Earlier this week, CombinedX announced that its subsidiary Nethouse acquired the Sundsvall-based IT infrastructure consulting company Why IT Solutions. Why has about 30 employees, sales of about SEK70m and an EBIT margin of around 10%. Why has a strong position among public customers in the area, such as Region Västernorrland and Försäkringskassan, as well as in the timber industry –an important sector in this region. Like Nethouse, Why focuses on cloud and IT infrastructure.

With 30 employees and SEK70m in sales, the sales per employee is high. However, as we lack the full annual report for 2023, we cannot calculate the Sales-COGS/employees/working day. According to management, Why has a rather high share of hardware and sub-consultants in its sales mix – which we find reasonable considering the high sales per employee.

Although geography was unimportant in the decision, according to management, CombinedX continues to expand in regional hubs, retaining the exposure to Stockholm limited. Interestingly, the acquisition was sourced by another CombinedX company, Anytrust, which was recently incorporated into Nethouse, following work for a mutual customer. In general, we believe this kind of direct sourcing of acquisitions is preferred over structured processes, for example.

CombinedX pays SEK25-32m for the company – depending on the outcome of the SEK7m earn-out – implying 0.36-0.46x sales and 3.6-4.6x EBIT. While it is a complementary acquisition strengthening a current offering rather than adding a new niche, we believe adding a company with a track record of highly profitable growth at ~4x EBIT is attractive and a low-risk acquisition.

We raise our sales and EBIT forecasts by 5-7% and 5-8%, respectively, for 2024 and 2025. On the back of the increased forecasts, we raise our Base Case somewhat to SEK67 (65)