Yesterday, CombinedX announced that it acquired the Infor M3-focused IT consulting firm M3CS. The company has about 80 employees and had a revenue of SEK142m in 2023. Its EBIT margin is currently low, and we guess it was roughly 3% - in line with the level seen in 2022 (from M3CS annual report). However, a dispute with the Danish IT consulting firm Columbus negatively affected profitability. The dispute relates to Columbus's suing M3CS, which was started by a large group of consultants leaving Columbus and founding M3CS in 2021. The court judged in favour of Columbus that M3CS was liable to pay SEK45m. However, the dispute is now settled, and M3CS paid the SEK45m before the completion of the acquisition.

CombinedX pays SEK41-61m (41m upfront and 20m in potential earn-out) for the company, implying an EV/S of 0.29-0.43x 2023 – substantially lower than the 0.86x CombinedX is trading at on 2023 sales. On the other hand, M3CS’s margins are substantially lower than CombinedX’s. However, we believe there is a high likelihood that CombinedX can lift M3CS’s margins towards the group average over time. M3CS primarily works with the same software platform as Elvenite – Infor M3. Elvenite is probably the best company within CombinedX, implying that CombinedX already has solid knowledge and a strong market position regarding Infor M3. However, unlike Elvenite, which is focused on the food & beverage industry, M3CS has a broader focus, including manufacturing and trading. While Elvenite has a mix of junior and senior consultants often working in teams, M3CS is heavily tilted towards senior consultants. For example, Elvenite had sales of SEK134m with about 100 employees in 2023, while M3CS had SEK142m with about 80 employees. Also, compared to the group and other listed IT consultants, M3CS sales-COGS per employee stands out, while the contribution is relatively soft.