Addtech

"Addtech is an industrial group with revenues of SEK 21.8bn ($2.18bn) and an operating profit (EBITA) of SEK 3.2bn ($320m). It operates across five business areas, each well-positioned to leverage megatrends: Automation, Electrification, Energy, Industrial Solutions, and Process Technology."

"Lifco: 21-bagger—33% CAGR since IPO in 2014. Indutrade: 50-bagger—22% CAGR since IPO in 2005. Bergman & Beving (including spin-offs): 7,500-bagger—20% CAGR since IPO in 1976. Lagercrantz: 120-bagger—23% CAGR since IPO in 2001. Addtech: 210-bagger—26% CAGR since IPO in 2001. Constellation Software: 375-bagger—37% CAGR since IPO in 2006. Heico: 1,100-bagger—22% CAGR since 1990. AMETEK: 175-bagger—16% CAGR since 1990. Judges Scientific: 115-bagger—24% CAGR since IPO in 2003."

"Take Addtech as an example: each business area is incentivized to grow—both organically and through acquisitions—but must also compete for internal capital. Similarly to Warren Buffett at Berkshire Hathaway, the CEO Niklas Stenberg acts as the overarching capital allocator, ensuring that the capital flows to the highest-return opportunities. This pushes business areas to sharpen their cases, only presenting their best opportunities."

"To ensure a smooth transition, Sjö appointed experienced managing directors to lead the business units while in some cases maintaining their MD roles, reinforcing an internally driven rather than top-down approach. The reorganization allowed Addtech to even more effectively pinpoint structural growth areas by prioritizing acquisitions within adjacent industries. In search of new opportunities, group companies utilized relationships with both suppliers and customers to identify growth opportunities."

"It led to the acquisition of Bergman & Beving’s MediTech business, a Nordic distributor of instruments and consumables in the life science sector. MediTech, with roots in Bergman & Beving going back to 1941, provided Addtech with steady, non-cyclical cash flows, and it operated with a decentralized structure. It was a relatively low-risk addition to the portfolio, despite accounting for around 25% of revenue. Roger Bergqvist was very disciplined on price and only paid a 6.5× earnings multiple. When the life science division was later spun off as AddLife in March 2016, it was listed at a market capitalization of nearly SEK 2.1bn ($210m). For Addtech shareholders, this translated into an 11× return over only 11 years—an impressive 28% CAGR."

"Tom Hedelius and Anders Börjesson, already major shareholders and key figures in its leadership, formalized their control over the company. They became the largest shareholders in Addtech, today holding 15.2% and 16.5% of the votes, respectively. Having Börjesson as a committed long-term owner—the key person behind Bergman & Beving’s successful acquisition strategy—ensured that there would not be any change of strategy, culture, or philosophy. The architect of decentralization would never centralize."

"Niklas Stenberg stayed true to Addtech’s decentralized culture, adding a stronger emphasis on internal knowledge-sharing to continue to grow profitably. “The key is to offer opportunities, not impose them,” he noted, highlighting the need to preserve a sense of ownership among its business leaders while encouraging collaboration between the companies."

"Addtech’s approach is underpinned by a learning culture that enables the organization to avoid past pitfalls. Such an open-minded approach has permitted Addtech to identify and capitalize on new opportunities. The commitment to staying ahead in an ever-changing market has been made possible by “cooking in the customers’ kitchens.”"

"Addtech’s management displayed a dynamic and responsive leadership when they searched for new income streams that were less tied to macroeconomic cycles. With the help of internal networks, they identified the energy sector as a promising opportunity and took a decisive step in 2006 by acquiring Gevea, a company specializing in high-voltage transmission equipment. Despite energy only being a minor part of Addtech (7% of sales), the selling founders were so confident in Addtech’s vision that they didn’t even consider other buyers. Since then, through…"

"prioritization of companies with high technical expertise in structurally growing niches, in combination with dynamic leadership, has enabled Addtech to focus on high-return opportunities, while…"

"Addtech wouldn’t have been able to grow as much without its strong cash culture, cultivated over decades. It is deeply embedded in Addtech’s operations, shaping the way employees think and work. Instilled across all levels, it ensures that every employee understands how their daily actions contribute to the bigger picture. For a salesperson it is to set the priority of selling high-margin products with favorable…"

"At the core is an unwavering belief in autonomy and managerial responsibility. Through benchmarking, networking, and sharing best practices, Addtech helps its companies improve. It utilizes smart cash-based incentives to turn its companies into cash-generating machines. It uses this cash flow to acquire new businesses. And then it does this repeatedly, year in and year out."

"Addtech represented the original core industry business area of Bergman & Beving, and the name reflects the company’s original mission: to add value to its customers through expertise in technology. True to its philosophy of nurturing leaders from within, Addtech’s first CEO, Roger Bergqvist, was no stranger to the business."

"Addtech has outperformed AddLife shares, appreciating almost 1,250% compared to 690% for AddLife—both beating the broader Swedish index by a…"

"A deeply nurtured cash culture and simple profit goals sustained over decades—like the focus on profit over working capital (P/WC) that Bergman & Beving, Addtech, and Lagercrantz religiously adhere to—is essential for the model to work. It is the true differentiator between transactional players chasing “deals” and the compounders. The latter take a low-risk approach to growth and master the art of “building”—not just “buying.” These risk-mitigating characteristics built into the self-funding model explain why many of the compounders in this book boast multi-decade track records of uninterrupted compounding."

"By staying closely attuned to the market and customers’ operations, Addtech has identified trends and used those insights to develop new growth areas that thrive independently within its decentralized structure."

"The company she had bought shares in? Bergman & Beving. Along with two of its spin-offs—Addtech and Lagercrantz—it is one of nine extraordinary firms you will meet in the pages ahead. A $1,000 investment in 1976 would have increased to $7.5 million today—excluding all dividends received. It is far from the only company in this book to have delivered such outstanding returns."

"This unwavering financial prudence exemplifies Addtech’s risk-averse philosophy. As for acquisitive growth, price discipline is paramount. The higher the price paid, the greater cash conversion needed to enable self-financing growth. It’s like buying a rental house. If you buy it cheaply, the rent easily covers repairs and lets you save up for a second property. But if you pay too much, the rent barely covers costs—and now you need the house to generate a lot more cash just to break even, let alone grow. By maintaining this balance, Addtech ensures that growth remains sustainable without compromising financial stability."

"At the time of its listing, Addtech comprised 50 companies and was organized into three business areas. The Production division focused on electronics, engineering, and the automotive sector. Transmission catered to the broader manufacturing industry."

"Addtech’s success stems from two simple yet not easy goals: increase profits annually by 15%, and generate a return on working capital (P/WC) of more than 45%."