The INSEAD Alumni Association Switzerland had its first ever “Salon Conversations” in Zurich in 2014. This is the second in a series of articles about the topics discussed. Guests were seated with a table host who led a discussion on a business topic close to their hearts – with no PowerPoint slides, no microphones and no fixed agenda.
One of the topics was: “Family-owned Companies and Private Equity”, hosted by Roger Kollbrunner (MBA’97J), founder of Novus Partners, who together with his partner has acquired four-family owned businesses in Switzerland. Since graduating from INSEAD, they bought a manufacturer of tractors that climb mountain tracks at speed, and most recently, a wholesaler of technical products and a leading manufacturer of industrial-sized vegetable slicers via Artum AG (their holding company). Here below is his recollection of the evening’s discussion.
Buying a family-owned business to launch a career as an entrepreneur was a popular topic with Alumni attending the event. Kollbrunner said that the first rule of thumb is, be patient. Give yourself at least two to three years to find the right business. Capital is a requirement. It will require several hundred thousand or even millions of euros. Once you find a business to buy, do a proper due diligence and then close the transaction swiftly. [pullquote align=”left|center|right” textalign=”left|center|right” width=”30%”]Do a proper due diligence and then close the transaction swiftly.[/pullquote]
Buying a company is not as romantic as one expects, and yet being a bit of a dreamer is important. “Otherwise caution will prevent you from making the leap. If you look at a deal too long, for more than a year for example, you will certainly find things wrong with the business,” said Kollbrunner.
As for psychology, a risk-friendly attitude is required. “Be ready to jump, take the risk, and pay the price. Don’t be too stingy,” said Kollbrunner. Money and time are key, but money and time are useless if you never close a deal.
Be aware that once the acquisition is complete, problems will start. “The business might need additional capital. The culture might be difficult to develop. It is normal to have these kinds of problems,” explained Kollbrunner.
Finding targets is a challenge. There are M&A advisors but the disadvantage with service providers is that a buyer is one of many buyers looking at the deal. There are also private equity houses with business for sale. “My personal opinion is not to buy from private equity. They’re too well prepared for sale. It is difficult to tell as an outsider if the company has been pumped up specially for the sale or not,” said Kollbrunner.
How is your company, Novus Partners, different from private equity?
The main difference is we keep a company for the long term, and we don’t plan to sell the companies we acquired. There is no fund structure, only private investors (no institutional investors). We use limited leverage. Lending rates are ridiculously low at the moment.
How did your INSEAD MBA contribute to your success?
[pullquote align=”left|center|right” textalign=”left|center|right” width=”30%”]I couldn’t have done it without the MBA.[/pullquote]I couldn’t have done it without the MBA. I have an engineering background [M.Sc. Mechanical engineering ETH Zurich]. What I learned at INSEAD gave me the key levers to improve the businesses and knowledge of where the risks lie. An MBA gives you the confidence because you will hit roadblocks. The Alumni network is invaluable because you can simply call colleagues who have relevant experience or the know-how required.
It is possible to source deals without service providers. “We spend a lot of time doing research in industries we like. Anecdotally, when researching there is a rule of thumb: the worse the website, the better the business potential,” said Kollbrunner. It typically means the marketing and sales processes are not well developed yet. “Every company we bought had a bad website. But they also had strong engineering and top products,” he added.
[pullquote align=”left|center|right” textalign=”left|center|right” width=”30%”]Generally we try to take out before the sale any unnecessary real estate[/pullquote]Once a company is found and it is for sale, there must be a good personal relationship with the seller. There has to be trust on both sides. There are some key things to look for in the books. Check the quality of the revenue: is it stable or spiky. Do they have blue chip customers? What is the quality of their customer relationships? Look at the margins. Understand why sales are declining, if they are declining.
Is there real estate? Generally we try to take out before the sale any unnecessary real estate, that is, land and facilities not required for production.
In summary, Kollbrunner said that buying and developing a company is a hugely rewarding job, but not without risks. Work hard, stay alert and then the risks can usually be managed and the return can be attractive.
[notice]If you are very interested in this topic, an upcoming Basel event entitled Buy Yourself a Company might be of interest. More info and tickets on Amiando.[/notice]
Do’s and Don’ts
- Do buy something that you have an emotional affinity for, a business that you’re excited about and interested in.
- Do have the language skills. You have to be able to speak to the employees. This is the case for Switzerland, but also for any country in the world.
- Do consider selling real estate holdings. Only keep it in the deal if it is needed for the operations.
- Do speak to customers. Do it quite late in the process, parallel to negotiation of the purchase contract so as not to cause customer uncertainty. If you cannot speak to the customers you should not buy the company.
- Do speak to key employees to gather information and let them know about the road ahead. Be willing to give shares in the company to key employees.
Foto Credit: Novus Partners