A Luxembourg buyer of local firms
Started 10 years ago, Axiomatic was set up by Georges Zahlen and Gauthier Gosselin, two ex-PWC staffers that worked in the corporate finance and M&A advisory businesses of the consultancy. Helped financially by families and friends, they bought their first firm, Ady’s, a waste management company with €900,000 in turnover. You have surely seen their trucks in the streets.
The financing structure was 50% in debt/50% in equity, “an LBO structure applied to a very small business.” From one day to another, they went from consultancy to an operational role. Ady’s is still held in the fund today.
“Once we bought [our first] company, more and more people called and told us that they were selling their company,” said Zahlen. Consequently, they shortly made their second and much larger acquisition in 2018: Reka, a printing company. They reached out to an external investor for additional financing and hired a new CEO, whereas Zahlen and Gosselin played a monitoring and an advising role on the board of directors. Nowadays, it runs nine companies and has executed 20 transactions.
Three golden buying rules at Axiomatic
Zahlen stated three criteria when shortlisting firms to buy. First, they must be profitable, which excludes “startup and turnaround or distressed companies.” Second, a company must be “independent from its owner... which survive because of personal contacts.” In other words, a firm should be able to operate normally without the presence of the owner. Finally, the firms must be specialised in a niche. However, he made clear that while Axiomatic does not do tech, “we invest in everything that we can understand.”
Axiomatic receives between 50 to 100 sale offers per year with the company payroll ranging from five to 100 employees in all type of businesses.
Axiomatic: an industrial and a financial buyer
Zahlen explained that successful candidates are either integrated within a company in the portfolio or acquired by the SCSP should it be material in size in a new sector. On new companies, he prefers businesses in which Axiomatic has deep knowledge over a new sector.
Not a deep buyer market in Luxembourg for selling entrepreneurs
The mere fact that two M&A experts, Joubin Bashiri, partner at Tenzing Partners, and Gregoire d’Avout, partner, strategy and transactions at EY, could not immediately tell from the top of their head some competitors to Axiomatic reveals the depth of the local market.
Admittedly, as these transactions are often private and are not publicly disclosed, it may lead an observer to under-estimate business activity. D’Avout is not aware of any similar competitor being set up with the goal of serving local economy.
Supportive banks in Luxembourg for local buyers
“Our buyers’ mandates are mainly coming from abroad,” said Bashiri. On the other hand, he thinks that the construction (services) and the ICT (information communication & technology) sectors are prone for domestic consolidation. He also remarked that BGL BNP Paribas, Spuerkeess and Banque Internationale à Luxembourg all have special programmes in place to accompany local buyers. “It is relatively rare for the international banks to finance Luxembourg entrepreneurs,” observed d’Avout.
Why are foreign firm buying Luxembourg firms?
Starting with the country of origin with the highest interest, Bashiri explained that firms based in France, Germany, Belgium and the Netherlands are generally more interested in making bolt-on acquisitions in Luxembourg. Tenzing tends to identify foreign firms that currently have some relationship with Luxembourg or firms with strategic fits that may consider crossing the border.
Once transactions are reaching a certain size, it is no more Luxembourgish but international, with the IPO taking place elsewhere
D'Avout added that foreign firms may be attracted by a small SME of around 20 people because of their specific knowhow or due to a niche positioning in a product not found elsewhere in the financial sector. “Luxembourg remains an important financial centre where there are many players to serve.”
Fast-growing businesses in Luxembourg
In its marketing material, EY stated that financial buyers are looking for fast-growing businesses. D’Avout quickly thought of fintech in that category. It also includes asset servicing and software companies or, more broadly, any niche players in the financial industry.
Exit through IPO
D’Avout could not recall any domestic transaction that has led to an IPO, locally or abroad. He thinks that it is largely due to the size of domestic transactions. “Once transactions are reaching a certain size, it is no more Luxembourgish but international with the IPO taking place elsewhere.”
Luxembourg buyers with an international buying bias
Apart from Axiomatic, which invests exclusively in Luxembourg, Bashiri noted that financial or industrial players such as Luxempart or SES, respectively, tend to look outside Luxembourg to further diversify, amongst other reasons. Not having crossed the border on any of its purchases yet, Axiomatic may consider investing abroad but that would be limited to the Greater Region.
Impact of interest rate on the transaction business
D’Avout does not think that the higher interest rates have had an impact on its business apart from the real estate market. “Interest rates moving up 1% to 2% have not, by themselves, changed substantially the economics of a firm growing by 15% to 20%.” He thinks that factors that may constrain transactions nowadays are higher labour bills and elevated costs for energy and raw materials.