Teqnion vs Diploma PLC - Who's the better serial acquirer?
Some of our TDI-analysts and members own Teqnion. Our analyst Mathijs recently analyzed Diploma PLC, a UK serial acquirer in a similar industry. Who's better? And why?
To start this article off, there is at least one thing Teqnion and Diploma PLC have in common: both of them went through a big development in the past month.
Teqnion delivered its Q3 2025 results and finally managed to impress investors. Net sales grew 19%, while free cash flow increased by over 200% compared to the quarter in 2024. The stock price went up over 25% last Monday.
We’ve been following Teqnion for about 3 years now, and Diploma PLC has recently entered our radar.
In this article, we will compare Teqnion and Diploma PLC on three crucial elements for serial acquirers:
Subsidiary management
Capital allocation and
Growth strategy
Let’s start with a brief company introduction for both.
Teqnion is a serial acquirer with its headquarters in Sweden. The company was founded in 2006 and has a market cap of around €300 million. The business is being managed by co-founder Johan Steene, but chief acquisition officer Daniel Zhang plays a just-as-important role within the company. The business invests in (mostly industrial) niche companies. The total number of subsidiaries recently surpassed 35.
On the other side of the boxing ring, Diploma PLC, a serial acquirer based in the U.K. has been around longer. The company was founded in 1929, but reorganized in 1999 to the company to the one it is today. The company is led by Johnnie Thomson since 2021 and invests in three key markets; controls, seals, and life sciences.
1 - Subsidiary management
Teqnion is (mostly) decentralized, but does have a team of ‘coaches’ that help managers at subsidiaries to grow the business. Recently, the company took more control and involvement within subsidiaries, mainly due to the bad results of some of them. Here is a quote from their latest quarterly report that underscores this:
“However, what I can say is that the operational improvements that we have implemented during the year have finally started to show in the numbers this quarter. The improvements come most clearly from bettering the Sweden businesses. At the same time we have acquired better companies and the UK side of things has continued to march on steady.”
While Diploma PLC is focused on three key markets, Teqnion acquires companies in a variety of industries. Almost all of their subsidiaries are from two countries: Sweden and the U.K. Teqnion aligns the interests of its subsidiaries with the parent company by incentivizing them to grow net earnings compared to the average three prior years.
Diploma PLC is also decentralized, where subsidiaries have a high level of independency. Its subsidiaries are allowed, many times with investments from the parent company, to acquire new businesses themselves. This is called a federated serial acquirer.
An important distinction is Diploma PLC’s strong emphasis on organic growth. It’s their primary focus, seen as proof that each business is becoming stronger and more self-sustaining over time. Teqnion, on the other hand, leans more heavily on acquisitions, aiming to recover its investment within roughly five years.
The companies that Diploma acquires directly are relatively big, especially compared to Teqnion’s acquisitions. To put it into perspective, Diploma paid around €400 million for Windy City Wire, while the businesses Teqnion acquires usually generate revenues of €2-5 million per year.
Diploma typically pays 6-11 times EBIT for companies, while Teqnion isn’t that transparent regarding the price they pay for adding new businesses to their group. While we dislike this lack of transparency, we have enough trust in management to make the right decisions. What we do know, is that the acquiring price can’t be much higher compared to what Diploma pays. Here is an example that Johan Steene gave recently:
“While the Reward Catering saga clearly was a mistake, we have a few companies from the 2021-2023 cohort that are currently spitting out 33%-50% of their purchase price in free cash flow per year. The 2024 - 2025 cohort is so far also tracking towards their target but most of them were acquired so recently so there are not enough statistics.”
Capital allocation
Now, the most important difference. Diploma is applying a progressive dividend policy, while Teqnion is fiercely against paying out dividends. It makes sense, because serial acquirers mainly grow by making new acquisitions, not by paying out dividends to shareholders.
The big trick lies in buying companies for 6 times EBIT and incorporating these businesses in the parent company, that’s worth over 20 times EBIT. It’s smart arbitrage. This is what Daniel Zhang said about paying dividends:
“If we can’t find anything and have to pay out dividends, we should be fired.”
Both companies use leverage to make acquisitions. It’s a smart way to grow for serial acquirers, if executed successfully. To be able to grow your debt position, without getting in financial trouble, companies need to make sure to grow earnings structurally. This is where we see a difference. While Diploma’s net debt/EBITDA position has been stable for a long time, Teqnion is struggling here, due to its worse operational performance over the last years.
Finding a growing company, with a bright future, and the right price is important. But a healthy balance sheet is often overlooked. Why is a healthy balance sheet important? If financial institutions asses a company to be more risky, interest rates go up. So, a high net debt/EBITDA ratio decreases financial flexibility.
For any serial acquirer, the real advantage lies in being able to buy when sentiment is weak and valuations are attractive. On that front, Diploma stands out as the clear choice.
Growth strategy
Diploma focuses on organic growth and makes acquisitions both directly and via their subsidiaries. The company grew revenues with a 15% CAGR in the past 15 years, very impressive. As companies get larger, it (in theory) becomes more difficult to make acquisitions that make a difference. Nevertheless, the company still maintains their target of growing revenues 15% per year and growing EPS double-digit. History strengthens our belief that they’ll be able to reach their targets for the years to come.
Teqnion has a target to double earnings per share every five years. This translates to 15% CAGR, the same as for Diploma. It also aligns with their goal to earn their money back within five years.
The most recent quarter marked the first time Teqnion fell short of its EPS growth target. The shortfall was mainly due to several goodwill impairments. While these write-offs don’t impact free cash flow, they do weigh on reported earnings.
KPIs
Here’s a quick overview of the main KPIs for both companies, and where they diverge.
Revenue growth average 5yr:
Teqnion: 22.9% | Diploma 26.3%
Net profit margin average 5yr:
Teqnion: 7.7% | Diploma 9.8%
Return on invested capital average 5yr:
Teqnion: 11.4% | Diploma 12.2%
Looking back over the years, Diploma’s financial metrics have been way more stable and predictable. Teqnion’s earnings fluctuate more and seem to be more vulnerable.
Conclusion
Which one is the best company to buy? We get your frustration and hesitation.
Besides, we only mentioned three factors in this article. If you are interested in reading our analyses about both companies, consider joining TDI-premium and join 200+ other like-minded investors.
We won’t leave you empty-handed.
We believe that Teqnion has the most potential to win the ‘battle of the serial acquirers’ in the long-run over Diploma PLC. Furthermore, we believe both companies can have a bright future. Having said that, Teqnion also is the riskier company, especially given recent developments and impairments.
Again, if you want to dive deeper and learn more, you’re more than welcome to join our community at TDI!
The Dutch Investors