IR Blog: Answers to investor questions concerning Kesko's expansion to Denmark
Kesko announced on 23 August 2023 that it will acquire 90% of Davidsen, a leading builders’ merchant in Denmark, thus expanding its building and technical trade business into Denmark. Below we provide more details regarding the acquisition as well as answers to investor questions concerning the Davidsen acquisition and the Danish market overall.
Update on 31 January 2024:
The Davidsen acquisition has been completed and Davidsen will be consolidated into Kesko Group’s financial reporting from 1 February 2024 onwards - see release
Davidsen Koncernen A/S
Third biggest builders’ merchant operator in Denmark, serves primarily B2B customers
23 stores, most of which are located in Southern Denmark; some 850 employees
2022 key figures: net sales €560 million, EBITDA €27 million, EBIT €23 million (excl. IFRS 16 impact)
Kesko will acquire 90% of the company, and the founding Davidsen family will maintain a 10% ownership
The debt-free acquisition price for the 90% is approximately €170 million
Davidsen will continue to operate under its existing brand and its current local management
The completion of the acquisition is subject to EU Commission’s merger approval and fulfilment of certain other conditions. The transaction is expected to be completed in Q1/2024 at the latest.
Q&A: THE DANISH MARKET
Q: Why does Kesko want to expand its operations to Denmark?
A: As stated in Kesko’s strategy, we seek growth in building and technical trade in Northern Europe both organically and via acquisitions. In Finland, we are the market leader in both building and home improvement trade and technical wholesale, and in Norway and Sweden, we have conducted many acquisitions in recent years.
Denmark is a wealthy country and one of the most stable nations in the world both politically and economically. The Danish market is attractive to Kesko: although the population size (5.8 million inhabitants) is similar to that of Finland, the Danish building and home improvement market is 1.5 times the size of the Finnish market. This offers a lot of potential.
The Danish building and home improvement market:
Valued at some €5.7 billion in 2022
The three biggest operators – Stark, Bygma and Davidsen – together control 50% of the market
Some 30 independent retailers form the XL-BYG chain, which controls 20% of the market
Also a large number of small, local builders’ merchant companies
The Danish building and home improvement market is currently very fragmented. The megatrend in recent years has been sector consolidation, and Kesko wants to actively take part in the consolidation of the Danish market.
Q: Construction volumes in the Nordic countries have come down. Is it wise for Kesko to expand its building and home improvement trade operations right now?
A: Kesko has established a growth strategy for its building and technical trade division, and the company executes this strategy regardless of economic cycles. We believe that there will always be a need for building and renovation. The Davidsen acquisition is a long-term strategic investment for Kesko, and we see plenty of potential in the Danish market in years to come. The current weaker business cycle partly enabled Kesko to acquire Denmark’s third biggest building and home improvement trade operator, and therefore the timing can be considered advantageous. The downturn is affecting business, but at the same time it offers consolidation opportunities for an industrial player such as Kesko.
Q: Some outside operators have found it challenging to expand their operations to Denmark – how does Kesko intend to tackle any such challenges?
A: Kesko’s building and technical trade division employs country-specific strategies in all of its seven current operating countries. This means that we adjust our operations to the specifics of each country, and utilise the insight and expertise of our local representatives. We rely on local expertise also in Denmark, with the Davidsen family staying on as a minority shareholder and the current operational management remaining at the helm, with operations continuing under the established Davidsen brand.
Q: Does Kesko have further plans in Denmark? Does it intend to acquire more companies in the country?
A: Kesko is seeking growth in Denmark both organically and via acquisitions. Developing Davidsen’s operations further is a priority for us. We expect to see more consolidation in the Danish building and home improvement trade market, and we are very interested in the opportunities this development can offer. Kesko sees plenty of growth potential in Denmark.
Q&A: THE DAVIDSEN ACQUISITION
Q: Why did Kesko want to acquire Davidsen?
A: The acquisition of Davidsen is very much in line with Kesko’s growth strategy. By acquiring the third biggest operator in the country, we gain a foothold in the attractive Danish market, and can build future growth on that. We ensure continuity and local expertise with the continued involvement of the Davidsen family and the company’s management.
Davidsen holds a 9% market share overall, but in Southern Denmark, it controls some 30% of the market. This is positive for Kesko, as we have a strong position in the South, but no overlapping operations when it comes to potential future acquisitions in other parts of Denmark.
Q: Is Kesko able to obtain synergies from this acquisition?
A: The acquisition of Davidsen is primarily a strategic play for Kesko. Typically, we seek synergies both within and between our operating countries, but as Davidsen is our first entry into the Danish market, there are no synergies available within Denmark for now. There are, however, some synergies between Kesko and Davidsen in e.g. sourcing, selections, and best operating practices.
Q: Kesko has stated that it will increasingly focus on servicing the B2B customer segment in building and technical trade and that this also impacts its decisions when it comes to potential acquisitions. Why is Kesko focusing on serving building sector professionals rather than consumers, and how much of Davidsen’s business comes from B2B?
A: Building and renovation work are becoming increasingly technical, which means consumers are doing less and professionals more. This trend has led Kesko to decide to focus increasingly on serving professionals in the B2B segment. Davidsen has also made the strategic decision to focus more on B2B, which now brings in some 80% of its net sales. Davidsen serves consumers mostly online.
Q: In your release, you say that Davidsen’s sales and profitability are expected to temporarily be below the 2022 level due to the economic downturn and lower construction volumes. Are you concerned about Davidsen’s profitability?
A: The Davidsen management has already executed remarkable savings, and they are very capable of executing actions needed to boost sales also going forward.
Furthermore, Kesko has a strong track-record in improving the profitability of both its own and acquired operations.
Q: Are you pleased with the purchase price?
A: In our view, the agreed purchase price is good considering the opportunities this new market can offer Kesko. The acquisition of Davidsen is a long-term investment for Kesko. The transaction terms also take into account the current weaker business cycle.
Q: Kesko is now buying 90% of Davidsen, and the Davidsen family maintains 10 % of the shares. Has Kesko agreed to buy the remaining shares at a later date?
A: It is important for us that the Davidsen family stays on as a minority shareholder and is committed to growing and developing the company together with Kesko. We do not disclose the specifics of our agreement.
Kesko organised a briefing for investors and analyst on 23 August in which the company’s management gave a presentation on the Davidsen acquisition and Kesko’s expansion to Denmark – you can see a recording of the event here