DBAG’s deal machine is running well

Following the acquisition of MAIT, the dry powder of the DBAG Fund VIII should have decreased to roughly 40% of the funds € 1.1bn volume.

MAIT is a well-established IT services provider focused on the digital transformation needs of the Mittelstand in the DACH region. The company integrates enterprise resource planning (ERP), product lifecycle management (PLM), and IT infrastructure services, with a focus on industries such as machinery, electronics, and manufacturing. Over the past several years, MAIT has expanded both organically and through a series of strategic acquisitions, growing to € 200m annual sales (vs. € 60m in 2018) with large parts being of recurring nature.

This acquisition fits squarely within DBAG’s strategy of acquiring high-quality, cash-generative businesses with room for operational improvement and attractive long-term growth prospects. MAIT adds further exposure to the digitalization trend in Germany’s SME sector, a market that remains underpenetrated in areas like PLM and data integration. Importantly, this deal strengthens DBAG’s position in software and IT services, which now accounts for a growing portion of its portfolio (>20%). MAIT’s recurring revenue base and strong customer retention also contribute to greater visibility in future earnings and valuation upside. As MAIT has substantially grown through consolidating its markets (24 successfully integrated acquisitions) and considering DBAG’s dry powder, one should expect further add-ons during the short- to mid-term, in our view.

At the current share price, we continue to regard DBAG as undervalued with shareholder-friendly capital allocation. Mind you, the company has still roughly € 13.5m of cash committed towards buy-backs while also offering a € 1.00 per share base dividend per year (currently 4.1% yield). Successful exits and the related increase in net income from investment activity could allow for additional special dividends and/or a continuation of the buy-back program, in our view.

We hence confirm our BUY rating with an unchanged € 39 PT based on SOTP (DCF for Fund Services + discount to our NAV per share estimate at year-end).