Buyers and Builders
00:18:30 · Felix Jander
[00:18:30] S1: So I would say general answer to this topic is it depends a lot how mature your market is in terms of M and A. What we had back in the days with occupational health is a very immature M and A market. So they had hardly seen any offers of any competitor nor any M and A broker. There is some other markets in Germany for instance dentists. Every dentist has received at least five to 10 letters if the dentist is in a certain size and so they know what EBITDA is, they know the multiples, have an understanding of net debt and so on and so forth. So our market was very uneducated. So when you do this organic outreach what we first did is kind of educate them a bit like look this is evaluation this is how we would do it we wouldn't pay everything up front we want to delay some components of the purchase price so there was a lot of education part to it and there was also a lot of you don't need let's not call it waiting but patience. So because you hardly hit anyone that is exactly at that point where they tell you okay I want to sell my company within the next four months. That is the key advantage of M and A brokers. There you know the deal is actionable. When you do organic outreach you have to go their pace and you have to be there at the point where they think of selling the company but often you reach them at a point where they didn't think about it yet or are not super keen on selling within a short time frame. And so you need to be patient as well and wait for them that it's the right time. So what we often did is we did a meeting, did a first meeting, we explained our concept, our vision, how valuations work sometimes we also dropped some numbers but we didn't do that with many targets and then we told them look we would be really interested in taking this further if you're ready then let us know then we do evaluation we sign NDA we look at your financials and then within five days we can tell you where we are like ballpark numbers. And some of them reached out to us two months later and told me yes, have a look at this, some of them right away and some of them like two years later.
00:20:41 · Mikk, Felix Jander
[00:20:41] S0: And let's talk about the first acquisition, because after this one, nothing will be the same when it comes to confidence and actual belief that we can do that. So tell me about the first acquisition. [00:20:53] S1: So it was actually too small, our first acquisition. Know everyone told us you need a nucleus that is sizable enough that has like 1,000,000 EBITDA or more. So and then our first acquisition was like 350,000 EBITDA so actually way too small. Yeah but we were so keen on the market that we figured okay let's do it anyway. Know when a transaction is actionable then you also either you do it or someone else does it in the end. So we decided to do the first and it was a pretty cool doctor's practice in Hildesheim, that's in Lower Saxony in Germany close to Hannover. And it was small. It was like three, four doctors only plus like seven, eight other employees. So that's totaled it to 11 maybe, which is shockingly small for a small deal. But we had a very good relationship to the seller, to the founder of the company. And together with him and also his successor was quite a good deal. [00:21:54] S0: What was the story from the first acquisition to five acquisition and from which one you started using DEBT? Because I guess in the first two, three, four acquisitions, it's not very clear yet. And you can maybe share more about the DEBT side of doing this.
00:22:09 · Felix Jander
[00:22:09] S1: I mean, first acquisition is the hardest. That's also why we decided to do it, even though it was a small company. Because then you have a story to tell, right? So it's not only PowerPoint slides that you're going to share with your next seller, but you can tell them, look, talk to this guy. He has always sold to us. He can give you a proof point that we trustworthy guys. We we pay the purchase price, which is also often a fear when people see you first that you can't pay. Yeah. That's that's that's reality that many people apparently don't say they have the money but then they don't. Yeah and so the second and the third acquisition was easier and then after the third acquisition you're already a group of companies and then you can actually visualize your vision of like ah yeah we're going to have some central HR function and some central recruiting and then they're going to help you with recruiting doctors which is a big issue for everyone in the market. The story got tangible and that helped us a lot. To your question, so the first deals we did all equity which I would also in hindsight do exactly the same way. And then we did a debt financing together with a debt fund because so there's two reasons. So first of all, it's speed. So when you do the first deals on equity, then obviously faster than if you negotiate with a bank every single time. And secondly debt funds funds debt or specialty debt is absolutely preferable in my point of view. Yes you might pay like an additional seven eight bips of interest but you can make it a 100% bullet and that's super super helpful when it comes to cash flow because you don't have amortization of the loan over the years. So you can use the cash flow for one or two more acquisitions and that in the end gives you way more IRR than these. Let's total it to 10% interest. And so speed plus debt fund debt is the two reasons and debt funds only start up from a certain size. So you need 2,000,000 to $3,000,000 EBITDA to have such a debt package and that's basically the reason that's also how we did it. So we did I think four to five acquisitions then we did the debt funds financing on the holding and we also did a recap. We got some additional debt for the deals that we already made. The sixth and seventh deal was kind of 100% debt financed, so to say. And that played out pretty well for us.
00:24:38 · Mikk
[00:24:38] S0: Building and growing Arsipa, you were an entrepreneur, you were not an investor. So you and Stefan, something you've said as well, these companies are built operationally. These are the people we are looking for. And so you were the person there. So how was your day to day look like when building all this?
00:24:57 · Felix Jander
[00:24:57] S1: I mean, year one was a lot of M and A to be quite frank. Yeah. So meaning M and A actually it's more kind of sales. Yeah. So you need to sit in the train and travel around and meet everybody in the market. I think in the first year in the first twelve months, we had like, I think seventy eighty on-site meetings. It's a lot when you think about that you have to travel all the time and then for every on-site meeting you need to have like three to four calls up front and it switched once we had like two to three companies like we're the third company that's when we started hiring someone for finance centrally and HR centrally and that's when we actually started building up central functions and what we first did is like creating a central setup so to say. So we consolidated finance using one tool which is called LucaNet. In Germany it's a controlling and consolidation tool which helped us to have like a real time view on cash to have all our finances consolidated but also to track some KPIs based on company level. So that was super important. And with HR what we did is we got all employees into one system called Personio and then we started recruiting centrally for as a service for the subsidiaries. As I mentioned earlier recruiting in our market is super big topic because you don't have many doctors with that specialty in occupational medicine they're rare to find or very old. So you need to be super good at recruiting in order to get the best profiles and that's where we started. Then it got a little bit more entrepreneurial and building it up, building it up. Then let's zoom in again at a status where we were at like 15 companies. There we were like three hundred three fifty employees and we had a team of 15 to 20 employees centrally and the biggest two teams was HR. We had like out of those 20 I think seven eight were recruiting. So in order to recruit the doctors because we needed the doctors to achieve more sales. That's pretty basic. So with every doctor we could take in some more clients and there was a prerequisite for growth. The others were quite evenly split between let's call it a value creation team. They did a lot of pricing initiatives, M and A and finance.
00:27:11 · Felix Jander, Mikk
And then you get like two let's say three employees each and that's also where it got more entrepreneurial so to say and especially with that value creation team there we did like deep dives into every company. So we went to Hildesheim because I mentioned it earlier and did a pricing project there. Or we went to Hamburg and we consolidated three companies together. And those projects that was like the most entrepreneurial work I would say because there we went really into the company. Actually me myself I also went with the value creation team if it was a strategic project into that company And then we spent there every week, like one day and did pricing. [00:27:52] S0: Now you and Stefan, what were the roles, strengths and weaknesses when building all those? Because there were those different phases and there were obviously phases, which you haven't both of you haven't experienced before. So how did you go through this and which time you know that, okay, it's better for you to do this, it's better for you to do that?