Microdesk R12m, we believe Team D3 had a strong 2022 as well, despite having exposure to different sectors. We believe Addnode pays about 5-6x EBITA, in line with historical levels, on the current EBITA level, and it will not surpass 7x EBITA even if reaching full earn-out. Also, we remove all expected future M&A during 2023 following this large acquisition. Although we very well could see more acquisitions during 2023, particularly in the other two Divisions.