Lifco AB: A Swedish industrial serial acquirer par excellence

Exploring the Business Segments and Growth Strategies Behind Lifco's 16 year 22% FCF per share CAGR

The history of Lifco started in 1946 in Sweden, where different country councils founded a central purchasing entity for medical equipment and services. However, the company's real history started after several changes in ownership through the 90’s. In 1993, the company was acquired by its management team and the venture capital company Procuritas and renamed Lifco AB. From 1995 to 1998, the company was a division of the publicly traded Getinge Group and was spun off to shareholders as part of a restructuring in 1998. Carl Bennet, the majority owner of Getinge group and thus also of Lifco AB, decided in 2000 that Lifco needed to be restructured as a private company and made it a fully-owned subsidiary of Carl Bennet AB. Lifco divested 40% of its sales (health and self-care) to focus on its dental products distribution (21% of today’s EBITA). In 2006, Lifco acquired its sister company, Sorb Industri AB, a diversified industrial company owned by Carl Bennet AB. Afterward, Lifco grew EBITA by 16.8% annually until 2014, when Carl Bennet sold 49.9% in a public offering to list Lifco a second time. Since then, Lifco has grown its FCF per share by 22.8% CAGR, an eightfold increase. Without further ado, let’s see what makes Lifco a great business. Read the second part about the fundamentals and valuation here.

Business segments

Lifco today operates three segments. Dental includes the manufacturing and distribution of consumables, equipment and services in the European and American dental industry. This segment has the lowest EBITA margin at 20.5%, trailing twelve months, but is the most stable segment and not as vulnerable as the industrial segments to the cycle. It accounts for 25% of sales and 21% of EBITA. Since 2006, EBITA has grown by 14.9%, and the EBITA margin has improved from the mid-teens to 20%.

Demolition & Tools sells demolition robots, crane and excavator attachments and forest machines to industrial customers at 25.3% EBITA margins. In the last year, this segment was hit hardest due to its cyclical nature, declining 4% in sales and 7% in EBITA. At 29% of revenue, it contributes 32% of EBITA due to its higher margin profile. Since 2006, EBITA has grown by 16.4%, including a large drop following the aftermath of the GFC. Margins have been rather stable in this segment.

System Solutions is divided into five subsegments related to contract manufacturing, environmental technologies, infrastructure products, special products and transportation products. This is the largest segment, accounting for 46% of sales and 47% of EBITA, with a 24% margin. Since 2006, EBITA has grown by 20% and has seen fantastic margin development, growing from single digits to 24%.

Lifco operates primarily in Europe, with 81% of sales, while NA contributes 10% and Asia & Australia 8%. As a serial acquirer the individual companies don’t have too large of an impact on Lifco, with over 130 companies acquired in the timeframe. Most acquisitions are under 1% of sales.

The goal

Lifco's goal is to increase profits every year. Profits mean EBITA before acquisition costs and non-recurring items. To do this, the company deploys a serial acquisition strategy, focusing on streamlining its businesses upon acquisition and driving organic growth. This focus on organic growth greatly differs from another prominent serial acquirer: Constellation Software.