Equity research, Candles Scandinavia: Unlocking shareholder value through a sizable strategic acquisition

Candles Scandinavia AB (“Candles” or “the Company”) is a leading manufacturer of sustainable scented candles and home fragrance products. Headquartered in Örebro, Sweden, the Company is recognised as a prominent large-scale producer of scented candles made exclusively from plant-based, biodegradable wax, primarily derived from locally grown rapeseed oil.

Following a strong third and fourth quarter, Candles reported net sales of SEK 179 million for the fiscal year 2024/2025 (May 2024 to April 2025), reflecting flat year-on-year growth. EBITDA improved markedly to SEK 4.2 million, compared to a loss of SEK 4.3 million in the prior fiscal year. This solid performance was achieved despite production ramp-up challenges and wider industry headwinds.

Unlocking value through vertical integration and D2C Growth

On Thursday, 24 July 2025, Candles announced that it had reached an agreement to acquire 100% of the shares in HashtagYou GmbH, a German direct-to-consumer (D2C) company specialising in home fragrances. According to the press release, HashtagYou has a recurring customer base of approximately 500,000 across Germany, France, and Italy. The company primarily markets its two brands through influencer-driven campaigns across various social media platforms. The acquisition is expected to be completed with financial consolidation taking effect from 1 August 2025. The acquired company is projected to contribute annual revenues of approximately SEK 250 million(!), with an estimated EBITDA contribution of SEK 40–45 million within one year following the acquisition date.

More than doubling revenue and a strategic transformation

Through the acquisition, Candles will not only more than double its revenues and strengthen its margin outlook but also undergo a significant strategic transformation. This by establishing a new business division focused on Own Brands, anchored by the direct-to-consumer (D2C) labels AVA & MAY and Club Noé. This move enables full value chain integration, providing Candles with end-to-end control over manufacturing, branding, and direct sales. The transaction is expected to deliver substantial operational synergies, with annual cost savings contributing to the projected EBITDA contribution.

These efficiencies are expected to be realised through in-house production at Candle’s existing facility, the utilisation of a shared marketing infrastructure, and the integration of HashtagYou’s scalable digital platform. The platform’s advanced functionalities in influencer management, customer relationship management (CRM), and real-time campaign optimisation offer a robust foundation for efficient market expansion and the launch of new products.

Solid outlook for margin-accretive growth

The organic growth outlook also strengthens significantly, supported in part by HashtagYou’s scalable digital infrastructure and client base, in combination with the current unused capacity at Candle’s production facility. The combination enables the execution of future product initiatives without the need for substantial additional investment. This setup provides a strong foundation for cost-efficient, margin-accretive growth.

Pricing reflects the risk associated with the projected contributions

The transaction is structured with an up-front consideration of SEK 90 million, of which SEK 83 million will be settled through a promissory note to be offset against newly issued shares. The remaining SEK 7 million will be paid in cash. Notably, the new shares issued to offset the promissory note will be priced at SEK 65 per share, representing a substantial premium of approximately 80% compared to the pre-announcement closing price (23 July 2025) of SEK 36.10. One way to interpret the pricing is that it reflects both management teams’ confidence in the synergies and the long-term value expected to be realised through the acquisition. Another way to interpret the pricing is that there is risk associated with the projected contributions from the acquisition.

In addition to the up-front consideration, the transaction structure includes an earn-out component of up to SEK 56.7 million, payable in newly issued shares, cash, or a combination thereof, depending on the achievement of agreed performance targets. Including the earn-out, the implied valuation of HashtagYou on a debt-free basis corresponds to a projected sales multiple of approximately 0.6x and a projected EBITDA multiple in the range of approximately 3.3x to 3.7x.

At first glance, the implied valuation multiples, including the earn-out component, appear reasonable, particularly given that profitability from HashtagYou’s operations is expected to be primarily driven by synergies. At the same time, the risks/uncertainty associated with management’s projections for future profitability and revenue contribution have also in a way been mitigated by structuring a significant portion of the total potential consideration as an earn-out. Furthermore, the newly issued shares are being offered at a substantial premium, which may reflect both a prudent approach to managing previously mentioned uncertainty as well as confidence in the long-term value creation potential of the transaction.

Carlsquare Equity Research intends to resume coverage of Candles with an upcoming research report, which will include additional commentary on the acquisition, updated financial estimates, valuation analysis, and other relevant insights.

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