This €1.5bn transaction, valued at 0.75x revenue and 15x EBITDA when including Dahl's lease liabilities in the enterprise value calculation, represents a significant undertaking for Kesko, even though the resulting synergies appear as obvious as they are natural.

Kesko is a group that has lacked growth: adjusted for inflation, consolidated revenue has actually declined over the last decade. Generally conservative regarding M&A, with only €1.3bn invested in external growth over ten years, the company remains well-managed, characterized by a strong culture of stability and cost-consciousness.

Cash generation remains healthy and debt levels are kept under control. This financial discipline has enabled the group to increase its dividend payouts by half over the last decade, including, like many other European construction players, special distributions during the pandemic.

The Finnish group currently trades at a market valuation equivalent to 14x trailing 12m EBITDA, or about the same multiple it is paying to acquire Dahl. At its current scale, Dahl generates revenue equal to 1/6 Kesko's total revenues.

However, between 1/3 and 1/2 of the acquisition cost will be funded through a capital increase. This move clearly displeases the market, regardless of promised synergies, especially since leverage will rise further, pushing the solvency ratio back towards its historical ceiling.

The announcement also suggests that an EV of near 15x EBITDA is perceived as fair, if not generous, for a distributor of construction equipment and materials. This valuation benchmark will certainly not go unnoticed by analysts covering the sector, or Kesko's European peers.