The acquisition strategy of Gerton Lusink (Conxillium)

In 2006, Gerton Lusink acquired Pharox, a small software company with twelve employees. With a clever acquisition strategy, he was able to build an IT group from this business with annual sales of over 30 million euros. "I spend thirty to forty percent of my time on acquisitions.

Gerton Lusink was a board member at British Telecom Netherlands, but he noticed that the political game at the multinational company was costing him a lot of energy. He first talked to other businesses about a salaried job, but thought, "If I don't become an entrepreneur now, I'll soon be well into my forties and am I still going to take that step?

In 2006, he bought Pharox, a specialized software company for the chemical transport sector with twelve employees. At the time, Lusink could not have imagined that some sixteen years and eight acquisitions later (with the help of investment company O2 Capital Partners), there would be a company with 235 employees and annual sales in excess of thirty million euros.

"I come from a corporate environment, where acquisitions are the order of the day. I bought my first business and saw that I could make it profitable. And if you buy an existing company and everything is running, you have room to buy several existing companies. I've jokingly said every time I got bored, I was going to do another acquisition. But the real reason was that I had a bigger growth ambition than what I could achieve with Pharox alone. We weren't growing organically fast enough. That was the main driver for me to say: then we're going to see if we can buy other businesses and add to them.

Planting seeds

Lusink's group now bears the name Conxillium and consists of seven businesses that specialize in providing high-quality software for local government: Management-Vision, DataQuint, I-Real, Pharox, JCC Software, Procura and SIM. The company focuses on the public space management domain with the first quartet of businesses and on the public and civic affairs domain with JCC Software, Procura and Sim.

In all those years, Lusink has deliberately chosen to let all the acquired businesses continue under their own names. 'Until now we have maintained all labels. If you take over a well-run business with a well-functioning management that also manages to bring in new customers, why take the risk of putting a new name on it? An important reason why this often happens in practice is the ego of the acquiring party's director and major shareholder. And we fortunately do not suffer from that.

Time and attention In February 2019, SIM, provider of websites, social intranets and other online services for local government, was added to the pallet. Owner Frank de Goede became a co-shareholder of Conxillium. De Goede and Lusink are now non-executives of the organization but still spend a lot of time on M&A activities.

'That was one of the ingredients to the acquisition success,' Lusink explains. 'I spent thirty to forty percent of my time on M&A activities. Often entrepreneurs expect results within three months, but a successful acquisition strategy mainly requires a lot of time and attention. You have to invest in your network and speak with contacts. The first conversation I had with De Goede was in 2014. At that time he was not open to an acquisition, but I already planted that seed that we would be an interesting buyer. Five years later, we reaped the benefits of that.'

Sweetspot

According to Lusink, his acquisition strategy has so far been successful because of two things: spending enough time on an acquisition pipeline and creating a blueprint that acquisition candidates must meet. However, step one, as far as he is concerned, is getting your own house in order, financially, strategically and in terms of mission and vision. It is very important to map out your own culture: what do you stand for, how do you want to deal with employees, customers and suppliers: what are the core values of your business? For this we used the methodology of Scaling Up by Verne Harnish.

Lusink: "If you know what culture exists within your business, you also know what criteria a takeover candidate must meet. I always look for businesses with a similar culture. Because after an acquisition you often see a realignment, everyone has to find their own way for a while. If the culture is fairly similar, you can rectify that fairly quickly, say within one to two years. But I've also had good profitable businesses pass me by because there was a totally different culture.'

In addition, businesses targeted by Conxillium must at least be of a certain size, have at least 50 municipalities as clients and have their own IP. But also satisfied customers, recurring revenue and a certain margin on the software and/or service. 'That combination makes you have a rock-solid cash flow. To this day, that is one of the most important criteria I look at. Over time, other criteria have been added, which helps you find your sweet spot more and more. When I get that data from a business on my desk, I can say within five minutes: this is not for us or this is where we should go full steam ahead.'

Added value

When making a strategic acquisition, Lusink looks mainly at the added value of the business to the whole rather than any synergy benefits. Because, according to the Conxillium founder, that is a danger for entrepreneurs. 'If you make an acquisition because of a synergy advantage and it turns out that there isn't one, then suddenly you've made a bad acquisition. My advice is: look sec at the business to be acquired, without synergy advantages. If they turn out to be there after the acquisition, even better. Think of synergy as the icing on the cake.

Lusink has now embarked on a new adventure. Together with Jeroen Schras, who assisted him as a lawyer in all acquisitions of Conxillium, he founded FireFly Investment Group, an investment company "for entrepreneurs by entrepreneurs. "I think it's super fun to share my experience with other entrepreneurs! The investment company participates and provides capital to entrepreneurs who want to grow fast. 'My job is to facilitate the companies we participate in through the Scaling Up methodology.' The methodology creates the right focus and makes the business a little bit better every day. 'And yes, if the participation is ready, we definitely want to look to grow through acquisitions as well!'

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