Fleet on fleek with Equistone and Phoenix latest to ink deals in sector; Waterland’s SCIRIS buys again

Nexus, vehicle rental aggregator platform, has changed hands after Equistone bought the majority of its shares.

Good morning Eurohubsters, Craig McGlashan here with Wednesday’s Dealflow.

There’s an optimistic feel to the morning after news from the World Economic Forum in Davos, where the IMF yesterday said it would upgrade its economic forecasts and European Commission president Ursula von der Leyen announced plans to boost green investment in the EU.

We’ll be speaking to private equity firms to find out how the Commission’s move could affect the outlook for dealmaking in green technologies this year. But first, we also have good news in the shape of a healthy crop of deals. We have one involving Equistone and Phoenix in the fleet sector – an area we’ve covered heavily of late – plus a pair of deals in healthcare, an add-on by a Waterland portfolio company and an exit by Montagu. We also have an ecommerce deal by Main Capital and we round things out with an interview with CIL Management Consultants on the growing popularity of buy and build strategies.

Fleeting trend. Phoenix’s B2B vehicle rental aggregator platform Nexus has changed hands after Equistone bought the majority of its shares.

Nexus, based in Leeds, is a tech-driven business mobility provider with 550,000 vehicles across 2,000 locations. In 2022, the firm had more than 4 million rental reservations.

Nexus plans to launch product innovations in 2023 to assist the shifting mobility requirements of its customer base.

“Equistone’s Manchester office has been tracking Nexus for a number of years and we’re excited to be partnering with the team in its next phase of growth,” said Andi Tomkinson, partner at Equistone.

Read more about the deal here.

The deal follows Equistone taking a majority stake in BUKO Infrasupport and BUKO Waakt in January. The firms provide outsourced traffic and safety management systems in the Netherlands.

We’ve been seeing a healthy number of deals in the vehicle management sector on PE Hub Europe.

Just this year, we wrote about Carlyle entering exclusive negotiations to take a majority stake in Groupe Lacour, a French software provider for the vehicle repair and maintenance sector. We also interviewed Battery Ventures’ Zak Ewen about his firm’s investment in fleet management software providers Avrios and Vimcar.

Healthcare. We have a couple of healthcare deals to report this morning.

SCIRIS has acquired Source Health Economics, marking its sixth acquisition since Waterland Private Equity invested in the firm in 2020.

Source Health Economics, based in London, is a firm specialising in health economics and outcomes research, and has 33 employees.

This acquisition is the most recent development in SCIRIS’ expansion as the firm looks to buy and build opportunities to further its expansion on scientific and commercial expertise on both sides of the Atlantic.

Read more about Waterland’s plans for SCIRIS and Source Health Economics here.

Montagu has agreed to sell Maincare, a software provider for French public hospitals and health authorities, to Docaposte.

Maincare, headquartered near Bordeaux, provides a hospital information system that aims to help public hospitals, payers, and insurers put effective digital initiatives into practice for patients.

Read about how Montagu grew Maincare during its holding period here.

Ecommerce. Main Capital has announced the acquisition of Vendre, an ecommerce platform provider, by its portfolio firm Optimizers Group.

Stockholm-headquartered Vendre is a SaaS company with a module-based ecommerce platform. The firm serves more than 120 customers in Sweden, mainly SMEs in both B2B and B2C markets.

Check out full coverage of the deal here.

Buy and build. Finally, Juliane Kaden-Botha, partner and head of CIL Management Consultants’ DACH operations, spoke to PE Hub Europe about the popularity of buy and build strategies. CIL provides strategy support and commercial due diligence for management teams and investors.

Why are buy-and-build strategies becoming more popular?

For the past twenty years, PE has relied on strong multiple expansion over the holding period. Value creation activities were seen as beneficial but were not strictly necessary to generate a decent return on investment over a relatively short time horizon. In this current environment, this strategy won’t work. This suggests that to fulfil LP expectations and continue generating returns, PEs will need to focus relatively more on operational and strategic value creation to generate sustained EBITDA growth.

We have seen buy and build activity grow in popularity due to the “scale premium” and cost synergies they provide. Indeed, ~60 percent of respondents in a recent CIL survey of M&A professionals highlighted buy & build as their top value creation strategy. However, a holistic implementation plan to capture revenue expansion and synergy potential and the realisation that holding periods might have to lengthen again must underpin the overall buy-and-build strategy to ensure success and effective value capture.

In short, we expect buy-and-build strategies to become more popular in this current environment. However, holistic strategies and metrics to effectively track value capture need to be in place to generate returns on investment at the levels consistent with expectations.

Are any conditions acting as a headwind for the strategy?

Portfolio companies are experiencing headwinds on multiple fronts, from continuing covid fall-out, rising geopolitical tensions and regulatory concerns to labour shortages, supply chain disruption, wage pressures and ageing populations.

There is a clear necessity to focus on differentiating returns and changing multiple arbitrage expectations. As a first step, PEs should diagnose and manage their inflation exposure at fund and individual portfolio company levels. E.g., how can they optimise the pricing mix to mitigate the impact of inflation?

Do you expect any changes to the list of popular buy-and-build industries from 2022 into 2023?

We expect this to largely stay the same: the Index considers industry consolidation, relative scale and total industry turnover to identify large sectors well-positioned for consolidation. The sectors on the list will remain relevant for a few years as they reach maturity and slowly consolidate. Take the veterinary sector, for instance: this can be a very granular buy & build play, with PE essentially buying up individual practices to form a platform. Because of the level of base granularity, consolidation tends to take many years to play out.

Are buy-and-build strategies a better fit in some European countries than others?

Generally, four key features underpin an attractive buy-and-build market: a high degree of fragmentation, large synergy potentials, significant revenue expansion opportunities, and non-cyclicality, i.e., sectors with reasonably predictable growth patterns. Naturally, some countries will display more of these features than others.

The DACH region remains highly fragmented and under-invested, with a need for digital transformation across most sectors creating additional opportunities. Some of the economies in our Index are more fragmented, and some are also still more regulated and are only slowly de-regulating. Some are further along the maturity curve.  Pursuing buy & build strategies in markets and sectors with these features offers opportunities for experienced and resourceful investors to unlock value potentials, both in terms of return on investment but also ultimately to the benefit of these economies’ structural makeup.

That’s it from me. Happy dealmaking and I’ll see you again tomorrow.