LEGRAND / 2018 Registration document
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GROUP OVERVIEW
A PROFITABLE GROWTH STRATEGY BASED ON DEVELOPING LEADING POSITIONS
product offerings required to provide a building with electrical and digital infrastructure. Attempts to harmonize standards to make products usable on a very large scale have failed, especially within the European Union, due primarily to the size of the investment required to replace existing electrical networks for only limited added-value. As a result, a significant portion of the electrical and digital building infrastructure product and system market has traditionally remained in the hands of small local manufacturers. This highly fragmented market structure offers solid prospects for acquisitions over the long term, with close to 3,000 small and medium-sized companies. 2.2.2.2.2 Recognized experience in growth through targeted acquisitions In the fragmented market in which Legrand operates, the Group has demonstrated its ability to identify and make mostly bolt-on acquisitions, i.e. businesses that complement the Group’s existing activities and have leading market positions. In this respect, Legrand’s country teams, which are very familiar with local market players, have an ongoing role of identifying potential targets. Of the approximately 3,000 small and medium- sized companies operating in the Group’s accessible market, 300 are actively monitored on an ongoing basis. A dedicated Corporate Development unit is then responsible for monitoring the entire acquisition process, and is specifically responsible for coordinating the work performed by the various Group teams that may be involved in the transaction. After the acquisition is completed, there follows the critical period of the “docking” of the acquired company to the Group. This is done by the country concerned, under continuous supervision by the General Management.
Growth through targeted acquisitions is a full-fledged part of the Group’s development model. Indeed, the Group has acquired and “docked” 170 companies into its scope of consolidation since 1954. In 2018 in particular, Legrand carried out seven external growth operations, enabling the Group to strengthen its positions in France (Netatmo and Debflex), the United States (Kenall), China (Shenzhen Clever Electronic), Germany (Modulan), New Zealand (Trical) and Dubai (Gemnet) (see section 2.1.1.2.1 of this registration document). 2.2.2.2.3 Financial discipline The pace of acquisitions takes account of the economic environment. In this regard, Legrand maintains a disciplined financial approach, based on a multi-criteria assessment and uses, in particular, an assessment matrix that enables it to ensure that the acquisitions complement the Group’s existing business activities and: W boost its presence in markets with high growth potential; and W are carried out on average, in compliance with its financial criteria, which primarily include: W an acquisition price corresponding to the usual valuation multiples compared with those applied to companies in the same sector or the same markets, W a positive impact on net income from the first year of full consolidation, W a value creation target (return on invested capital higher than the weighted average cost of capital) after three to five years. W increase its local market share; and/or W broaden its range of products; and/or
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2.2.3 – A business model creating long-term value
R 2.2.3.1 A MODEL BASED ON PROFITABLE GROWTH
example, electrical installers tend to favor market-leading products that can be installed efficiently (safety, quality, reliability, and ease and speed of installation) and offer the qualities expected by end- users (functionality, design and ease of use). This is one of the reasons why, every year, Legrand makes research and development investments averaging long-term 4 to 5% of its sales, ensuring a steady flow of products with new features and designs responding to customers’ needs. By continually building more added value into its products and solutions, Legrand reinforces brand loyalty among electrical installers, product specifiers and end-users, enabling the Group to expand its numerous leadership positions.
2.2.3.1.1 A market characterized by solid economic fundamentals On a global basis, Legrand’s accessible market is characterized by a relative lack of offering commoditization, and by a very diffuse flow of business from hundreds of thousands of electricians. These electrical installers, product specifiers and end-users pay considerable attention to products’ technical features. Thus, for
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LEGRAND
REGISTRATION DOCUMENT 2018
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