Rollup of Tomorrow Vol.21: What France’s Rollup King did next - interview with Charles-Henry Beglin

0:10 Speaker 1 Welcome to yet another episode of the Roll Up of Tomorrow series. On today's episode I have a Co founder of Cimargo and Builders Associate, Sharon Rebeglan. Welcome Charlotte. I want to start with your motivation for pursuing Builders associate. You had a very successful exit and see market which continues to grow. Most people in your position would rather pile on AUM, do bigger deals but you decide to focus on more deals. 0:29 Why? 0:29 Speaker 2 1st, thank you for the invite. We see my goal. We understood how to do small deals, build a group, create a real road map and philosophy for the group. And we wanted to stay humble because if we succeed in one alley doesn't mean that we could succeed in larger deals of venture capital. 0:46 The knowledge and skills that we can bring to other entrepreneurs. What about the roll ups and the acquisition of small companies. So we just wanted to stay humble and say we know how to do these things. We can help you with that. But we are very clear on we are not the new inland Moscow of like going after plenty of different strategies and and succeeding all of that. 1:09 Speaker 1 So let's go back to the start, talk about the beginnings of of Sima Go. You founded it together with Clement. How did you guys meet? What's the origin of partnership and how did you come up with that idea? 1:18 Speaker 2 Came on myself since Business School we were at HTC Paris together. He started in constructing and I started in private equity and after 4-5 years we were seeing most of our friends going the entrepreneurship route. 1:33 But the kind of the old way creating product services and and try to believe from scratch. We also saw one guy from HTC called Gregory de Clair that that started Silviette had then renamed Reika. That was the first roll up, accelerated roll up as we call it in France. 1:52 And we, we thought, look, we don't believe we have the skills to create a software in Facebook or whatever. But because he was in constructing and I was in investing, we had the skills about analysing A sector, acquiring companies and doing all the financing. 2:11 So we had the competencies and said, OK, let's try to to build that. We we went on to six months of trying out to find the right sector and we ended up with with Relegy. 2:23 Speaker 1 And at the time the whole roll up independent sponsor movement wasn't a thing. You guys were 29 in good job. Why not just accumulate care and continue the corporate life? 2:31 Speaker 2 To five years, you realize you are working for someone else and although these are very interesting jobs, you realize you can be more for yourself. We identified small deals and roll ups as a niche where private equity funds, even the small corporate equity funds were not going into that because it was too small for them. 2:52 So it was kind of an asset class that was left away, but it was a strategy that was very proven in the US and the US are always five to seven years ahead of us and that's what we went for. 3:03 Speaker 1 You didn't go for the easiest industry to consult it, which is radiology. Why didn't you go for another industry and why didn't you launch multiple platforms at once? 3:11 Speaker 2 Why not launching multiple platforms at once? That's something we debate a lot with young entrepreneurs that believe I'm just going to keep being an investor and have multiple sub segments with very different industries. I believe that you cannot build a strategy, synergies and the proper momentum for your company. 3:31 If you do that, why radiology and not something else it's all about? Is it exciting for a new fund to come in once the company is a bit bigger? Because what we're trying to say to all of the new entrepreneurs is they are not going to make money for themselves out of the dividends that they could pay out every year because they don't pay out dividends. 3:53 They're going to make money out of selling the company. So like any company, UN is to understand what is your customer looking for? And private equity here being a customer, they want organic growth, they want long term trends that are positively pushing your business. 4:13 And This is why we we found in radiology, Western Europe countries are getting older so you need more imaging. And we had a few technological changes such as teleradiology and AI that we're going to push volumes and decrease costs, so improving EBITDA overall. 4:31 And these were stories that we knew could be very interesting for private equity funds, especially because I used to work at at Permian and I I knew how the investment committee was looking at these topics. 4:45 Speaker 1 You strike me as a guy who has a lot of conviction. But if we go back seven years, you did not have track record yet you managed to convince marijuana from entrepreneur and us to write your check. What was your pitch so. 4:56 Speaker 2 First, you're very right into we had no credibility. So we came on, we went out and we asked for meetings with different investors. We had 13 meetings, 11 funds that said we are not interested into investing and we had one offer from another fund that was not a great offer. 5:16 And then we my one to my knowledge is the most seasoned investors in in France in terms maybe in Europe actually in terms of financing roll ups from from the beginning. And I think he was just trying to understand, do we know what we're talking about in terms of acquisition? 5:37 Is the sector a good sector? And does he believe that we'll be able to convince radiologist? I think in his head, he said yes to all of his three questions. He was definitely right for the 1st 2. The third one, which is convincing the radiologist, that was tough. 5:53 The first deal took us maybe 6 or 8 months to get to signing and then another six months to get to closing. Second deal was six months after that. So in 12 to 18 months we just had two deals done, which is like super, super wrong. If the sector is good, if there are multiple company to acquire and if you can acquire them at at a low multiple, which is something that we had to demonstrate to him, then you will succeed. 