Buyers and Builders
00:23:22 · Mikk, Andrea Allegrini
[00:23:22] S0: When it comes to capital allocation and more specifically deal structures, you've done so many. Maybe you can summarize like what has been the acquisition multiple, the average one and how does the you said there is no earn out for the sellers. So can you share more of of of the deal structures? [00:23:39] S1: Okay. Today, didn't... We I have never did earn out because we bought companies from sellers willing to retire. So maybe in the future, if you are buying a company from a young guy willing to help us in our strategy, maybe he will jump on board. And in that case, could be that earn outs will be implemented. In average, we buy four, 4.5x EBITDA, plus net financial position added on top. And with that, we use also to deduct the severance, which is the biggest debt that those company have. But it's, as you know, it's a long term debt for workers, so it's not that important for us and we pay we have to pay 3040% upfront and the rest in two three four years if it's possible so that the cash generated by the operation can basically pay itself the deal. And this is really powerful. [00:24:40] S0: So the businesses asset light, debt free, cash conversion is high. What is your take when it comes to the capital allocation in a way that how much depth are you actually using when doing those deals, when structuring those deals?
00:24:40 · Mikk, Andrea Allegrini
[00:24:40] S0: So the businesses asset light, debt free, cash conversion is high. What is your take when it comes to the capital allocation in a way that how much depth are you actually using when doing those deals, when structuring those deals? [00:24:56] S1: Have a ratio between a net financial position and EBITDA, which is less than 1.5. So we can push a little bit more on the financial leverage. We have a very good standing with our banks. In general, we are not willing to raise any equity by doing capital increase because we have well written in our mind the per share concept, which is our mantra today. So we are not willing to dilute ourselves and our shareholders. And maybe we can add some... We can get some money, for example, by issuing some bonds, for example, but pure debt. So according to what we actually need because we are not asking or raising 10,000,000 if we don't have opportunities where those 10 millions can be spent. So it's always a matter of growing, but we prefer to grow slow to grow fast. So with no rush, we don't need to buy €10,000,000 EBITDA per year. We prefer to be, again, very prudent. And if a deal is not convincing us, we are not closing it. So prudence is our main approach today.
00:24:56 · Andrea Allegrini, Mikk
[00:24:56] S1: Have a ratio between a net financial position and EBITDA, which is less than 1.5. So we can push a little bit more on the financial leverage. We have a very good standing with our banks. In general, we are not willing to raise any equity by doing capital increase because we have well written in our mind the per share concept, which is our mantra today. So we are not willing to dilute ourselves and our shareholders. And maybe we can add some... We can get some money, for example, by issuing some bonds, for example, but pure debt. So according to what we actually need because we are not asking or raising 10,000,000 if we don't have opportunities where those 10 millions can be spent. So it's always a matter of growing, but we prefer to grow slow to grow fast. So with no rush, we don't need to buy €10,000,000 EBITDA per year. We prefer to be, again, very prudent. And if a deal is not convincing us, we are not closing it. So prudence is our main approach today. [00:26:19] S0: You being a public company, what are some of the pros and cons when it comes to buying those small tiny companies from those aging owners? Because they might think that, oh, it's a public company. They might be maybe not afraid, but they're like, obviously feeling honored, you going after them. But does the does the process is any way more complex because they are public versus you wouldn't... You would be private?
00:26:47 · Andrea Allegrini
[00:26:47] S1: No. With with the seller, it's it's something that give us standing. So they can trust us because we are we are a public company. On the other side, it's true we are public. We are listed on the EGM listing, which is the one in Italy for micro and small caps, even if in the last days, we reached more than EUR 100,000,000 market cap, which is really good. But yes, in terms of also the relationship with investor, it's good because we have we built over the years a very good investor base, mainly abroad with a few institutional Italian funds still inside. And they help us a lot, mainly when it's about capital allocation. So we have very active shareholders. And mainly they teach us and we used to talk often about roll up experiences abroad because it's it's something that it's more common in The US in The Nordics rather than in Italy where we don't have so many roll ups or serial acquirers you know and so knowing that our strategy has already worked in other countries is really important, and it helped us also to understand the real potential of our roll up progression that is tailored, I would say, on our economy. So again, fragmentation, little companies run by the seller. So the seller is the one main show in most of cases. So we need to adapt the strategy to the actual scenario that we find in Italy.
00:28:40 · Mikk, Andrea Allegrini
[00:28:40] S0: I mean, you have an excellent overview of the market because you see the small cities, you see the large cities. Do you sometimes have the temptation to go after those larger firms as well? Because for them selling to you, there could be a potential upside earn out joining joining with the public firm and and together you could you could you could maybe grow faster, maybe. Or you're you're just very focused chasing those smaller companies because, again, the growth you mentioned, 35, 36 per... Percent per year, it's a proof that your strategy works. So do you sometimes have a temptation to go for after those larger firms as well? [00:29:23] S1: Yeah. We have it. We need to be transparent. But... And and we... Every now and then, we also meet those kind of companies doing, I don't know, $10.15, 20,000,000 turnover. But at the end, we never go on with discussing about acquiring those companies that strong pipeline next few [00:29:48] S0: years. We we [00:29:59] S1: prefer have a to focus the on... And also because those company maybe are more attractive for PE if they are willing to do this kind of a roll up in Italy. But the real economical tissue is made of companies doing 1 to 3,000,000 turnover. And so that's the territory where we need to to go hunting as you as you said before. [00:30:21] S0: I found the slogan which you've said, more plumbers, less managers. Could you maybe... Where did this idea came from?
00:30:21 · Mikk, Andrea Allegrini
[00:30:21] S0: I found the slogan which you've said, more plumbers, less managers. Could you maybe... Where did this idea came from? [00:30:28] S1: It's it's Mikkael that said this for the first time. But we also in in Lindbergh traditional businesses, we always paid a lot of attention in having a a lean central structure. Because, you know, sometimes people and entrepreneur hire people to solve problems created by other people while it's a vicious circle. So we always wanted to keep and have a very lean structure. We never hired a skilled manager from other companies, but young people willing to to grow and willing to take more and more responsibilities over the year. I mean, I'm the example in this case, and also my colleague, Matteo, who is the head of the HVAC business unit. And so we yes, that's like this. So keeping a lean structure because structure costs kill the margins. So we believe that the main asset is technician and customer on the territory. [00:31:40] S0: You've also said that departing technician can become a competitor. So how how does that reality, like, change how you pay, how you train, how you manage those people? And I'll add here another question as well. It's like every strategy has a shadow side, if we can say. So what are the risks for you when it comes to this this model you follow? Okay. The base, again, is buying a company