I was wondering about such a sharp drop in the share price. My first reaction was: great stuff! First of all, I trust Kesko’s management and their expertise in M&A. I’m sure the matter has been thoroughly investigated, considering we’re talking about 1.2 billion. Secondly, I immediately bought into the idea that, for instance, regarding the reconstruction of Ukraine, the new organization has significantly better opportunities than it would have without this expansion. I believe and trust that things will progress, and I am not even considering letting go of Kesko. It’s the largest investment in my portfolio, and rightly so.
And well, this is exactly what it means to not just keep doing the same thing as before. Instead, it’s about boldly moving towards new ventures. After this, Kesko will once again be quite a different company than it was before.
Well, I kind of like this. At least at first glance, the purchase price doesn’t seem too high, which is the most important thing. A downside is that there don’t seem to be any significant synergies on the horizon.
The financing was handled partly through debt and partly through a share issue, which I think is a fairly sensible compromise.
It’s too early to draw any major conclusions yet, but the first impression is more positive than negative. Time to get the popcorn out and see how this plays out.
Data centers and other large-scale construction and infrastructure projects also came to my mind when considering the logic of this acquisition. In such a value chain, cooperation will be deep and based on project deliveries where quality and reliability of delivery are paramount alongside price. Strategically, it is easier to grow on this path compared to the alternative of Kesko focusing on a more traditional battle for market share. Of course, at this stage, everything works in theory, but only practice will show how controlled the execution of this operation is and how the plans ultimately materialize. I was certainly surprised by the share price reaction; I guess this is that famous “fundamental analysis” of the markets, where people focus solely on multiples without understanding the changes in the surrounding world.
In the Salkunrakentaja article, there are a couple of comments from OP.
High pricing combined with undefined synergies - not a good combo.
OP took a cautious stance on the arrangement. In the bank’s morning review, the pricing is considered high and the value creation of the deal uncertain:
”According to Kesko, the combined EBITDA (IFRS) of the companies to be acquired was 146 million euros in 2025. Thus, the purchase price including lease liabilities translates into an IFRS-compliant EV/EBITDA multiple of 10.4x before synergies, which in our preliminary view looks like a quite high level,” the bank states.
Kesko says it is seeking synergy and volume benefits through the acquisition, as well as an improvement in earnings in line with the 6-8 percent operating profit target for the building and technical trade in the coming years.
OP points out that the company does not provide an explicit synergy target.
”Relative to the purchase price, our preliminary assessment is that synergies would need to be substantial for the post-synergy valuation to drop to a more reasonable level. Due to the high valuation, we believe there is significant uncertainty regarding the deal’s value creation, and we expect the stock to react negatively to the acquisition.”
