Buyers and Builders
00:40:08 · Mikk, Felix Jander
[00:40:08] S0: Now before let's talk about this area of before selling. I want to talk about the integration and the culture part. You giving like a sort of masterclass of I don't want you to teach. I want you to do what you did and what you experienced. And in that way, hopefully this being helpful for folks listening, because you've seen a lot that not too many people have been to do that. So when it comes to integration, building culture, what would you say? [00:40:39] S1: I mean, takeaway is start early. So we start with a second or third deal, right? And you should start right away with the first deal. So as soon as you've done the first deal start your integration when it comes to don't hesitate to change the text advisor at day one. I see many roll ups that hesitate to change the text advisor and then [00:40:59] S0: they are like Oh yeah,
00:41:00 · Felix Jander
[00:41:00] S1: but maybe it's better if we do it in half your time or twelve months. No, don't wait. Do it right away. Tell the owners transparently in the process, Look, it is part of the game. There's going to be some changes and they're going to take it. And if they don't take it, then you shouldn't buy them because then they're going to be trouble in the future. So very first learning is just start with the first deal and with the integration. And second learning is I think you need a culture does both. You need a holding that is very fast, young, very startup y in a way. But you also need people that respect this kind of heritage and that there's people that build up these companies for twenty years. So you don't need Berlin startup guys coming to that company and then knowing it all. You need people who respect that and who also show that respect but then still manage to change things. And I think that's a thin line which is very important. I think one learning that we had it's very important so a bit later in the journey not with the first company but maybe with company four or five you need to start value creation. You don't need to do it all like really focus on one thing and get that right. So I some of my investments, I see they want to do it all. They want to centralize procurement then they want to centralize disposition of let's say like handyman. They want to change the ERP and then they want to do something with marketing and they want to do something with sales. That's not going to work. You should focus on let's have one KPI and let's say my KPI is I want to achieve 10% growth per year and then take one or two very simple measures but execute them super well so that you can see the effects at least with some companies at the exit. That's really important that you let's make an example. We with Arsipa We started in year three doing pricing projects because we saw these guys, they haven't changed pricing with some customers for twenty years. So where the market price for an occupational health practitioner was at like €180 per hour, they still charge like €90. Obviously there's a gap that you can increase the price to. Maybe you don't have to increase it to the 180. You can tell the customer, look, you get a discount of 20 percent and you still have a €70 plus in terms of margin.
00:43:30 · Felix Jander, Mikk
So that was our lighthouse case and in hindsight we probably should have put more resources on that, more energy. We did that with two or three companies so we could show some effects at the exit but it's even more powerful if you can show it on a group EBITDA level and you can show like look here these 10% they come from pricing. That's cool. That's learning number three. Build up your lighthouse cases and don't boil the ocean, don't do it all. Focus. I think it's the fourth or fifth point now is don't start having a burn rate because I see some people that take this advice too serious and then they do too much in terms of integration and then they start hiring a CTO and a Chief Product Officer after the first company. That's also not the right pace. Because then you end up in the VC type risk profile. So yes, please hire those people earlier and do some investment. But investment means like two FTE for six months and not 10 for one year. Yeah. So just to get perspective right because then you end up in such a VC case again. [00:44:37] S0: I have written down a few things here. One, you mentioned pricing, and I'll add you a few more. One is what you mentioned before is marketing, then there is sales, and then there is customer support. Maybe you can share something on each if something comes to mind. And maybe how long do you focus on this one thing to just to give a perspective to just see the hopefully improvements when making those changes?
00:45:00 · Felix Jander
[00:45:00] S1: So just to repeat, right, what we did is one of those, and we deliberately decided against the others. What I can share now is experiences from my investments from other cases that also pulled some other levers than pricing. What I can share for instance is I have one investment and there we're more focused on growth and there we're focusing a lot on lead generation. So we generate leads in that business with cold outreach, with online marketing and also mailing and CRM tools to get leads for the local salesmen and owners that we feed to them and then they close them because there we have some found some potential that we can always take it's project based work. The more projects you have the better you can select the projects with the best margin. So it's a twofold lever. So on the one hand you have growth because you have more projects and the second lever is if you have more projects that you are declining then you have better margins because you only select the projects with the best margins. That's the the lead gen part. Then I have another investment where they centralized sourcing. So procurement. Yeah. So they have a team that centralized. So for them, it's really important because they have some parts that they need for the business and they have some synergies when they buy it centrally. That's pretty clear. What else do we say? What we later did now with Arsipa is we have this software play. That's also a good example with Medigene. So what we're doing there is so before you know the process when you come to into this doctor's practice and you do your assessment for occupational health then it's often very paper based. So you need to fill in a formula for your animesis and together with a software it's all digital. We generate reports automatically and you have a process that is very structured so there is no difference in service level or quality between the practitioners at least in theory. And that's also something, but that's a lever that needs significantly more investment than for instance, the central procurement.
00:47:11 · Mikk
[00:47:11] S0: Now that the journey from start to exit lasted approximately thirty six months, which is unusually fast. Can we talk a little bit about can you share maybe a bit about the investment returns and transaction to Warburg Pincus? What can you share?
00:47:28 · Felix Jander
[00:47:28] S1: It's a very broad question. I mean, I mentioned the number of employees that already gives you a good feeling that the company by now again tripled in size in just forty eight months. Right? So we continuing this pace, so to say. Yeah. Which is very impressive also by the new management. Yeah what I can share is it always makes sense also when we invest with Eva now or when we look at investments privately Freddie and I, often tell the teams you need at least 10,000,000 EBITDA to be exit ready. And why is that? It often comes along with at least 10 to 15 deals. So when you calculate 1,000,000 EBITDA per deal, and it also comes along with being a mid market deal, which is good because then you are open to another landscape of buyers. You don't want to sell to small cap private equity funds often because they are a bit more price sensitive. With mid market and large cap funds you can build a growth journey together. This growth journey often comes along with a better exit multiple. That's also what we kind of did with Arsipa. We got close to that figure and then we had a growth journey together with Warburg Pincus and it also reflected some of our compensation that we received as previous shareholders that we went on that journey and I'm personally still invested as you mentioned. I'm still a shareholder in the company and maybe that I can share. That gives you a feeling. We were such a mid market deal That gives you a feeling for the region of EBITDA we were. For our previous investors, think it was a very good return. Think Freddie and I, we mentioned in some other podcasts that it was, I think, 80% IRR or so we mentioned. So that number is already public and I can share.