By Tara Morgan
I had the pleasure of interviewing Laurent Haziza. After having studied at Sciences Po, Dauphine and LSE, he began his career as an analyst at Dillon, Read & Co., subsequently he became a Manager at Barings and later a Director at Merrill Lynch where he worked for 4 years. Following that, he undertook a position at Rothschild & Co in 2000 as Director and became Global Partner in 2005. Since then he has continued to make his mark on the industry through numerous deals.
On behalf of BSPEC, I would like to thank you for accepting our informal invitation to this “Coffee Break with”. How did you come to work at Rothschild?
After having ten years of experience in investment banking, I was looking to work in a developing sector of finance and identified Private Equity as an area that was poised for strong growth. The question was, how could I develop a practice on an independent platform, without any financing? It was an interesting challenge because lending money to people is not very complicated but getting paid for intellectual capital is harder but far more interesting. The common view 20 years ago was that financial sponsors did not need advice. I took a contrarian view and I saw an opportunity. David de Rothschild, our then Chairman, gave me a chance to prove it. Today financial sponsors account for 30-40% of the global M&A pool.
At the time, the mid-market private equity firms (3i, Bridgepoint, …) were completely neglected by the investment banks, so we approached them and told them what we wanted to do: we wanted to advise them on their mid-market exits and give them access to a global network that assured them, among other things, that we could identify all of the strategic buyers for a given asset while executing the deals at a senior level.
That’s what we created, and it worked, so they followed us. And then, as always in periods of great growth, there was a big evolution within private equity: the acceptance by LPs of what we call secondary buyouts which used to be inconsiderable before the early 2000s.
The reason why I’m telling you this is that it has led to a tenfoldincrease in the size of the private equity market. Before this, when a private equity firm made an investment, it had to be either an industrial exit or an IPO. But the phenomenon of the secondary LBO revolutionised this and it’s been interesting to witness. Secondary buyouts today account for more than 60% of PE activity in Europe. In other words the PE model works beyond the first deal, and can be a permanent source of capital. Some companies have been through 4 or 5 consecutive buyouts. Some cynics are critical of these so-called “pass the parcels” deals among PE firms. My view is that this phenomenon shows the strength of the Private Equity value creation model, due to two key attributes: the alignment of interest between management and shareholders, and financial leverage as a way to enhance returns.
What happened was that we started seeing large funds (KKR, Blackstone, …) buying portfolio companies from mid-market funds (3i, Bridgepoint, …) claiming that they were capable of doing things that the mid-market funds hadn’t thought of. As this type of transaction began to be accepted, we advisors saw the opportunity as a godsend. Why? Because in reality, when we advise PE companies on an exit, we develop a relationship with the management team of the company, the CEO, the CFO etc. and when you do your job well, you keep that relationship despite the changes in shareholders. So what happened was that mid-market companies that we had advised, such as 3i, Bridgepoint etc. were sold to new owners but we kept our relationship with the underlying companies. That’s how we developed a large and a mid-cap franchise and advise both sectors to this day. For example, in 2013, we advised Charterhouse on buying a world leading foam insulation company called Armacell for €500m Enterprise Value from Investcorp. In 2016, we advised on the sale of Armacell to Blackstone and Kirkbi for €960m. Last year we advised on the sale of the company to PAI for €1.4bn. All this under the leadership of Patrick Mathieu the CEO who has delivered an exciting value creation plan taking the company from €60m to €140m of EBITDA.
What other innovations have you implemented?
Over the years, we have developed other branches. First of all, I had the idea to start advising funds on all of their financing issues. Take the example of a company that is very leveraged at 6-7x EBITDA in normal times. Were there to be an economic crisis, the EBITDA would decrease while the leverage increases to 10-12x. Consequently, this company would find itself in a situation of financial stress. Taking this into consideration, we developed a division of financing advice for the funds and their portfolio companies and a division that advises on IPOs. How come? We realised that most individuals who work in PE don’t know much about the stock market and, very often, have very limited experience regarding IPOs.
In the past decade, there has been a broad development of consulting in financing, whether it is on the debt side, which was very relevant during the last crisis given that by definition, the private equity portfolios were all leveraged and therefore overexposed, and very, very vulnerable, or on the equity side. Now, what are we doing? How does it evolve? It’s all evolving all the time. Business is not static and that’s why it’s interesting. There are always new improvements, for example for the past 2-3 years, the PE industry has been familiarising itself with what we call GP-led secondary transactions. These transactions whereby a fund sells a company to an SPV address one of the limitations of the PE model in that limited partnerships have a finite 10 year life. These structures effectively provide an extension which is more in line with the strategic development of certain portfolio companies.
