Bredband2 (B2) expects to take over the company 1st of February 2024 following regulatory approvals. The target has a solid financial history with sales of around SEK50m, an average growth of c.5% for the last three reported years, and an EBIT margin of 7.7% most recently. We are encouraged by the acquisition as it strengthens B2’s presence in exclusive networks (to BRF) while adding some corporate clients. In total, B2 will have around 490 thousand customers after the transaction.

At first glance, the price tag of SEK50m seems high, implying an acquisition multiple of around 1x EV/sales or 13.4x EBIT based on 2022/2023 figures (representing 2022-05-01-2023-04-30). However, as we identify significant synergies, the underlying price tag would be around 6-9x EBIT, depending mainly on B2’s cost-cutting actions. We identify synergies on both the cost and sales side. On the cost side, B2 will move over the customer base while keeping some of the key employees from the target. For the last reported period, the company had c. SEK15m in staff and other external costs. We expect that B2 will keep around 7 employees, meaning that it will reduce half of the headcount plus additional consultants. The employees remaining in the company will strengthen the sales team in the Stockholm region.

For 2024 Stockholm Stadsnät will be included from the 1^st of February. Following the acquisition, we increase our 2024e topline forecast by 3% implying a y/y growth of 6.8%. On EBITDA, the effect is somewhat larger, adding 4% to 2024e, while raising the margin to 17.3%. Below EBITDA, the positive effect will partly be mitigated by amortization on the acquisition. Following the acquisition, Bredband2's financial position will continue to be solid. We foresee that the dividend will be unchanged for the coming year, as the company will balance additional investments with debt while continuing to look for additional acquisitions.