Rik Stikkelbroeck (Hogenhouck) about the uprise of boutiques in the M&A market
Mid August 2017, Consultancy.nl posted an article about key M&A consultants and business bankers in the first half of 2017. Besides the well-known players such as the Big Four and the big business banks, there is a high number of M&A boutiques in the list. One of the niche players who have been able to nest between the top is Hogenhouck. Consultancy.nl suggested six (6) questions to Rik Stikkelbroeck, Managing Partner of the Hague consulting firm, about the rise of niche players in the M&A landscape, the focus of Hogenhouck and the distinctive character of the Office.
The rise of specialized M&A boutiques is an international phenomenon. According to Reuters press office, for example, boutique business banks today account for about half (44%) of all advisory fees for M & A transactions in Europe. By comparison, in 2007 – at the height of the latest merger and acquisition wave, boutique banks accounted for about 30%. Seven years earlier, that percentage was 20%.
Q1: Smaller M&A specialists are climbing up the ladders of the M&A lists. Can you explain the strong rise of boutique M&A agencies in the market?
Stikkelbroeck: “one of the reasons for the strong rise of M&A boutiques seems their specific, deep knowledge of the market. Boutique offices specialize in a number of verticals allowing it next to the transactional knowledge market. In our case, this means a lot of knowledge in a number of IT verticals. You can think of managed hosting, managed services, hardware, business intelligence (BI) and software. In a number of sectors, there is a lot of interest to make acquisitions in certain verticals. It is clearly visible that a number of sectors-including IT, staffing and food-are under strong attention of both strategists and private equity. The continued low interest rates around the world provide increased pressure on shareholders value and money can find its way into the SME + market. Several strategists in IT – think of parties such as KPN, Leaseweb, Claranet, TSS and Infotheek Group – have an active buy and build strategy in addition to the private equity players such as a Waterland (Sentia), Main Capital, Nordian, Gilde and Strikwerda. It’s as an M&A boutique pleasant if you have specific knowledge and expertise in a certain market, like we do’.
Q2: The activities of private equity are on a unprecedented high level. What do you think that the reason for this is?
“These activities are logically explained given the EBITDA/Revenue ratios in healthy companies in growing markets, especially in IT, between the 10-15% and money when financial institutions offer you less than 2% return on investment. Our expectation is that the consolidation in the Dutch IT market will continu the coming two years, then the really interesting tickets are gone and then its time for the larger tickets, think about tickets cross border EUR 100 million plus”
Q3: What are companies that enjoy specific interest in your point of view?
“Companies with a recurring character, a predictable undercurrent in revenue and ebitda, enjoy much interest from both strategists and private equity. In a number of verticals, such as within the IT, think of Managed Hosting, we see in a few years ‘the rise of powerhouses’ such as Sentia – Waterland (good for approximately twenty acquisitions within three years time), KPN-Internet Services (acquisition of among other things IS group and subsequently managed hoster Net Ground), Solvinity (known for among other things Bitbrains and ASP4All), Broad Horizon, I-ternity, Main Capital (acquisition Denit), Nordian (acquisition Open Line), Strikwerda, Leaseweb and strategists such as Claranet”.
Q4: About your own success: can you mention a number of recent transactions you were involved in?
“The name of Hogenhouck is more and more recognizable in the market. As M&A boutique we act as trusted advisor for Infotheek Group (international exit to Altor Equity Partners and acquisitions, among other things, Scholten Awater and Centra point), Gilde Equity Management (acquisitions of Impulse, Nedercare and VIR, all active in the IT Healthcare) and very recently the sale of Vellance to Sentia/Waterland, likewise private equity. In short, in the IT market with emphasis on hardware and software, managed hosting and managed services is a lot of movement and our name is not unknown.”
Q5: To what extent is your business recurring? How do you secure that customers come back to you?
“Many entrepreneurs recognize the way Hogenhouck works; a clear cost structure (read: no hours model but clearly predetermined retainers) where an obvious added value is clear – ‘ what you see is what you get ‘. This translates into a high percentage of recurring assignments. A client simply remains with us, the churnrate is close to zero and all of our transactions can be found on our website. I would estimate that this is the most strong signal in the market. Focus and added value”
Your colleague Mark van Beusekom has stolen the show in the first half year of 2017: he advised in nine (9) deals where 6 (six) deals where disclosed, for example, more deals than industry leaders ING, KPMG and EY. You work together with him since 1999 and since 2007 have started Hogenhouck and became a respected player in the domain. What makes you think you two are such a successful duo?
“An important key in the cooperation is complementarity: we are both experienced M&A men, but focus in the daily agenda differently. We are both trusted advisors, Mark as transaction manager, I more as a market maker. Hogenhouck works internally on that basis: where your interests lie, read: what you like, there you are often good at. As a team, we work very closely together and works up to everyone within his/her expertise, power and strength. “
“The marketing, in case of a buy or sale, is within Hogenhouck on a strategic, senior level. That you will see – without namedropping – in the market usually different. That we work together since 1999 in the SME+ market and are used to work with entrepreneurs, is not in our disadvantage. Prior to Hogenhouck, we have sold in 2004 the own enterprise (exit to private bank Insinger de Beaufort). That makes us as M&A boutique may be not unique but, at least special, knowing the process from both sides of the table”.
“Make no mistake,” continues Stikkelbroeck , “Hogenhouck is anno 2017 an efficient boutique with a team of experienced professionals, the stage of just only the two founders clearly lies beyond us. That my colleague Mark is listed at the top of the M&A deal list the first halfyear 2017, is a compliment to the team and thanks to the loyalty and confidence of our clients. In the past ten years, little has changed for us. Our business model has in all these years remained the same (retainers and no hours) and we are selective in our assignments. We only take those assignments where we can clearly add value. This means that we stay away from some, certain markets. This is very much appreciated by our clients, resulting in a churnrate close to zero.”
Q6: Finally, what developments do you expect the next few years in your major sector: the IT?
“We expect the consolidation will take place in another two years from now and that the major parties have built up adequate deal size by 2019, so they than shop around for a cross border exit. It is expected that the multiples in the national market then again will come down a bit, in short we are working towards a boiling point. Finally, we expect more deals to take place in cyber security and block chain.