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Dec. 2015

LBO France Newsletter December 2015


That the market currently has two sides – sunny and bleak – is cause for concern.

On the sunny side, the market can provide deep and varied sources of funding that make acquisitions easier. Debt is historically cheap, leverage is aggressive and covenants are something of a hoary relic. Widespread co-investment has increased the amount of equity available. On the sell side, investors are delighted that prices are underpinned by ample liquidity. LBO France has certainly taken advantage of this situation, as reflected in this year’s disposals: Alvest, Averys, Tractel and WFS have all generated a return of more than twice the investment, on average. And in real estate, we sold the headquarters of Alstom Transport at a 5.5% cap rate, having acquired it 15 months earlier at 7.7%.

On the bleak side, the liquidity glut – and the resulting pressure to invest and compete – is the reason why acquisition multiples are so high. And in some cases they are clearly irrational, since the macroeconomic forecasts for France, Europe and the world show no glimmers of buoyant growth, at least not in the short term. As a result, performances will obviously suffer – as will the market. The risk in the medium term stems from holding on to investments in the hope of an unlikely capital gain. In the nearer term, the deal flow could slow to a trickle if market participants start to fret.

This observation applies to all segments of the business, from primary and secondary deals to real estate and debt.

The environment demands caution, but it must not lead to paralysis. The only fitting response is to adopt a strategy that is opportunistic in every sense of the term. And who better to implement that strategy than an agile, responsive local player that knows its market inside out? That is what LBO France is endeavouring to demonstrate with a steady but controlled pace of investment, and recent acquisitions, notably Chryso, IKKS, and the West Park building in Nanterre, that are compellingly valued.

Sale away!

Having sold Worldwide Flight Services (WFS) in April 2015, LBO France exited from Tourexcel/ Cityvision and Tractel during the summer. At the same time, IKKS was added to the White Knight IX portfolio.

WFS grows wings with a US firm

The US private equity firm has bought WFS, one of the world’s leading groundhandling organisations specialising in air cargo and ramp operations for planes, passengers and baggage. With a staff of 12,000, WFS is present at over 140 major airports in more than 22 countries on five continents. It serves 300 airlines globally, handling four million tons of cargo and 50 million passengers annually. Since acquiring the company in 2006, LBO France has helped it to pursue international expansion into the UK, Brazil, the Middle East, South Africa and Jordan, and to launch flagship projects such as the management of cruise terminals in Hong Kong. Buoyed by this partnership, WFS now generates revenues of €647 million and has grown EBITDA by 62 per cent from €32 million to €52 million in nine years. The company is now valued at €313 million (six times EBITDA), a gross multiple of 2.1 times the invested amount.

Tractel: rock-steady

LBO France has sold Tractel to the UK’s Cinven for €350 million, 10 times EBITDA. Tractel is global leader (ex China) in lifting, handing and elevated working products such as pulleys, winches, chain hoists, suspended platforms and safety devices. Operating in more than 120 countries worldwide through a network of more than 8,000 industrial distributors, Tractel is the perfect example of a cycle-resistant B2B company – and has a track record that speaks for itself. It entered the LBO France portfolio in 2007, just before the global crisis of 2008 that put its ambitions temporarily on hold. It proved highly resilient, waiting for the turmoil to abate while continuing to pay down debt. Thanks to its electric winches, Tractel was able to work in sectors other than construction, such as mining, wind power, telecoms and facility management. At the time of exit, the order book was at an all-time high. This combination of factors has enabled LBO France to reap about two times its money, with an above-expectation offer and an early exit.

IKKS adds lustre to the White Knight portfolio

LBO France has acquired the IKKS group, a leading French maker of affordable luxury apparel, for €500 million, giving an EBITDA multiple of 7.3x. With three complementary brands – IKKS, One Step and I.Code – the group had sales of more than €300 million in 2014 and generated nearly 20 per cent of that total from international operations in Benelux, Spain, the Middle East and, more recently, Germany. IKKS covers all distribution channels, with an extensive retail network of 550 shops in prime locations, 205 corner concessions in department stores, and a presence with multi-brand retailers and on line. LBO France is proud to have sourced this primary and proprietary deal. We currently hold 70 percent of the equity and intend to forge ahead with the expansion programme alongside the management team and Roger Zannier, founder of Zannier Group, IKKS’s previous shareholder. The aims are to speed up the company’s development in Paris and the metropolitan area, double the international footprint over the next four years, and continue growing online sales.

A new departure for Tourexcel/Cityvision

Tourexcel/Cityvision, the leading provider of tourist transportation services in Paris, has been sold for 1.5 times the amount invested by LBO France. The company has three main businesses: OpenTour (sightseeing tours of Paris and other cities in open-top double-decker buses), Cityvision (coach and minibus excursions) and Marina de Bercy (dinner cruises on the River Seine). Tourexcel/Cityvision has cemented its leadership since LBO France first made its investment in 2008. Sales have risen steadily, along with the number of passengers, which hit 2 million in 2014. At the outset, LBO France successfully identified the group’s businesses as strategic assets in a tourism market in the midst of consolidation. That analysis has been confirmed by the results of the exit. OpenTour Paris has been sold to RATP Dev and joins that company’s new sightseeing division, which offers tours in the world’s top three tourist cities: Paris, London and New York. Cityvision and Marina de Bercy, which have excellent corporate synergies, have both been acquired by Ekkio Capital.

Excellent exit for Omega

The Omega building, located in the northern Paris suburb of Saint-Denis, is home to the global headquarters of Alstom Transports. Ideally located near a metro station served by the north-south Line 13 and, from 2017, the fully automated Line 14, the asset is rented under a 12-year firm lease that commenced in 2008.

