On the way to the desired acquisition of ESG Elektroniksystem- und Logistik-GmbH, the manufacturer of defense electronics Hensoldt has taken a big step forward in the past week.

Purchase price multiplier of 14.3 is not exactly favorable On the one hand, Hensoldt has now announced how high the purchase price of ESG is: According to its own information, a company value of 675 million euros will be due. Depending on the development of orders, a further maximum of 55 million euros will be added.

The purchase price of up to 730 million euros corresponds, according to Hensoldt, to a 14-fold of the expected operating result (EBITDA) of ESG for the coming year. A multiplier of this magnitude is not exactly favorable, but still acceptable.

“Ten percenter” brings in 241 million euros To finance the takeover, Hensoldt wants to take on external capital of around 450 million euros and carry out a capital increase of up to 10 percent of the share capital. The latter was placed at a share price of around 24 euros only two days after the final agreement to purchase. Within a few hours, 241 million euros of fresh capital could be raised.

However, according to recent announcements, not all major shareholders of Hensoldt participated in the capital increase. The Italian defense and aerospace group Leonardo (formerly Finmeccanica), the second largest individual shareholder after the German state with a stake of 25.1 percent, has already announced early on that it does not want to participate in the capital increase. Leonardo did not give reasons, but confirmed that it fully supports Hensoldt’s strategy.

When the major shareholder doesn’t go along Actions, as you can see here once again quite clearly, are not always the same. As a result, Leonardo has lost the blocking minority. Because by not taking part in the capital increase, its share falls below the magical 25 percent threshold. This in turn prompted the analysts of J.P. Morgan to claim that Leonardo may not want to hold on to its other shareholding in the long term.

So it wants to separate itself from its other shareholdings. That would not be so bad for the Hensoldt share, because due to the higher free float, the liquidity on the capital markets would increase.

Both companies fit together well Despite the high purchase price, the takeover could be a good deal for Leonardo, after all ESG fits perfectly into Hensoldt’s strategy and accelerates its development “as a solution provider for defense and security”, said the chairman of Hensoldt in a statement. If one looks at the business models, this assessment should be correct: ESG, based in Fürstenfeldbruck near Munich, develops and operates electronics and IT systems for security and defense. Hensoldt, based in Taufkirchen near Munich, develops sensor solutions in these areas.

Share fairly valued In terms of valuation, the Hensoldt share makes a slightly cheaper impression with a price-earnings ratio (P/E ratio) of 14, based on the profit estimates for 2024, compared to other German defense companies such as Rheinmetall (16) or MTU Aero Engines (16). However, there are also higher risks, because acquisitions only show their problems afterwards. All in all, Hensoldt shares appear to be fairly valued at the current level.