6:18 It might take time, but you will succeed. And that's really kind of the philosophy. We are using it at Billosophy. 6:24 Speaker 1 Super nice segue into my next question, which is owner credibility. A lot of private equity guys that I meet really struggle with storytelling. You know, they used to, hey, here's the deal, a competitive auction. I need to convince the banker or another sponsor that owns the asset. But when you approach those small business owners, they don't really care which firm you represent or used to work at, right? 6:41 And so part of my calendar. But there's two provision guys from verified backgrounds, nice education, but nothing to do with radiology. What was the pitch? 6:51 Speaker 2 To the founder. So it's now seven years ago we were going to a small centre South of Paris. And so we sat with these two radiologists and we're saying we are not trilogists. We're not going to do your job. You're going to keep on leading your people, which is a key part of the strategy of, of cinema go and, and, but on the rest, all of the things that are not key to your business, which is HR investment, IT and investing technologies that we can help with because we come from the background. 7:26 Speaker 1 We Fast forward a couple of years, Simaga is now a 400 million plus revenue business built entirely from scratch. It's also very central to your investment strategy. You're not content with 1015 million EBDA at exit. Talk me through this. Why such a high bar and what gives a conviction that the teams you back can actually get there? 7:41 Speaker 2 Most of the funds that are backing Rob stories in Europe are targeting the 1015 million EBDA mark before selling. It's a great strategy. The reason why we wanted to go with a different strategy and I mean more like the 3035 million EBITDA is because when we exited to RDN, we run a a competitive process. 8:03 We saw a lot of practical defence and all of the questions were around the maturity of the business and the management team. And one drawback for for synagogue was actually a lot were were revolving around Clement and myself and the private equity funds were like, OK, if these two guys actually want to stop working or do not manage people to do not manage to convince people to come and work with them, then the business is dead. 8:32 And once you say that, you realise that you need to build a big team. You will not build a seasoned team with a 5 or 10 million Abd business. No great CEO or great CFO or great CEO that used to have big jobs would join a 5 or 8 million EBITDA business because you cannot pay them enough. 8:56 There is no ambition behind that. And actually it doesn't look good for them. So we said, OK, if you want to have the the great C-Suite, you need to have EBITDA to afford them and and also to motivate them. 9:14 So that's one of the reason. And also as you are, you reach the 3035 million EBITDA, you also can have a larger HQ and when you come to exit, you can show that this is not a two man show. It's actually a proper company with proper central functions and with already examples of cost savings, improvement of sales, digital innovation and so on and so forth. 9:41 Speaker 1 I get a sense listening to you. There are a lot of battle scars and things that worked and didn't work out in Sima Go, and you actually teach a module in our role of boot camp where you talk about seller retention and succession. A lot of industries are attractive because the multiples are low and the multiples are low because people want to retire. But that presents a big issue in itself. 9:57 Do do you have any advice for founders? When you're looking at an industry with a bunch of companies where there's a high probability of the founder leaving, how do you ensure that the businesses you buy don't actually implode? 10:08 Speaker 2 With our strategy, you have to do a lot of acquisitions and so you cannot manage all of these companies. So you need to have a very strong plan to retain your past owners that are managers of these companies and you also want to be aligned with them. 10:26 You want to offer them some reinvestment and I think you can maintain a lower multiple because of the reinvestment scheme. But I'm very sure that you are not reaching the lowest acquisition multiple because you're asking them to stay. 10:41 But the extra turn of EBDA that you will pay out to them in exchange of saying, yes, with my project you have to stay it, it actually creates so much more value just by not destroying the business one year or two year after acquisition we could. 10:58 Speaker 1 Spend a lot of time discussing how you're great and Simongo was great, but the real reason why I agreed to this interview is because you're actively deploying. Capital Builders Association is not a standard fund. It is backed by by you and other acquisition entrepreneurs. You've backed teams in France and Germany and Italy. 11:14 Can you walk me through the teams that you back? What type of skill set do they need to have? 11:18 Speaker 2 Yeah. Maybe just before going to that question coming back a bit to builders. I see it is, I mean, you do see a lot of of of Clement and myself and, and my one is contributing as well, but it's really kind of an investment vehicle backed by a collection of all of entrepreneurs. 11:37 So us but Gregory declare I mentioned and and others in in France and likely that going forward it would be ordered in Europe based on the the fact that what we benefited mostly when we were at Simago is the experience of past roll up entrepreneurs rather than industry experts of radiology. 11:56 And we wanted to replicate this kind of ecosystem so that all of the challenges that you might face when you are a roll up founder, you have a collection of 8/10/15 former roll up entrepreneurs or current roll up CE OS that can help you answer these questions. 