Legrand SA: Riding the Digital and Energy Transition Wave Through Strategic Acquisitions

The global shift toward renewable energy, smart infrastructure, and data-driven technologies has created a goldmine for companies positioned at the intersection of these trends. Legrand SA, a French multinational leader in electrical and digital infrastructure solutions, has emerged as a key beneficiary through a series of targeted acquisitions. Over the past five years, the company has aggressively expanded its footprint in datacenters, energy transition, and smart living—sectors critical to the $2.4 trillion global energy transition market and the booming data infrastructure economy. With its stock trading at a 25% discount to its five-year average P/E ratio, now may be an opportune time to consider this underappreciated growth story.

Fueling Growth with Datacenter Dominance

Legrand's acquisitions have been laser-focused on capturing the exponential rise in data traffic driven by AI, cloud computing, and 5G. Since 2020, the company has completed 12 datacenter-related acquisitions, including Power Bus Way (North America's leader in high-power busbars) and ZPE Systems (a U.S. specialist in datacenter networking hardware). These deals have boosted its datacenter sales to 15% of total revenue in 2023, up from just 4% in 2020.

The strategy is paying off. In 2024, U.S. datacenter sales surged by 20% year-over-year, driven by hyperscale projects and AI infrastructure demand. By integrating acquired firms' technologies—such as Raritan's power distribution units (PDUs) and Starline's busway systems—Legrand has solidified its position as a one-stop provider for datacenter “white space” (IT hardware) and “gray room” (power/cooling) infrastructure.

Betting on Energy Transition Leadership

Beyond datacenters, Legrand is capitalizing on the $1.3 trillion annual investment needed to achieve global net-zero goals by 2050. Since 2010, it has made 25 acquisitions in energy transition, from photovoltaic surge protectors (via CLAMPER) to smart lighting systems (via ENCELIUM). These deals have helped Legrand claim top market positions in 24 countries, with energy transition sales hitting 25% of total revenue by 2023.

Key wins include:
- CLAMPER (Brazil): Low-voltage surge protection for solar systems, critical for grid stability as renewables grow.
- ENCELIUM (U.S.): Energy-efficient commercial lighting that reduces buildings' carbon footprints.
- MSS (New Zealand): Cable management systems enabling smarter energy distribution in commercial buildings.

The company's 2030 roadmap aims to derive 80% of revenue from eco-responsible products and enable customers to avoid 70 million tons of CO₂ emissions—a goal underpinned by its €1.05 billion syndicated loan, where interest rates are tied to ESG milestones.

Smart Living: The Next Frontier

Legrand is also embedding itself in the $100 billion smart home and healthcare tech markets through acquisitions like Enovation (Dutch healthcare software) and A. & H. MEYER (German “power in furniture” connectivity). These deals have built a 6% revenue stream in smart living solutions, from AI-enabled lighting to assisted-living systems for aging populations.

Why the Stock is Undervalued

Despite its growth catalysts, Legrand trades at a P/E of 13x—well below its five-year average of 17x and cheaper than peers like Schneider Electric (20x P/E). This discount appears unwarranted given its:
- Strong cash flow: €750 million in free cash flow in 2024.
- High-margin acquisitions: 2024 acquisitions added €350 million in sales with margins above 20%.
- Debt discipline: Net debt/EBITDA of 1.2x, safely below its 2.0x target.

Risks to Consider

• Geopolitical headwinds: Trade tensions or supply chain disruptions in key markets like the U.S. or Brazil.
• Integration challenges: Over 30 acquisitions since 2020 require seamless cultural and operational alignment.
• Commodity costs: Rising copper prices could squeeze margins on electrical components.

Investment Thesis

Legrand's compound annual growth rate (CAGR) of 6-10% through 2027 is achievable given its:
1. Dominant market positions in high-margin datacenter and energy transition niches.
2. Sustainable innovation pipeline: 15% of sales now include embedded software, driving recurring revenue.
3. ESG tailwinds: ESG-linked financing and regulatory mandates for energy efficiency.

For investors seeking exposure to the energy transition and digital infrastructure boom, Legrand offers a rare blend of organic growth, acquisition-driven scale, and a value-priced entry point. With a dividend yield of 2.5% and a 3-year earnings growth forecast of 9%, this could be a core holding for long-term portfolios.

Recommendation: Buy Legrand SA (LR) for investors with a 3-5 year horizon focused on tech-enabled sustainability plays. Set a price target of €85/share (20% upside from current levels), achievable if datacenter sales hit 20% of revenue by 2026 and energy transition margins expand to 25%.

Stay ahead of the curve—this is a stock primed to power through the next decade of transition.