How did a 75-year-old company from rural Finland become a $1.4 billion+ (€800 million) global juggernaut?
While everyone was obsessing over tech unicorns and crypto moonshots, this unassuming sauna manufacturer from Muurame, population 10,000, has been quietly building one of the most impressive cash-generating machines in Europe.
Source: Supplied.
Harvia is the only publicly listed pure-play sauna and spa company in the world.
The numbers are frankly ridiculous:
Revenue up 16% to $308 million (€175 million) in 2024
Operating margins still sitting pretty at 21%+
Stock up 58% in the last 12 months
Market cap now pushing $1.4 billion (€800 million)
Today, Harvia serves people all around the world, helping them live healthier, happier lives.
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Background: Who is Harvia?
Harvia was founded back in 1947 when Finnish sauna enthusiast Tapani Harvia crashed a plane into an icy lake. After swimming out untouched, he sought out a sauna to try and warm up … and liked the experience.
So he got into the sauna business.
Seventy years on, Harvia is now the global leader in the sauna market.
The business listed on the NASDAQ Helsinki in 2018 and is up ~10x since IPO.
Its product range is focused primarily on saunas/heating equipment (~53% of revenue), although it does have smaller revenue streams in hot tubs (~29%), spare parts (8%) and steam products (6%).
The business has ~5% of the global sauna market, and over 20% of the sauna component market.
Today, the business is split across Europe, North America, and APAC, although North America is driving the vast majority of new revenue growth for the business, while the European business is more stable.
Source: Supplied.
Covid and inflationary struggles
Harvia really struggled during the post-Covid inflationary period.
Saunas are a consumer discretionary item – you don’t go off and spend $5,000 on a sauna if you can’t afford to pay for groceries. And that’s exactly what happened after 2021.
Due to a challenging economic climate, particularly in Europe, organic growth declined significantly, experiencing a -7.7% slump in FY22 and a further -9.4% in FY23.
Source: Supplied.
There was strong growth in North America and APAC over this time, but if your core market isn’t growing, your business isn’t growing.
The business was also affected by the Russian invasion of Ukraine over this period, forcing Harvia to exit Russia and directly contributing to (4.3%) of the total revenue decline in FY23.
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That’s always the challenge with owning a consumer discretionary business. When times are good, the business is rolling. But when times are tough, sales fall through the floor.
That being said, this business isn’t quite as cyclical as construction.
Revenue is split between: (1) new sauna installations, (2) sauna replacements, (3) and sales from component parts.
Whilst sales from new installations are relatively cyclical, replacements and component part sales are much stickier. This is because saunas used in commercial settings often need to be replaced on a 2-5 year cadence, and the component part speaks for themselves.
Management has also been conscious about growing this part of the business over time, with direct sauna sales accounting for only ~53% of revenue today vs ~80% at IPO.
Sauna growth rate vs construction market
Source: Compounding Tortoise
How big is the global sauna market?
How many saunas could these guys actually sell?
With health influencers like Peter Attia and Andrew Huberman driving the sauna craze, the market is bigger than you think.
Source: Supplied
The global sauna market is about $6.1 billion (€3.5 billion), and set to continue growing at a ~5% CAGR going forward. So, provided Harvia continues executing well, the business could see healthy high single-digit growth rates organically.
With inorganic growth in the mix, there’s no reason why it can’t keep growing in the low to mid-teens going forward.
The US market still remains relatively underpenetrated for Harvia. The US has roughly one million saunas for 330 million people. Finland has three million saunas for 5.5 million people.
Could saunas ever hit the penetration that they have in the Baltics? Probably not. But this data is very interesting nonetheless and shows that the upper limit for the Sauna TAM might be quite high in regions newer to sauna.
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Japan has also emerged as a promising growth market for Harvia, particularly since the company signed an exclusive distribution agreement with Bergman on October 12, 2021.
Margin resilience
Despite struggling with top-line growth during 2022-23, the margin profile of the business remained intact. This is always a great sign for a company, showing that Harvia is built to weather the storm of consumer confidence cycles.
