Platforms, the spearhead of Private Equity funds (EN)
Scalian, Intracto, Ardena are some of the Belgian investment platforms. The platforms, too often unknown by the public, are unlisted companies with an impressive pace of acquisitions and development.
These platforms that do not say their name
Let's start with a concrete example. Recently, we informed you that Allyum had worked on the acquisition of Nexis by Trustteam. Trustteam is a platform of the French Private Equity fund Ardian, which is developing its activities through acquisitions, the purchase of Nexis for example. Ardian also has several other platforms with the same development strategy.
To become a platform, a company must go through a transformation process, better known as “Buy and Build”:
1) A Private Equity fund decides to invest in the company, with the aim of transforming it into a platform. Often, this company is selected for its market leader position thanks to some criteria: (i) a high EBITDA margin, (ii) a reliable and experienced management team in place, (iii) an extensive geographic coverage, etc. Hence, the fund is ready to pay a premium (higher price) for a company that meets these criteria.
2) Through this company, the fund will continue to make acquisitions of other companies (called "add-ons").
3) With this expansion, growth follows. Surprisingly, according to a PwC study, companies in industries with low growth and low profitability often make excellent acquisition targets. This can be explained by 2 reasons: (i) low multiples of the industry, leading to a low valuation or (ii) a low growth of the company which can be rectified by small internal improvements generally leading to value creation.
The Private Equity fund may decide, in the long term: (i) to keep its platform (ii) to sell it to another fund or a company active in the same sector or (iii) to list the company on the stock market.
Why is “Buy and Build” positive for your business?
This type of investment strategy brings positive results at all levels.
- For the Private Equity fund:
o Value creation
o Penetration of a new market / portfolio diversification
o Higher exit sale valuation thanks to the fact that the market offers valuation multiples directly related to the size of the company
- For the platform:
o Rapid growth of the company by acquisitions (faster than organic growth)
o Increase in market share
o Improving the performance of the company via certain optimization levers such as cost reduction (synergies)
o Control of possible competitors
- For companies purchased by the platform (add-ons):
o Access to knowledge and to a network
Do you want to discover the opportunities for your business? Contact us