12:13 In terms of what type of profile and and check that we write with our strategy to reach 30 to 35 million EBITDA in the type of industry and and acquisition multiple environment that we target, we do need 7 to €10 million of equity per platform also because we are relying on reinvestment of sellers and then debt. 12:34 But just so that we are comfortable and we we give kind of certainty to the founders, we do carve out €15 million per platform. And a typical founder team would be do you offend us if you're by yourself, it's too hard of a job. 12:52 And we want to have someone ideally that come from an investment background, either private equity fund or an MNA director at at a corporate. So I someone that have been executing deals, negotiating shoulder agreements, negotiating financing agreements, SPA leaving then with the company, they are required and acknowledging also the mistakes that you did in terms of due diligence and your assessment of the business. 13:22 So these people that have 4-5 years of experience in that type of field is a, is a great founder. And the second founder, it could be someone from consulting, someone from finance, again, someone from operations or, or or past entrepreneur. 13:40 We think it's, it's OK. It's, and then it's really much about the, the fit and like you mentioned, there is very much an aspect of social skills. And that's something we try to, to assess, which is are they going to be able to convince sellers to sell to them? 13:58 And so are they agreeable? Do you want to spend time with them? Are they good at kind of conveying the, the message and the pitch? That's something you feel very much in the first half an hour of discussion with with a group of founders and it's a key parameter of our analysis before before investing. 14:18 Speaker 1 Are there any sectors you would not go into? 14:20 Speaker 2 Sectors where you have a lot of hype because although these sectors could be very large, there is a limited number of of deals happening at a given time. And if you have too many roll up companies going after them, just going to have an explosion of multiples. 14:39 One sector where we had multiple opportunities to invest, but we decided to pass is accounting firm in France. Not that it's a it's a great sector, but we saw so many people calling us at the same time. We thought we thought, OK, the multiples are going to skyrocket. 14:57 Doesn't mean that the companies that went after that are going to to have a a bad exit. I wish them to to be to do great and and make a so do. 15:05 Speaker 1 I. 15:07 Speaker 2 But we try to stay away from the, the, the sector with too much competition. And also I think anything with a large amount of CapEx or CapEx cycles, I think that's something we would be a a bit void because then if you want to exit and you are at a bad time of the CapEx cycle, that could be a difficult situation. 15:28 Again, thinking in terms of what will attract private equity funds to to be interested and to acquire your business. 15:35 Speaker 1 Could you give our listeners readers some indication of what mox do you underwrite to? 15:40 Speaker 2 That's not something we are so keen to display during a podcast. Put it another way, together with the ambition of 3035 million EBITDA and the multiple acquisition we target, we aim for the for each of the two founder to have 30 to 40 million at least of value for their stake before they exit in in 3-4 years. 16:03 Speaker 1 Do you see the heightened competition from other investors? 16:06 Speaker 2 Competition have increased significantly over the last two years. You have great funds like those Strada and Aven in Germany and have a a couple of platforms in Germany, one in the UK, one in in in Delhi and trying to to keep on diverse thing. 16:23 I think the 1st all of these funds are great funds and and great teams. Lot of funders will be more comfortable with OK, my plan and the one that the plan I'm going to agree with the fund is 10 to 15,000,000 NBDA within 4 five years. 16:41 And they feel that they can achieve that. And so I think that's kind of a self restriction that funders at some point will say, OK, maybe it's not something that I want to do with with builders associated because they reaching for more. But the, the one entrepreneurs that kind of understand and, and, and and buy the strategy of if you want to have a strong team, which is going to attract next private equity owner, you need to have a larger BDA base. 17:07 And they're actually methodology to do that. Then they will really want to to work with us because we have done it with synagogue ourselves and keep on running. Synagogue been investing alongside founders for the last four years with great teams like Conos, OMX. 17:25 More recently Valdo and all of these firms have been able to build a lot of EBITDA. Kronos is is north of 20 million EBITDA now in in less than four years. Valdo is reaching 20 million of EBITDA in in less than two years. So we have done it multiple times. 17:42 We've seen a go and other companies and so I think the founders that are looking for found to get to that goal to 3035mm in in four years, they would be more attractive to us because this is our ambition and we did it with other companies. 18:02 Speaker 1 Let's talk about the future of builders. Are you planning to raise an institutional fund and start going big, or are you just going to retire at some point because of all the marks you're delivering? 18:12 Speaker 2 No, no retirement plan. We are working with amazing entrepreneurs and that's something that expected very much in terms of the of the fund. We obviously structuring ourselves and and making sure that we can work with more platforms, so get more capital. 18:31 I think there is now a variety of ways for a fund to to collect capital to deploy. So we kind of figuring out our strategy, but clearly we will keep on trying to diversify and so more investment out of the France and I mean you will show up. 18:52 You're also trying to work with new markets such as Poland and East Europe. I think that's something we're also looking into. So that's kind of the where the next five years will be. 19:02 Speaker 1 Great. So this was Charlene Biglan from Builders Associate. If you have ambition to build a bind built with at least 30 million EBITDA in three to five years, you know who to call. Thank you. I really enjoyed that. Thank you. So. 19:13 Speaker 2 Much.