On Dimitars incentives and Schneider Electrics bid on Shelly Group.

Looking at the official statement from Shelly Group and a more customer oriented note on Facebook from Dimitar himself we can conclude a few things.

• The deal will allow Wolfgang Kirsch and Svetlin Todoro (Salisto Holdings)  to cash out on their holdings.
• Dimitar Dimitrov will reinvest some of his sales proceedings to retain a minority ownership in Shelly Group.
• There is a promise from Schneider Electric that Shelly Group will keep operating as an independent company but with substantial support and collaboration from Schneider.

I am not surprised to see Wolfgang and Svetlin seeing this as an opportunity to cash out and do something different in their lives while securing generational wealth. At the same time, Dimitar who is more of an intelligent fanatic can, at least in theory, maintain his role and vision but within a corporate structure where he does not need to worry about the stock market. So I can see the personal incentives for each major stakeholder in the deal. Therefore I do not think that acceptance of the deal indicates that these people no longer believe in the future of Shelly Group.

The question is now whatever independent shareholders want to accept this deal. We live in uncertain times and Shelly Group remains a relatively new and unorthodox company coming from Bulgaria, so I think it is hard for international investors to break out of valuation window of P/E 30-40 for the coming years profit. Which is insane if you dare to extrapolate current growth and cash flows more than 1-2 years ahead. On the other hand it is also hard to imagine paying less than that for a company with such growth prospects, so I consider Shelly a company with an exciting development profile but boring valuation until we (presumably) one day hit a ketchup effect where people start seeing a European growth company rather than a Bulgarian micro cap.

So my back of the envelope calculation is that a valuation of P/E 30e in the current year is a "neutral" valuation (ie 900 meuro) and that I would then expect a valuation increase of 30 % per year past this coming from organic growth with relatively stable margins. This means that if the currently proposed deal goes ahead, minor shareholders will cash out at a valuation which we could otherwise expect to see roughly one year from now. Personally I don't see a lot of companies with an equivalent growth profile and verified business model as Shelly. I also strongly suspect that Schneiders strategy is the usual of capitalising on previous unrest, make a lowball offer and then increase the offer a bit to make people feel that they have won. So the question is really if I can get paid my expected valuation 1, 2 or 3 years ahead of time with the final offer from Schneider Electric and I think anything less than 3 years ahead is a loss for me as a rational shareholder even if I for personal reasons got stronger incentives than usual to cash in early (I got a house purchase coming up and will either need to sell Shelly, IT consultant Arribatec or oil companies). 

I do however think that the current offer is both a disservice to early private investors in Shelly and that Dimitar is getting himself into trouble by getting stuck in the Schneider corporate structure. Swedish investors are well aware of how Schneider completely failed to capitalise on Plejds market leading knowledge in smart lighting systems and I think the main lesson learned from Schneiders side is that they want to have more control over their next investment, which Dimitar is now giving them. 

Swedish finance profile and entrepreneur Petter Hedborg (@PCG_H) yesterday offered to bet 10 dimmers on that Dimitar Dimitrov will have left the company within 24 months of the deal closing. To anyone who has listened to Dimitars conference calls and got any knowledge about Schneider Electrics corporate culture this definitely does not look like a bet you would want to take.

Dimitars message on Facebook:

A personal note from Dimitar Dimitrov, co-founder of Shelly — on the Schneider Electric offer and what stays the same

I have been reading your comments here and in the other Shelly groups over the past days. Some of you are worried, and I understand why. Many of you have seen what happens when a small company you love is acquired by a large one: the website changes, the documentation disappears, the registration stops working, support becomes a ticket number. So let me answer the actual questions, one by one, as the person who founded this company and who continues to run it.

First, the most important thing.

Whatever happens with the announced offer, the way Shelly works does not depend on it. Local control, open API, no cloud dependency, the same team building the products and answering you here — this is not a promise tied to a deal. It is how we have always built the company, and it is how we will keep building it.

Who runs Shelly?

The same people as today. I stay, the whole management team stays. The engineers who write your firmware, the people who answer you in this group, the team in Sofia — all of them stay. Shelly remains a separate company with its own team, its own brand and its own products. If the offer completes, Schneider Electric would become our long-term partner and shareholder, supporting us to do more of what we already do — not to do something different.

Why does Schneider Electric want Shelly?

Because of what Shelly is, not despite it. The interest is in the community, the open approach, the speed and the products you already know. Changing that would make no sense for anyone — least of all for a partner who values exactly these things.

Local control, open API, no cloud dependency

This stays. Your devices keep working locally, without cloud, without an account, with the same open local API, MQTT, webhooks and integrations with Home Assistant, openHAB and everything else you use today. Nothing about how your devices work in your home changes.

Website, documentation, knowledge base, firmware

These are ours and we keep running them. Same documentation, same knowledge base, same release process, same firmware team. We are not migrating you to someone else's portal.

Support

Same team, same channels, same people. This group stays. I will keep being here.

What actually changes for you?

Honestly — nothing you will notice. What we hope changes over time is that we can build more products, faster, and bring Shelly to more countries and more professional installers. That has always been the plan, and a strong partner can help us get there.

I know that words are cheap and that you have heard "nothing changes" before. So judge us by what we do: the firmware releases, the new products, the answers in this group. That is how Shelly earned your trust, and that is how we intend to keep it.

Thank you for caring about this. It means you care about Shelly, and that is exactly why we are here.

Dimitar Dimitrov

Founder & CEO, Shelly Group