From a recent interview with Tim Jansen at the website M&A Community, the platform for M&A professionals in the Netherlands that also publishes M&A Magazine.
“Time is right” for a new approach
Transaction specialists trained as accountants work in a team with experienced managers at A&M and offer a new ‘integrated due diligence’ service. “We noticed that there was a need for something innovative. You see that shareholders are becoming increasingly more active and that there is increasing pressure on management teams to improve the performance of their company. That companies were not only looking åfor traditional (transaction) advice, but were seeking broader support. For instance in the field of operational improvement,” Aversano says. “We do not only offer the typical consultants like McKinsey or Bain – but have people who have actually run a business themselves as well. One of our partners was the Director of Enterprise Services & Merchant Integration at Amazon. The former CEO of the Brooks Brothers and CFO of restaurant chain TGI Fridays are also Managing Directors at A&M.”
The key to the success lies in attracting the right people according to Mr. Aversano. “We only recruit the best transaction professionals from the Big Four to work in our teams as financial specialists. During interviews we also ask them to bring along a current appraisal from their employer. If this does not indicate “excellence,” the interview will end.” Mr. Aversano estimates that he spends half his time recruiting and selecting new talent. A&M is very selective in this process. “If we want to, we can double in size quickly. However, it is not our goal to be the biggest, but to be the best. We only hire people who have experience in transaction services and have gone through the CPA or similar certifications. In addition, applicants must also do a case study,” Mr. Aversano says.
In this ‘war on talent’ A&M can rely on three aspects to attract talent. The relatively young transaction advisory branch of the company has an attractive entrepreneurial start-up feel according to Aversano, whilst being part of a professional services company with 33 years of operational experience at the same time. In addition, A&M can offer people to take on a broader range of responsibilities because of its size. “At the Big Four, your job responsibilities are defined quite strictly. In my 14 years of professional services at the Big Four, I may have contributed to 500 transactions, but I was only involved in judging the quality of the earnings. This work is more standardized and focused on creating reports instead of contributing to solutions. Within our model for example, people can also be deployed as a CFO at a client. With this broad experience, we create a kind of super-professional,” Mr. Aversano says.
The third asset is simple according to the old hand: money. “We more or less use the same rates as the Big Four, but we do not have heavy overhead. Our structure is very flat. All the Transaction Advisory partners report to me and I report to the CEOs. This creates extra margin which enables us to offer a good compensation to the best people. They then do the best work and this leads to new projects. A low cost structure is therefore essential to us.”
A&M has recently become active in transaction advice globally
The rapid growth does mean that A&M has to say ‘no’ sometimes. “Saying this is not a very common reality in our business, but we are focusing on the long term. For us, the interest of the client always comes first. Our reputation is sacred. In the M&A world you are only as good as your last deal. We sometimes tell clients that we do not have the right people available. The consequence is that we are now noticing that clients are involving us in the process earlier,” Mr. Aversano says.
According to Mr. Aversano, agility and broadening of the services is crucial in the post-crisis landscape. The world of private equity and its service providers has changed radically. “The old model of buy low, sell high no longer works. It is really about working the assets now,” Mr. Aversano believes. “We can support a private equity firm virtually throughout the entire investment period with our model. From operational improvement, providing interim management to preparing an IPO.”
In the new market reality there is a “barbell” effect in the private equity sector according to Mr. Aversano. He compares the future of the sector to a long barbell used in weight lifting. At one end there will be major parties that have many resources at their disposal and are aware of virtually every deal. At the other end there will be specialized parties that focus on one or two sectors. These parties are often started by former partners of major private equity forms. “Middle market parties with a broad orientation will be in an increasingly difficult spot. If you must compete with a specialized party in a pitch for a healthcare transaction, you will often lose out,” Aversano foresees.
A&M has grown significantly in recent years, both in staffing levels and geographical presence. In the Netherlands the transaction advisory practice led by former KPMG partner Age Lindenbergh is experiencing strong growth this year. “Clients see the quality we provide and have praised our initiative to introduce a new approach in the market.”
According to Mr. Aversano, the European market is not as overheated as on the other side of the pond. “Greece still weighs on the European economy. Many American parties are looking, partly thanks to the strong dollar, at the European market for deals. The activity mainly focuses on the UK, Benelux and Germany. We recently opened our second German office in Frankfurt,” Mr. Aversano says. With the recent expansion to Latin America, A&M now sees itself as a “fully global practice,” making it possible to attract bigger clients.
Mr. Aversano says that his company prefers to enter a new market when it is at a low point. “It is easier then to hire good people and we can support companies in restructuring,” the former accountant illustrates. Paul Aversano indicates that A&M would have liked to start its advisory branch in the Netherlands a year earlier. “The economy is already improving again,” Mr. Lindenbergh emphasizes.
A&M expects that the economic growth in Europe will continue for now. The Americans have high expectations of the European M&A market. “During the crisis major companies have significantly cut costs, refinanced debts and saved money. These corporates are under pressure from shareholders to show growth now. Organic growth is modest as the local market is having a hard time to pick up momentum. The only other way to grow is through M&A,” Mr. Aversano believes.
Mr. Aversano expects that his home market will remain robust for the next few years, but does expect a slight delay. “This delay is not due to a possible change of the interest rate, but because of the presidential elections that take place next year. During election periods, there is always a small decline in M&A activity until it is clear who will be in the White House and what the consequences are in terms of legislation.”
He sees China and India as two other markets that could provide a lot of M&A activity in the next year. “In China, private equity firms previously could only get a minority interest in (family) companies. Now that the economy is slowing down, you see the M&A market mature. Private equity firms are now able to take bigger stakes and add efficiency. We have fast growing branches in both countries: in India we now have to move to a bigger office every year. A lot of business friendly measures are being introduced under the new government.”
All in all, Paul Aversano is positive about the M&A market and expects that the transaction advisory practice with its distinctive profile will grow its market share as it benefits from the growth in transaction volume.