Additionally, it is worth noting that during the pandemic important aspects of M&A transactions such as due diligence have moved completely from physical to virtual which has been remarkable.
Could you share how Rothschild has changed over the years to retain its leading position as a PE advisor? What further changes and opportunities would you expect to see over the next 5 years?
This is a question that we have to ask ourselves constantlybecause we are intermediaries but there is no monolithic answer. What we can say is that we are living in a period of unprecedented technological transformations. However, the field of deals and intermediation don’t seem impacted by these changes. It is paradoxical, but we remain in a field where human, emotional and psychological intelligence are key. And so, for the moment, we can’t say that there are any structural changes on the horizon in the way we make our deals.
However, many sectors of the economy are very much impacted by this technological change. I think the intermediation and transactional side of M&A are still pretty isolated from that. The biggest evolution for me has been the broadening of alternative investments, in this sense, it means that there isn’t only private equity but there are new asset classes (real estate, infrastructure, credit) and new players (sovereign wealth funds, family offices). These changes aren’t happening overnight, but they are crucial underlying trends.
If we take the case of family offices, it’s quite interesting because their goal is more of a capital preservation mission. And finally, they are discovering that the private equity model has a lot of merit in the context of capital preservation. And so, an increasing number of family offices are becoming more professional, that is, setting up teams, by recruiting professionals and applying methods that are those of private equity. In fact, there is a recognition of the virtues of the PE model by players who are not private equity players. Even though they aren’t going to apply the model to all of their investments, they are going to apply it to an increasingly significant part of their portfolio.
So what do we, as intermediaries, want? Our mission is to capture these trends, not only in the narrow sense of private equity and to be present in these new verticals; we are very active, particularly in real estate and infrastructure. In addition to that, we also want to develop relationships with these new players which are sovereign wealth funds, family offices, etc.
Could you tell us about one of your favourite deals?
One of my favourite deals, which I found incredibly interesting, was the sale of Allflex. At the time, Allflex was the world leader in a niche market and a firm that had quite spectacular financial characteristics based on a very simple product: plastic identification tags for cattle.
In 2013, Electra Partners, which was a mid-market PE firm, was looking to sell Allflex (a sale that I led). It was an extraordinarily competitive sales process, one of the most competitive in Europe since the great financial crisis, with a rivalry not only between a multitude of private equity firms but also strategic industrial players. It is truly a company that has aroused covetousness and exceptional interest. Finally, after a ruthless auction, Allflex was sold to BC Partners for $1.3bn based on an investment thesis which in summary was to drive growth through adjacencies in order to position the company as an animal health company. Not only did they perfectly execute the thesis, but they also associated me in all these phases.
So what did we do? Allflex was a niche company with 70% of the market share but they needed growth drivers. Their product was good, but it was pretty basic. We believed that by adding a technological dimension to the product, we would make the company more interesting. So, I recommended a software and tech company called SCR based in Israel. SCR had a great health monitoring technology derived from the defense industry and used for dairy cows. This enabled us to reposition Allflexnow renamed Antelliq as an animal health company which would result in the doubling of the EBITDA multiple (from 13x to 23x) in 6 years.
In 2015, Allflex thus diversified by acquiring SCR which completely transformed the company. In addition to the plastic tags they were already selling, they produced security and monitoring systems for the cattle based on very complex software. In 2016, we sold a minority stake to a Canadian pension fund, PSP.
Finally, in 2019 I led the sale of AllFlex which was renamed Antelliq as an animal intelligence company and we sold it to Merck (one of the largest pharmaceutical groups in the world that has a market cap of ~$200bn and an animal health division) for $3.25bn.
To sum up, we started with out with an acquisition worth $1bn in enterprise value, we completely transformed it and sold it for over $3.25bn less than a decade later. It’s a perfect story.
What advice would you give to students who want to pursue a career in Private Equity?
My advice is to approach private equity with a good degree of lucidity, in the sense that, if you’re starting in this field, you need analytical qualities. I believe that with time and experience, you develop your judgement and decision-making capacities. However, if you do decide to work in the Private Equity sector, don’t expect to be like in Barbarians at the Gate by B. Burrough & J. Helyar (a great book that I recommend you read). Since then, PE has become institutional and when you start working in the sector, it’s mostly analytical.
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