Since Omega was acquired by LBO France in a €70 million agreed sale in June 2014, it has benefited fully from advantageous market conditions, including low interest rates, ample liquidity and a shortage of high-quality assets offering secure income streams. The building has been sold by tender for €97 million, at a 5.5% cap rate. This outcome once again demonstrates the relevance of LBO France’s investment strategy. The return on investment – a 1.9x gross multiple and a gross IRR of around 65% – is well in excess of the initial business plan.

Digitisation is key for the entire portfolio

Digital technology can give a huge boost to a company’s sales. Which is why the Operating Team at LBO France gives investee companies the resources they need to implement or accelerate the digitisation process. Étienne Colas and Franck Abadia explain how.

How did your digitisation approach get started?

Étienne Colas: It all began back in 2014 with Eminence, which at the time was losing ground in its historical business of mass retail. We noted that the company was generating 1 per cent of sales online, compared with an average of 10 per cent for the industry as a whole. To close the gap, we co-drafted a digital transformation strategy comprising a series of highly practical actions underpinned by a business plan. The strategy was greenlighted by Eminence’s supervisory board in May 2015 and implemented by a dedicated team with a newly recruited digital traffic manager

Franck Abadia: We decided to draw on that experience and apply what we’d learned to other investees companies. We started working on a big-tent methodology, with an analytical framework based on highly precise evaluation criteria in order to map out the digital maturity of our investees and choose the best service providers in this area. We fine-tuned that approach by working closely with ESV Digital and using Linkfluence, an e-reputation suite designed for identifying and analysing everything that is being said about a company and its competitors, both on the web and in social media.

Have you taken any action with other portfolio companies?

Étienne Colas: So far, we have applied the approach to Payot, Eminence and IKKS, but taking a different angle depending on the degree of digital maturity. With Eminence, which had plenty of room for progress, we devised a digitisation strategy from scratch, making sure the company had the resources and skills needed for top line growth. With IKKS and Payot, Digital technology can give a huge boost to a company’s sales. Which is why the Operating Team at LBO France gives investee companies the resources they need to implement or accelerate the digitisation process. Étienne Colas and Franck Abadia explain how. The Omega office complex in the Docks de Saint-Ouen ecodistrict has been sold to Primonial REIM, a year after being acquired by the White Stone V and VI funds. which are farther ahead digitally, we used Linkfluence to benchmark the competition. We then focused on ways to drive through improvements by optimising parameters such as traffic generation, conversion rates and customer loyalty

Franck Abadia: Our job is to help companies that have made the least progress in addressing the strategic challenges of digital development, whenever this could be important for boosting sales. With more advanced companies, we help them move into omnichannel marketing in particular.

Why is the Operating Team ideally placed to implement this approach?

Étienne Colas: The team is fortunate not to have to deal with day-to-day managerial constraints. This gives us the space to think carefully about new value-generating approaches, methodologies and tools for our companies. You could say that we are pathfinders who seek partnerships with innovative start-ups in this area. We’re in an ideal position for digital technology, which evolves at breakneck speed and thus requires constant monitoring and an insistence on continual improvement.

Franck Abadia: Being able to see the broader picture, we can identify investees that have the most to gain from digital technology in terms of sales growth opportunities, notably through a better understanding of end consumers and their buying journey

Enhanced governance

Stéphanie Casciola and Jacques Franchi have joined the Executive Board. Stéphanie manages real estate funds, a key business for LBO France over the past 12 years. Jacques heads up the Portfolio Management team and has also been appointed Chief Investment Officer. Commenting, Robert Daussun said: “These changes reflect a determined effort to make the real estate business central to our development strategy, better known for high-profile leveraged acquisitions, while also giving pride of place to risk management and smooth running of our investment procedures”

LBO France was named Best Fund in the Upper Mid Market category (enterprise value €200–500 million), jointly with The Carlyle Group, at the tenth ceremony of the Private Equity Magazine Awards. The honour acknowledges White Knight’s portfolio performance and activity in 2014, notably the acquisition of Chryso and the exits of Exxelia, Labeyrie, Poult and Medi Partenaires.

New faces at LBO France

Louis-Roch Burgard

Managing Director

Louis-Roch Burgard, 46, joined the White Knight team as Managing Director on 1 September. He has 15 years’ operational experience at Vinci, where he was senior manager in charge of domestic and international business. Louis-Roch is a graduate of ESCP and ENA and is also a French Treasury auditor

Sophie Château

Managing Director

Sophie Château became Managing Director of Investor Relations at LBO France in May 2015. She has worked for more than 15 years in investment, starting her career in 1995 in M&A at UBS in Paris and then London. She then moved to Chevrillon Candover (1998) and Chevrillon & Associés (2001), becoming director in charge of companies under LBO, private equity and venture capital. From 2011 to the present, she was associate director at Weinberg Capital Partners. Sophie graduated from ESCP Europe and is a member of the French Association of Financial Analysts (SFAF) and the Institute of Financial Accountants (IFA).

Dominique Dudan

Senior Advisor

Dominique Dudan has joined LBO France as Senior Advisor for real estate business. She worked for 30 years in the property and hotel sector, serving as managing director of Union Investment Real Estate France, head of operations at HSBC Reim and head of development at Accor Hotels & Resorts. Dominique will bring her experience to bear on the development strategy for the White Stone and Lapillus funds.

Simon Couturier Project Manager Simon Couturier joined LBO France as Project Manager in 2015. He spent five years at L.E.K. Consulting (including four months at the French sovereign wealth fund Fonds Stratégique d’Investissement), where he specialised in strategic due diligence for private equity and corporate clients. Prior to that, he served an apprenticeship at KPMG in Transaction Services, where he was involved in financial due diligence assignments. Simon is a graduate of ESSEC Business School.



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