Precia Molen (2)
A compounder that punches above its weight. Part 2: a short history of a successful business model.
As mentioned in our previous article, Precia’s predecessor company dates back to a scales maintenance and installation workshop created in 1887. The founder’s grand-son, Jean Escharavil (shown in the picture below), officially incorporated Precia in 1951 and started manufacturing scales and weighing equipment under its own brand. Soon enough, the company became a leader on its domestic market, went public on the French stock exchange in 1985 and acquired its Dutch competitor Molen in 1993.
But the nineties turned out to be a rough decade and the integration of Molen proved more difficult than anticipated. Precia lost a combined €8m in 1996 and 1997. A cash injection from its owners in 1998, the support from its bank group and a stringent restructuring led by then-CEO Francois Thinard helped Precia eventually weather this crisis and return to profitability. The company was also reorganized into 3 divisions: equipment, services and international (the latter representing only 12% of the €61m in revenues at the time).
Following this near-death experience, the business model was clarified further. Precia would continue to sell industrial equipment but would leverage its installed base (as well as that of its competitors) to provide higher-margin services and maintenance while also going global. Hired in 2004 as export manager, René Colombel (shown in the picture below), who took over the CEO role from Thinard in 2010, has been instrumental in executing this strategy.
Some competitors in the industrial weighing equipment sector have achieved a critical size similar to or larger than that of Precia. That said, most (except maybe the biggest, Mettler Toledo) largely remain domestic or regional players with often a focus on a few select industries. In this fragmented environment, Precia has acted as a consolidator, acquiring small local players in various countries to expand its servicing/sales network coverage while minimizing integration and execution risks. Combined with its other long-established competitive advantages such as a strong focus on R&D, innovation, quality of service and certifications across industries as a provider of compulsory legal metrology services (which represents a high barrier to entry), this approach has led Precia to become a top 5 global player with an international presence and leading positions in the agri and resources industries.
In France, it has acquired Antignac, Le Barbier, Epona, 3P, Salbreux and Jac Pesage since 2014. It now boasts 53 servicing locations and a 50% market share. Internationally, it has expanded on all continents organically or through acquisitions, overall successfully (especially in India, more recently in Lithuania and in Africa where it acts as a sole supplier in some countries). Although some subsidiaries remain to break even (Australia, Poland, UK), the management has identified the key issues and has taken steps to fix them.
As a result, Precia now generates ca. 40% of its revenues outside France, 50% in services and has 12 manufacturing / assembling sites (including 10 which are located overseas). It is also a preferred equipment and services provider to some of the most visible names in a wide and unmatched range of industries and across geographies. The company’s management considers that 70-80% of its total revenues are recurring (maintenance, legal metrology, repeat/replacement business...) with no client representing more than 2%.
From 2014 to 2019, Precia has also reaped handsome financial rewards from this strategy with an average revenue increase of 7% p.a, split almost evenly between organic and external growth, and improved EBITDA margins (from 10.7% to 13.2%).
Next time, we will delve deeper into Precia’s recent operating performance (including that of its subsidiaries) and acquisitions. In the meantime, thanks again for signing up and feel free to talk to your friends / fellow investors about our Substack. You can also reach out by email or by DM on Twitter @FRValue @FoxCastlehold. Have a great week ahead.
Disclaimer: The above article constitutes the authors’ personal views and is for entertainment purposes only. It is not to be construed as financial advice in any shape or form. Please do your own research and seek your own advice from a qualified financial advisor. The authors may from time to time hold positions in the aforementioned stocks consistent with the views and opinions expressed in this article. Disclosure – we hold a position in Precia Molen at the time of publishing this article (this is a disclosure and NOT A RECOMMENDATION).