While Thierry Jaugeas was CEO of the combined group, he was choosing to stay with Vertbaudet, which was the larger business and was experiencing positive dynamics. However, he remained in charge of both sales process and the carve-out and transaction services agreements between the two entities. We managed to meet up with Thierry in person, before the second French lockdowns were imposed, and this time was invaluable in truly understanding the asset. The fact that he had such a good overview and grasp of the complexities involved in the transaction was a comfort.
Assessing the business’s performance and prospects was made complex for two reasons: firstly, the company had been in full transformation mode into a digital player for nearly five years, so comparison was quite a challenge. On top of this, just as the digital transformation was bearing fruit, the Covid crisis hit. What followed was a poisoned chalice faced by many sales processes: a huge increase in turnover during 2020 that was tainted by a one-off extraneous factor. The CEO was adamant that the transformation had started to show results at the end of 2019, prior to the ‘Covid bounce’.
As dealmakers, our main task was therefore to analyse whether 2020 was a one-off, or, as the CEO was telling us, it was just an acceleration of a fundamental, sustainable growth trend. Nobody, not even the vendors, were claiming the 2020 growth rate was normative – it was obviously very strong. But that is a different question to the one we asked ourselves: whatever may be the attribution to Covid, can we grow the business from here?
We had very long discussions with our advisers, the management and our own Investment Committee on this point. Was the level of activity we thought we were buying sustainable? If not, what was the right level of activity on which to attach a value?
Ultimately, we ended being convinced by the CEO based on the fact that the positive dynamics had indeed started before Covid. It had accelerated significantly in 2020, but we believed the group would be able to grow from that point. In the end, we projected a sustainable level for 2021 that was slightly higher than 2020, but lower than management forecasts – and we used this to calculate our offer. (As it turns out, the full year 2021 will be far above the level we used at the time of the transaction.)
Sometimes, impossible questions are just the wrong questions. Nobody could fully extract the Covid performance from the business transformation benefits, but we realised that what really matters is whether the company can take its good fortune and build on it. Can it retain the large number of customers it managed to recruit? These customers may have come to Vertbaudet because other shops were closed, but they stayed because they were happy. Such business-specific questions can be credibly assessed.