NIBE launched its growth strategy, with its target of average year-on-year sales growth of 20%, in the early 1990s. Back then, the Group generated annual sales of approximately SEK 300 million.
The background to this strategy was the insight that continuous growth is crucial for good profitability. At that time there was also much talk in Europe that companies with sales of less than SEK 600 million would find it hard to survive after the advent of the EU’s internal market. Given our determination to remain independent, this seemed another good reason to equip ourselves for good, sustainable growth and so achieve sufficient critical mass of our own.
Organic growth
Half of our targeted average year-on-year growth (in other words, 10%) is to be organic.
Admittedly, we did not arrive at this figure as a result of any exact scientific theory: it was more an acknowledgement that organic growth of less than 5% is quite simply insufficient for good, sustainable profitability.
Since the underlying annual growth in demand in our three business areas is assumed to be linked to GDP growth, this target means that we can never rest on our laurels, but must strive constantly to increase our share of existing markets and establish bridgeheads in new markets. Although the target may seem ambitious (and no one knows better than us just how ambitious it is!), it is not unattainable. This is demonstrated by the fact that over the past 16 years, since NIBE was first listed on the Stockholm stock exchange, the company has generated average year-on-year organic sales growth of 7%. This is attributable to a combination of aggressive product development, continuous improvements in productivity and systematic marketing measures.
Acquisitions
We have concluded that, in the mature market in which NIBE operates, organic growth alone cannot reasonably be expected to meet our overall year-on-year growth target of 20%. We have therefore made clear that organic growth must be complemented by growth through acquisitions that averages 10% a year. This level ensures that the additional workload is manageable and the degree of risk is reasonable.
The Group has acquired 51 companies over the past 16 years, representing average annual growth through acquisitions of 12%.
Acquisition criteria
NIBE is constantly analysing the opportunities for takeovers, and talks are almost always under way with potential acquisition candidates. The decisive factor behind any acquisition is that it must add new technology, enable us to establish a presence in new geographical markets and/or increase our share in existing markets.
The basic criteria are that the company concerned must have strong brands and competent managers with a real entrepreneurial spirit, and that it must offer further growth potential within the framework of NIBE’s strategies. If these criteria are met, we can then be flexible about what phase the company is in purely in terms of profitability.
Our goal is for each acquisition to contribute positively to the Group’s net profit, ideally within the first year and most definitely within the second.
Acquisition model
- In the analysis phase we perform a detailed yet rapid analysis of the company. This is possible because our three sectors are so clearly defined and we have a veritable arsenal of key figures with which to make comparisons. We often also have access to several years’ financial documentation.
- In the implementation phase there is always complete transparency about our intentions with the acquisition. We provide clear information about what we expect – there is never any hidden agenda. The fact that we are very clear and open about our management philosophy and strategies (for example, in our annual report) generally facilitates this process.
- In the integration phase we aim to retain not only brands, but also skilled employees at every level. We look for synergies primarily when it comes to purchasing, but usually there is potential to make productivity improvements in the production process, as well.
Generally speaking, our ambition is to create a decentralised organisation where new additions to the Group continue to enjoy considerable autonomy. We want integration into the NIBE Group to be about exploiting the obvious benefits of belonging to a much larger cluster of companies, and adopting the NIBE Group’s goals and strategies.