The business also has as a stated performance goal to maintain >20% operating profit margin, alongside >10% revenue growth and
Source: Supplied.
Management are also very disciplined around spending.
After all, when push comes to shove, you can’t eat EBITDA. Cash flow is king.
To date, management has only made one large investment in the business in 2021 to open a new manufacturing facility in Virginia, with capex remaining relatively conservative in other years.
Source: Supplied
This has allowed the business to maintain strong free cash conversion rates >20%. Similarly, leverage ratios have remained very conservative, with net debt/EBITDA ratios of
Defensibility through brand, lock-in
How defensible is Harvia?
After all, manufacturing a sauna has got to be easier than manufacturing an iPhone. This isn’t ASML.
That being said, there is a lot to like about Harvia.
Harvia’s brand is very respected in the sauna market globally. It has won the hearts and minds of consumers as a business that has been operating for 75 years. This matters not only for customers (the direct purchasers), but also for wholesalers and installers of saunas.
Source: Supplied
Harvia saunas create customer loyalty by encouraging the purchase of Harvia replacement parts after the initial sauna purchase. This strategy effectively locks customers into the Harvia ecosystem.
Harvia is also vertically integrated – designing, manufacturing and distributing its own saunas, meaning there is a significant amount of expertise that has accumulated in-house which would be difficult to replicate.
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That being said, I don’t think any of these moats are particularly strong, and the business is potentially more fragile than others I have looked at.
M&A strategy
Harvia has pursued an intentional M&A strategy to grow its business. It acquired a range of businesses in 2021, when its stock price was booming, and moved back into acquisition mode last year, buying Thermasol.
The acquisitions generally did well, with the exception of Kirami, which struggled significantly as a pure-play hot tub manufacturer, given the consumer exposure.
These deals have helped Harvia transition into adjacent market segments and geographies.
Notably, the Thermasol acquisition expanded Harvia’s capability in the steam segment in the US market.
In the words of CEO Matias Järnefelt: “If we didn’t get Thermasol, then there wouldn’t be much left to go after”.
Source: Supplied
Today, Harvia trades on a ~21x LTM EV / EBITDA multiple, and it has shown it can acquire larger peers in the 8x-12x range, sufficient room to benefit from multiple arbitrage.
It also has ~$150 million of headroom in the debt capacity currently to support acquisitions, so expect a lot more in the coming years, with management noting three key areas for inorganic growth:
Sauna businesses outside of Europe
Sauna businesses focused on infrared/steam
Digitally focused sauna businesses
Full Acquisition Breakdown
Source: Supplied
The future of Harvia
Okay, so what is the future of Harvia then?
It has delivered a 10-bagger to date. But can it do it again?
Me calculating the intrinsic value of Harvia. Source: Supplied
Maybe.
Pre-Covid, Harvia was growing at ~4-5% (or GDP+1-2%). Since then, the business has grown on average slightly faster, although it’s unclear how sustainable this will be. In 2024, management estimated the forward-looking CAGR for the sauna market is 5%, which is the same as the trailing 5-year CAGR of 5% – suggesting the business should continue performing well, although not unusually so.
Given the global market is only $6.1 billion, I think we will start to see a ceiling on the market cap of Harvia as it continues to grow, and will likely need to start shifting more resources to inorganic growth.
That being said, this is a wonderful business with excellent management.
While Silicon Valley burns cash trying to disrupt industries that don’t need disrupting, these Finns have quietly figured out how to monetise the basic human desire to sit in a hot room and sweat.
Charlie Munger had an idea that a simple idea taken seriously is very powerful. Harvia is just that.
In a world full of companies trying to reinvent everything, sometimes the real money is in taking something ancient and just doing it really, really well.
I think Harvia can continue to compound at strong rates of return going forward.
But 21x EV/EBITDA for a sauna company is still pretty expensive for a sauna business.
This article was first published by SBO Financial.
