WE.CONNECT ACQUIRES EXERTIS FRANCE AND EXERTIS IBERIA
This acquisition is a game-changer for WE.CONNECT, which will become a company with nearly €500M in revenue.
In 2024, Exertis had €176M in sales, and this deal brings a portfolio of premium brands to WE.CONNECT that complements its existing offerings, including names like MICROSOFT, TP-LINK, STARLINK, and META QUEST. The acquisition also represents a crucial entry into the European market, as Exertis Iberia operates in Spain and Portugal.
The most notable aspect of this transaction is the very favorable terms for WE.CONNECT. The DCC Group, the owner of Exertis, recapitalized the company and sold it to WE.CONNECT, debt-free, for the symbolic price of €1.
The DCC Group is an international group that, until recently, had operations in the energy, healthcare, and technology sectors. DCC has recently shifted its strategy with the goal of simplifying the group and focusing on the energy sector. For this reason, DCC has divested its healthcare and technology businesses.
According to DCC’s press release on its 2024 annual results, the decision to sell Exertis France and Iberia was made because they were loss-making businesses. The press release states: “In addition, having decided earlier in the year to exit or close the loss-making Exertis France consumer product business and Exertis Iberia, DCC Technology signed an exclusivity agreement for their sale in April 2025. The transaction is expected to close within three months, subject to regulatory approvals.”
In my opinion, this acquisition could be very profitable for WE.CONNECT, as they basically got the business for "free." The key question is: can WE.CONNECT make this business profitable? I believe so, since the distribution business is a low-margin sector that needs scale to be profitable. When one distributor acquires another, it typically leads to synergies like cost savings by consolidating operations, logistics, and distribution networks. This deal also brings new brands to the company, which can generate cross-selling opportunities. We have to understand that Exertis France and Iberia were non-strategic businesses within the DCC Group, so their management probably wasn't a priority. Only time will tell if WE.CONNECT can make the company profitable, but in my view, and as they have shown with other acquisitions, this is a great deal.
Toya H1 Results:
Toya's revenue amounted to PLN 463.2M, up 16.4% from last year.
Gross profit increased by 15.07%, though margins decreased slightly to 33.7% from 34% in the first half of 2024.
Operating profit increased by 36.7%, with margins rebounding to the historical average of 13.5%.
Net profit increased by 35% to PLN 49.48 million, resulting in an EPS of 0.66.
Free cash flow surpassed net profit, reaching PLN 60.3M. This was due to lower CAPEX and a positive contribution from working capital.
BALANCE SHEET
The company has PLN 55M in net cash, excluding leases.
Share Buybacks
Toya repurchased 1,004,979 shares, representing 1.34% of its capital, at PLN 8 per share. The company set aside a reserve of PLN 100M for buybacks, but so far, it's only spent PLN 8M of that.
CONCLUSION:
As I've said in previous posts, the investment case was based not only on the low price but also on the prospect of returning to growth and improving margins. The first half of this year has confirmed that idea.
The company's results far exceeded expectations. While it wasn't the only company in its sector to show growth, it experienced the greatest growth. Despite its strong performance, the company is still trading below its peers, with an LTM P/E ratio of 9. An attractive price for a growing company with good returns on capital, net cash, and likely to continue buying back shares.
Macfarlane H1 2025 Results
Headwinds in the economy have made for a challenging period for the company due to weak demand and a rise in operational costs.
Let's first analyze the results by segment
Revenue: Demand has been lower than expected, particularly in the retail sector, leading to virtually flat revenue with a 0.44% drop.
Gross Profit: Gross profit fell by 6.5% due to a drop in margins, with the margin at 35.6% compared to 37.9% last year. The decline is mainly due to soft demand and a tough comparable period from last year, when increased raw material costs were passed on to customers—a dynamic that has now reversed. The company sees a sustainable gross margin of around 36% going forward.
