Gone are the days when acquisitions in SMEs almost always involved a complete sale. Many entrepreneurs are choosing to sell a part of their business to an investor or co-entrepreneur. 'Not infrequently, this gives entrepreneurs back the joy in entrepreneurship that they had lost for a while.'
Anne Huitema has been guiding management buy-ins since the 1990s, since 2007 from his business BuyInside together with Joost Snoep. Until about ten years ago, MBIs usually involved a complete takeover, but currently Huitema sees "all scenarios pass by. This is because the playing field for mergers and acquisitions has changed enormously over the past decade, says Huitema.
First, many more investors have entered the market. Huitema is regularly approached by private equity parties who are taking over a business whose management is leaving. In the past, clubs of that type would first dip into their own card box or an interim manager would be flown in. Nowadays, according to Huitema, MBI candidates who want to participate in the takeover are also looked at. Conversely, MBIs themselves also knock on private equity's door for (co-)financing. For a selling SME entrepreneur, an MBI can be more attractive than an investment company, thinks Huitema: "A negotiation with your successor is instinctively different from a negotiation with an investor.
Culture change
In addition to the rise of private equity, Huitema identifies a cultural shift in SMEs. "We used to focus on businesses with owners over 60. That is no longer the case. Younger entrepreneurs, people in their forties or fifties, no longer feel like buffering 70 hours a week until retirement; that's out of date. They look for constructions that give them more freedom and free time, such as a pre-exit or a co-entrepreneur.'
What hasn't changed: Most MBIs who report to BuyInside still prefer a majority stake or a full acquisition. But when they sit at the table with a nice business, those kinds of wishes become fluid, Huitema knows from experience. He gives the example of a pre-exit situation in which a DGA wants to sell his business, but cannot yet realize the desired value and so wants to stay on for a few more years. 'Then you as MBI'er can plan his exit together with the DGA. Once the time comes, you buy the remaining shares. The MBI thus becomes a management buyout, with the added advantage that an MBO is easier to finance at the bank.'
Of course, having to share the wheelhouse of your business with a newcomer can be scary. There is always the risk that the partnership may not work out for one reason or another. Huitema's M&A toolbox therefore includes not only the "phased acquisition" but also the "deferred acquisition" as a possible solution for entrepreneurs seeking a co-entrepreneur. It means that the buyer and seller negotiate and sign the transaction, but do not yet have it passed at the notary. Huitema: "First, work together for six months or a year, taste each other's kidneys. If it turns out to be a drama, then put a stop to it. If it goes well, you pass the deed.'
Taking a step back
Project designer OCS+ from Den Bosch designs work environments where everyone feels at home. They do that for (main) offices of large businesses, healthcare institutions, universities and other organizations at home and abroad. According to their website, OCS+ provides a working environment "in which every square meter is designed to let your human capital excel. Founders and directors Robbert Starre and Harro Hoencamp have built the business since 1999 into an internationally operating company with 26 permanent employees. Including flexible employees, some 55 people work daily on OCS+ projects. The business realizes annual revenues of approximately 18 million euros.
In 2017, Starre and Hoencamp decided they wanted to slow down from years of hard work. A successor was already in place in the person of Wesley Bosma, a cousin of Starre's who had joined OCS+ in 2011. It was decided that Bosma would take over part of the shares through a management buyout. It meant looking for an investor as well.
An information memorandum was prepared with the acquisition advisors of Rembrandt Fusies & Overnames. There was plenty of interest, Starre and Bosma tell us. They spoke with several investors, including private equity parties. Den Bosch -based MGF (formerly MBO & Growth Fund) stood out as the best match. The fact that MGF always takes a minority stake and does not sit in the entrepreneur's chair appealed. Bosma: "I liked the fact that MGF is a relatively small organization. We didn't sit around the table with a battalion of men in suits; the contact was very personal.
Heart and soul
MGF partner Stefan Damen regularly talks with entrepreneurs who want to cash in on part of their shares. Not rarely people who have put decades of heart and soul into their businesses and at some point ask themselves what they want in life and what is best for the business. 'With a redeployment of shares, we bring peace to the home front,' Damen said. Initially, then, the conversations are mainly about the entrepreneur's heart's desire and how it can be realized with an investor. But usually it doesn't stop there. Damen: "For many entrepreneurs it is an eye-opener that an investor can also offer added value. DGAs sometimes have their head in the shelf, they are focused on running the business and putting out fires. To achieve growth, you have to look beyond the day-to-day operations. An investor or co-entrepreneur can help with that. Such a person not only brings money, but also knowledge, a network and fresh energy.'
Gone are the days when SME acquisitions almost always involved a complete sale. Many entrepreneurs choose to sell a part of their business to an investor or co-entrepreneur.
In the case of OCS+, the deal was quickly struck. Hoencamp sold his entire share in the business, Starre and Bosma together with MGF participate in OCS+. Starre: "In a number of brainstorming sessions we made a future plan with MGF. In it we formulated core activities, but also agreed that Wesley would become general manager after a few years. Harro and I will remain involved as executive advisors.'
Bosma has now successfully taken over. The vision of the business has remained the same, but considerable leaps have been made in the area of marketing. MGF 's five-year investment term expires in October 2023. It has been agreed in advance that MGF will offer the share package to Bosma first, thus realizing a full management buyout in two steps.
Sparring partner
After a long career at Procter & Gamble, including as commercial director of Bacardi, and at a Dutch importer of spirits, Evert Kamphuisen started to feel the urge. He wanted to be at the wheel himself, to be more entrepreneurial. He found an existence as an independent consultant, something he had done for a few years, too lonely. So he started looking for a business he could buy into. On his wish list: a consumer goods company with a revenue of 1 to 10 million, sustainable and with growth potential. And, very important: a good click with the existing entrepreneur.
When he began his search, he also looked at full acquisitions, but Kamphuisen quickly drew the conclusion that he did not want to be at the helm on his own. After some fifteen conversations with entrepreneurs, he ended up with Trade Sense, a Breda-based business with revenue of 5 million that imports and distributes personal care and conscious food brands, through adviser BuyInside.
Co-founder and managing director Peter Pellenbrink was looking for a business and sparring partner, says Kamphuisen. 'He set up the business with his wife, but she stepped out four years ago. Especially during the corona time, he felt lonely as an entrepreneur. Moreover, as the company grew, it entered a new phase. Peter's expertise is mainly in entrepreneurship, sales and operations, while I have a lot of experience in strategy and brand building, something needed in this phase.'
Growth Plan
During negotiations, the two entrepreneurs quickly came to an agreement. Kamphuisen acquired 50 percent of the shares. It was agreed that the two co-entrepreneurs would commit to the business for three years. If one of them wants to leave, he has the obligation to offer his share package to the other first. Now that the first year is over, Kamphuisen notes with satisfaction that things are going well. "We drew up a growth plan together that we worked hard on. In practice it turns out that we complement each other very well. I sometimes think a little too long before I move, while my partner is good at sharp negotiation and closing deals quickly. Conversely, I am strong strategically and build relationships with suppliers'.
Huitema of BuyInside says that in recent years he has increasingly been actively approached by entrepreneurs who want to sell a part of their business or are looking for a co-entrepreneur. "The corona era has made many entrepreneurs think about what they want to do with their lives and businesses. Moreover, working with a fellow entrepreneur to take your business to a new phase can be a great experience. Not infrequently, it helps entrepreneurs regain the joy in entrepreneurship that they had lost for a while. And there is an army of MBI candidates eager to get started, so there is plenty of choice.'
