A Smörgåsbord of Access Systems
A Research-Driven Spotlight By Compounding Academy
In a noisy world, we prefer companies that compound steadily in the background. With deep Swedish roots and over 300 acquisitions, Assa Abloy has built a true smörgåsbord of access solutions — spanning mechanical locks, digital credentials, biometric entry, and more.
It’s exactly the kind of business that fits our process.
This is a company with global leadership in access solutions — from mechanical locks to smart digital entry — and a long runway ahead as buildings, security, and infrastructure become smarter and more connected.
We’ve revisited the case following recent results, and it remains one of the clearest examples of quality compounding in a fragmented global industry.
Assa Abloy makes the locks, openings, access cards, and security systems that quietly power the modern world.
Whether it’s a hotel key card, a secure door in a hospital, or a smart lock on your front door — there’s a good chance they’re behind it.
They’ve stitched together a global network of trusted brands, covering everything from mechanical locks to cutting-edge biometric and mobile solutions.
It’s a classic example of a company that’s essential but rarely in the spotlight — and that’s exactly what we like.
The company has delivered a 10% compound annual growth rate in sales over the past 15 years – around 4% organic and the rest through consistent, bolt-on acquisitions.
It combines its huge scale with local agility, driving high returns on capital. Its ability to sustain strong margins while reinvesting in innovation has made it a standout compounder.
Urbanization continues to accelerate — with 70% of the global population expected to live in cities by 2050.
Yet many buildings still rely on outdated access systems. This aging infrastructure presents a clear opportunity for retrofits and smarter, more secure upgrades.
Meanwhile, the smart lock market is growing at 20% a year, driven by rising demand for connected, intelligent access solutions.
Around 65% of Assa Abloy’s sales come from the aftermarket — servicing, replacing, or upgrading installed systems. This provides recurring revenue and buffers the business against construction slowdowns.
Switching suppliers is rare. Installers tend to standardize on one ecosystem across hinges, plates, frames, and locks to ensure reliability and compatibility. Changing brands to save a few dollars often isn’t worth the risk, especially when margins depend on completing jobs efficiently.
Assa’s local manufacturing footprint further strengthens its position. In many key markets like Scandinavia, it can deliver custom doors within 24 hours — a level of service most global competitors can’t match.
And finally, pricing power. With high customer retention, long-term contracts, and premium positioning on many products, they’re able to defend margins even in a rising cost environment.
During the lockdown-induced supply chain disruptions, margins expanded by 200bps, and a similar dynamic could play out with tariffs in many markets. The business generally benefits from inflation, thanks to strong pricing discipline and recurring demand.
This dynamic is visible in the chart below:
Assa Abloy’s core markets grow steadily, but its strongest opportunities lie in the structural shifts reshaping access control.
The biggest is the move from mechanical to electromechanical locks and digital access systems where penetration is still below 20%. This shift enables recurring software revenues, higher margins, and deeper integration into smart buildings. Assa is gaining share here through both R&D and targeted M&A.
Its software and services segment is growing over 20% annually, driven by cloud-based access management and connected solutions in commercial and residential settings.
Green construction is another tailwind. In Europe, green building specifications are growing at 12%, outpacing the broader construction market.
Assa’s energy-efficient doors and automated entry systems are well positioned to meet rising environmental standards.
Finally, the smart lock market is expanding at 20%+, supported by urbanization, security concerns, and increasing consumer adoption of connected home tech.
These trends give Assa multiple ways to grow — without relying on economic cycles or volume-driven expansion.
Assa Abloy has executed over 300 acquisitions since 1994, averaging 20–25 bolt-ons per year. These are typically small, strategic deals — often regional specialists or tech players — acquired at 1–2x sales. The focus is on fit, not financial engineering.
Integration is disciplined. Management looks for payback in 5–7 years, and only pursues targets where synergies are clear. Recent acquisitions have expanded capabilities in smart locks, digital credentials, and energy-efficient access systems.
R&D spending increased since CEO Nico Devaux took the helm, and has held steady at around 4% of sales. Investment is increasingly directed toward software, sensors, and connected platforms — where the returns profile is often higher.
Incentives are tied primarily to earnings growth and margin targets. While ROIC is not a formal KPI, return discipline is embedded in the culture, with a focus on capital efficiency and preserving flexibility.
This balance of reinvestment, acquisition discipline, and cash generation supports the long-term compounding story.
We favor businesses with strong free cash flow and balance sheets, as this makes them front footed and resilient during tough times.
Assa Abloy consistently converts over 100% of its net income into free cash flow, giving it strong flexibility for reinvestment and M&A. This reliability of cash generation is critical in a capital-intensive, globally distributed business.
Leverage is at the higher end of its historical range – net debt/EBITDA is currently ~2.3x due to heavier acquisition activity. But this remains well within manageable levels and is supported by stable margins and cash flow conversion.
What stands out is how this balance between cash generation and conservative leverage has enabled Assa to fund steady bolt-on M&A, reinvest ~4% of sales into R&D, and maintain resilience across cycles, all without overextending the balance sheet.
Cyclicality in construction: While the aftermarket softens the blow, parts of Assa Abloy’s business are still exposed to new build cycles — particularly in residential markets like the Nordics and the US.
Integration risk: With 20–25 acquisitions a year, execution discipline is critical. Larger deals — like the acquisition of HHI — can weigh on margins in the near term, even if the strategic logic holds.
Digital security expectations: As more products become connected, cybersecurity is an increasingly material risk. A major breach could impact trust and adoption of smart access systems.
China: Now reduced to ~2.5% of group sales, China is no longer a growth engine, but remains relevant for manufacturing, innovation, and long-term optionality. Exposure is limited, but not immaterial.
At the time of writing, our base-case Discounted Cash Flow suggests an intrinsic value of SEK 325 per share, implying a modest upside of around 8% from the current share price.
We focus on long-term business quality over short-term moves, but valuation still matters. Our process helps define what we’re willing to pay for durable compounders like Assa Abloy.
We’ll be sharing our full valuation methodology and assumptions separately for premium subscribers.
In the coming weeks and months, we will share our full valuation methodology and latest portfolio including detailed assumptions, entry points, and any position changes — exclusively with premium subscribers at the $159 tier, who benefit from the depth of our five decades of experience.