Looking from the outside, it seems like traditional private equity funds have difficulties sourcing deals and placing their overwhelming amounts of capital. At OMNIA, we cannot help but wonder, as deal sourcing has never been an issue for us despite the lack of traditional PE fund capital.
“PE firms are on track to announce deals valued at more than US$350b, slightly above 2016, but just a fraction of the nearly US$1.5t that was deployed between 2006 and 2007.”
EY Global PE Watch 2018
FOR THE ENTREPRENEURS BY THE ENTREPRENEURS
So, why do deal sourcing comes rather easy to us? We truly believe that it is a matter of mindset. The SME (small and medium-sized enterprises) founders that we meet are often entrepreneurs to the bone, whose companies are their lifeblood. They are not looking for a traditional PE investor who will take over their company and run it on their terms. What they are looking for is an equal partner who will take them to the next level.
We also know that one of the reasons that entrepreneurs build their own businesses is that they thrive with the freedom of having their own – rather than being forced to sit at a desk from 9-5. Therefore, they are also looking for an investor with this element of freedom in mind. But they do not find this with traditional private equity funds.
“Now more than ever, deal origination is where value creation begins."
EY Global PE Watch, 2018
At OMNIA, we have been on our own entrepreneurial journey for more than 20 years, and therefore, we do understand the minds of the entrepreneurs – the battles they fight, often with banks, and the conflicts that often happens with investors trying to take over control of the founder’s company.
We understand that the people we speak with are entrepreneurs, and that they want to keep their company and continue to run it, but as the owner of an SME they would also like to have the same possibilities that bigger companies enjoy in order to expand the company or maybe cash in a little to have some more freedom or to improve their lifestyle.
As stated in Ernst & Young’s “EY Global PE Watch 2018”: “(…) Leveraging core competencies, such as those unique skills or value-added services that differentiate a firm from its competitors, whether it’s sector expertise, a global reach, partnership opportunities or specific value-creation skills” is absolutely key to optimise deal sourcing.
INVESTING IN NETWORK, TRUST AND FIERY SOULS
OMNIA invests in profitable SMEs rather than companies with no revenue and high valuations. We invest in profitable (USD/EUR 1-10 million of EBITDA) businesses demonstrating annual growth of 20% or more, which are run by founders and a management team with successful track records.
“Medium-sized enterprises (SMEs) and entrepreneurs have emerged as a driving force for more inclusive and prosperous societies."
Not the least, we invest in people – like-minded and hardworking people who want to do better, and who want to make a significant difference and impact on the world. We invest in entrepreneurial companies with founders who are looking to take their company to the next level, but who do not want to compromise their control of the company.
THE PRIVATE EQUITY MARKET
Private equity funds investing in the SME market are the ones with the highest return, and according to Bain and Company’s Global Private Equity Report 2016, smaller middle-market deals are available at more reasonable purchase prices.
Ten years ahead of the beginning of the financial crisis, SMEs have managed to bring in profits and have the highest growth rates among SMEs, mid-cap and large cap companies, which means that most SMEs are run by hard-working, passionate people who are great at making money despite poor credit facilities. According to the World Bank, more than 50% of SMEs lack access to finance.
“The MSCI Europe Small Cap Index is up about 24 percent this year through Nov. 13, outpacing the 18 percent gain by the MSCI Europe Index. T. Rowe Price’s European Smaller Companies Equity Fund returned 34.6 percent during the period, while Henderson’s European Smaller Companies Fund gained 32.5 percent, (…).”
THE OMNIA WAY
The lack of finance for SMEs creates a golden opportunity to provide entrepreneurial SMEs with an alternative to traditional financing. Generally, investing in SME’s provide PE funds with a solid return, however, many private equity funds are only looking for big deals rather than several smaller ones.
“When seeking bank credit, SMEs continue to face more stringent financing conditions and higher interest rates compared to large businesses, and find themselves even more at a disadvantage when attracting alternative sources of finance."
At OMNIA, our hearts beat for SMEs. We bring all the SMEs together in a portfolio that will be listed under a diversified investment holding company. Being part of our listed company changes little about the way the founders run their businesses, as their companies themselves are not listed. But they do become part of an accumulated listed balance sheet with all the advantages that comes with it.
“Since 2012, we have seen a resurgence of IPOs backed by private equity (PE) with over 60% of total UK IPO proceeds being raised from PE-backed investments.”
British Private Equity & Venture Capital Association, 2016
First and foremost, a company becomes worth a lot more by being part of a listed company as there are huge differences between public and private valuations. Europe is currently valuating privately held companies within the SME space to a P/E of around three to six and publicly listed companies to a P/E of an average of 25. In 2016, publicly listed SMEs grew 6-800% in value in one year.
THAT FINE LINE
Unlike traditional investment funds, we do not perform a 100% buyout, then list the founders’ companies and take all the profits. We want our clients to be part of the listing and to take part in the upside and value increase of their company.
Generally, we do not believe in buyouts – as the company owner we know that entrepreneurial founders are not interested in letting go of the company that they most likely spent years on building, and as entrepreneurs they most likely do not find happiness in sitting with their hands in their pockets starring at the wall – they want to continue building their businesses.
We want to provide our entrepreneurial friends with the tools for them to be able to capitalise on their success and to continue to run their businesses while caring about their focus on freedom, quality of life and their never-ending reach for the next level. Just like we do ourselves.