Adjusted Operating Profit: The decline here has been more notable. In addition to the decrease in gross profit, the company incurred additional costs. First, there was an increase in personnel costs due to increases in National Insurance and the national minimum wage. Another price increase came from property expenses. This is due to the end of several leasing contracts that have been renewed with rent increases, as the East Midlands property consolidation, which is incurring dual costs. As a reminder, they are consolidating four warehouses into one. The consolidation was planned for May but has been delayed until the end of August. We should see less impact on property costs from this in H2. As part of a cost-saving program, we'll see more property rationalization as we go into '26 and '27. Consolidating warehouses is a normal practice and one of the synergies that occur when doing M&A with distributors that operate in the same region.
Manufacturing
Revenue: The manufacturing segment performed much better, growing by 84%. Of this, 0.3% was organic, and the rest came from acquisitions.
Gross Profit: Gross profit increased by 70% but with a decrease in margins. The decline in gross margin is mainly due to the impact of the Pitreavie acquisition, which is a lower-margin business. Excluding Pitreavie, the gross margin would have remained at the same level. In this segment, operating costs have been kept under control. We can see that sales to the distribution segment, as a percentage of total sales, have decreased. This is a result of M&A growth. Over the coming months, the company will seek to strengthen in-house supply relationships with Distribution, which will be beneficial for the company's overall margins.
Consolidated Results
Revenue: Overall revenue grew by 13.1%, primarily due to acquisitions, reaching £146.6 million.
Operating Profit: Operating profit reached £7 million with a margin of 4.8%, compared to £10.6 million and a margin of 8.2% in the previous year. Adjusting the operating profit for non-cash expenses like customer relationships and brand values amortization, and deferred contingent consideration adjustments, the company would have generated £9 million, which is a 6.69% margin.
Consolidated Net Profit & Adjusted Net Profit: The net profit reached £3.7 million, a 49% drop from the same period last year. This is due to a rise in financial costs, increasing from £0.9 million in 2024 to £2.1 million in 2025. The adjusted net profit was £6.7 million.
Balance Sheet
The balance sheet is solid with a net debt, excluding leases, of £15.1 million. When annualized based on the H1 EBITDA, this would be a 0.5x Net Debt to EBITDA ratio. The company's business is seasonal, with the second half of the year being stronger than the first, so the actual debt-to-EBITDA level is even lower.
Cash Flow
The company generated £6.4 million in free cash flow, similar the adjusted net profit.
Shareholder Remuneration
The company announced an interim dividend of 0.96p, which is similar to the previous year. It appears that we won't see a dividend increase this year but will be maintained at the same level as last year. If this happens, the dividend yield at current prices would be 4%. In addition, the company is in the middle of a £4 million share buyback program, of which only £0.2 million has been executed. Macfarlane will complete the program over the next 12 months.
Insiders
Insiders are increasing their stake in the company. Recently, David Stirling, a non-executive director, bought shares on the market.
M&A
They expect to make two acquisitions in the short term, but not until after the beginning of 2026. In the meantime, they will prioritize the buyback program.
Conclusion
There's no doubt that the company is going through a difficult time due to the overall economic situation. As they've stated, they don't expect a substantial improvement by the end of the year, and have announced that this year's adjusted operating profit will be 10% lower than the previous year. Considering the rise in interest expenses, according to analyst consensus (and my own numbers), the company will generate around £16 million of adjusted net profit, equivalent to 10p per share. This would mean the company is trading at 9.3 times earnings in a bad year.
Here's the interesting part: A difficult year for the company is a difficult year for the entire market; it's not a problem particular to Macfarlane. As I described in the thesis, Macfarlane competes with many local and regional distributors, which are smaller companies that will be affected much more by the poor market situation than Macfarlane. Because of this, I believe that when the market recovers, Macfarlane will emerge stronger than its smaller peers. The story of consolidation and international expansion remains intact, and while we wait for a market recovery, the company is buying back shares and paying dividends. In my opinion, it remains a very attractive option, but without short-term catalysts. All we need is patience.