Desmi, a Danish flow-technology company backed by One Equity Partners (OEP), is working with Carlsquare to undertake acquisitions of EUR 30m-EUR 150m, CEO Humphrey Lau has told Mergermarket.

There is a “high sense of urgency” to transact, though Desmi has a 24-month window to complete its M&A plans, Lau added.

Its hunt is largely focused on US and European targets, he said. Given this geographical targeting “it is not a coincidence we have picked Carlsquare to work with,” he added.

Desmi began screening the market with Carlsquare in spring 2024, Lau said.

At the EUR 150m end of its target valuation range, the company could consider a single, transformational transaction to cement its ongoing transition from a largely marine-focused pumps provider into a major flow-tech player, he explained.

“It would be desirable to do the trick, so to say, with one bigger company,” Lau said.

However, Desmi would be happy to undertake a series of bolt-ons at the lower end of the target valuation range that drive the company towards its diversification objectives, he said.

For these more modest bolt-ons, Desmi would be able to handle much of the financing at its level, though OEP has also “reserved a significant amount” of capital at the fund level to support acquisitions, Lau said.

OEP bought its majority share in Desmi via its 2021-vintage One Equity Partners VIII fund, according to the portfolio company’s 2022 annual report.

In addition, Desmi would also look to “financial institution, bank related financing”, he added, without specifying further.

The company is in dialogue with private equity-backed and family-owned companies, including “very early” stage talks involving potentially transformative acquisition targets, and discussions that are “progressing and maturing” with possible bolt-on candidates, he said.

Desmi would welcome sellside approaches that are relevant to its acquisition criteria, Lau added.

Diversification drive

When OEP took a majority stake in Desmi in 2022, more than 80% of the portfolio company’s business was in its vessel-focused Marine segment, focused on pumps, ballast water tanks and other solutions.

Having spent 14 years at fellow Danish pumps group Grundfos, Lau joined Desmi in December 2022 with what he dubbed the “strategic dream” to scale his new home into a multichannel flow-tech player.

Marine will remain critical to the company’s strategic positioning, but the vision out to 2028-30 is – through organic and inorganic development – to see this segment represent less than 50% of the group’s business. Lau said.

To this end, Desmi is focused on pumps as its dominant speciality, but is pursuing a much larger set of customer verticals. Diversifying the offer will ensure the business is futureproofed, without “all our eggs in one basket”, he said.

Desmi’s M&A drive consequently focuses on diversification, building on the company’s Industry, New Green Solutions, Aquaculture and Defence verticals.

Ideal targets will substantially broaden Desmi’s product lines and applications capacity, Lau said. The Industry vertical is a particular focus and is drawn deliberately broadly, he said, incorporating process industry and light industry, among other segments.

Takeover candidates will have a strong engineering department able to master pump and equipment specifications, but more importantly will also excel in designing specific solutions for industrial customer needs, embedding solutions into their workflows, he said.

Ideally, targets will also have access to manufacturing outside of their home territories. Desmi itself has manufacturing capacity in China, India, the US and Denmark.

Such targets would also have well-oiled go-to-market strategies and talent, with salespeople speaking “the right language” for the customer relationships the company would be seeking to acquire, Lau said.

At present, the geographical split of Desmi’s business is roughly 50% Europe, 30% Asia and 20% US. “We are underserving the American market,” Lau said.

With that in mind, takeover candidates may be US players with potential to grow in Europe, or European companies with strong North American presence, Lau said.

Cultural fit

Lau emphasised the importance of business culture in yielding value from any possible transactions.

Among potential targets Desmi has spoken to, one leading profile would be companies that generate EUR 50 to EUR 100m in revenues, with perhaps more family-owned players at the lower end of that range, he said.

For the latter group, the company might be second or third generation-led, reaching an inflection point, with “good product, good applications, within an industry we are not in” – but still reluctant to sell to a giant player, he said.

Such companies “typically complement very much what we can offer”, Lau said. They often have good product and application knowledge in their geographical reach, but Desmi can provide “seasoned and experienced global management” to support acquisitions in strategising and further developing their business.

Such family-owned companies are potentially fearful of being subsumed or seeing the axe fall on swathes of jobs, and they represent a plausible route for Desmi to build its diversification, he said.

Lau illustrated his group vision and approach to culture with a metaphor. “My vision is to build a supermall. If you can imagine, a mall with different shops but with a common infrastructure of sales [and] where you can still keep your specificity and your competencies.”

Referencing the 1998 romantic comedy You’ve Got Mail’s will-they-won’t-they tension between an executive at a bookselling chain and the owner of a smaller independent, Lau noted that by the end of the film, the neighbourhood outfit had been reimagined as a pop-up within the larger store.

“I think this is a wonderful analogy for what we are actually trying to build,” he said.

In May 2024, Desmi posted FY23 revenues of DKK 1.954bn (EUR 262m) and EBIT of DKK 243m, at the time outlining its ambition to double revenues by 2028.

The company’s board meeting in late December was “satisfied” with the company’s 2024 progress, Lau said, adding there had been a very solid end to the year, although declining to detail its FY24 financials.

Questioned on whether 2028 represented OEP’s investment horizon, Lau noted “most private equities are looking into a holding period of between four and six years and I think it’s no different from OEP”, while adding that opportunistically selling at the highest value can never be ruled out.

He also did not discount the possibility of a continuation vehicle solution, should OEP still see value to unlock at the end of its investment horizon.

“It really is a case-by-case thing,” he said, adding Desmi is watching the development of the continuation-vehicle space “very, very closely”.

“Let’s say we would only get a very good acquisition in 2026 or maybe even early in 2027 and we can see we can positively do […] synergies and so on by spending one or two more years. I’m sure our shareholders and board of directors would be open to looking at that,” Lau said.

Founded in 1834, Desmi is one of the oldest limited companies in Denmark. Following OEP’s majority buyout in 2022, former CEO and current board member Henrik Sørensen remains a minority shareholder, Lau said.

Desmi has 1,100 employees; 400 in China, 300 in Denmark and the remainder spread over more than 20 locations globally.