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Grand designs

Equistone announced the profitable sale of prefabricated-house manufacturer Oikos to Goldman Sachs in March 2021 after three years of ownership. Equistone Partner Stefan Maser reveals how operational and strategic change saw Oikos develop into a highly attractive asset.

EQUISTONE ANNOUNCED THE sale of Oikos, the German prefabricated-house builder, to West Street Capital Partners VIII, a fund managed by Goldman Sachs, in March this year.

The original investment in Oikos completed in January 2018, when Equistone Fund V acquired the company from Adcuram Group in a secondary buyout. The business had total output of €310 million when Equistone did the deal, which had climbed to €421 million by the time of the exit.

The decision to sell a portfolio company that has traded so well after only three years is never easy, but the performance of the business and the next step it needed to take in its development brought an exit into view ahead of expectations.

Beating projections

Equistone's Stefan Maser, a Partner in Munich
Equistone's Stefan Maser, a Partner in Munich

Soon after acquiring Oikos, we advised management to closely work with specialist industrial consultancy Munich Strategy to lead a programme of digitalisation and operational excellence, and this quickly bore fruit.

Despite COVID-19, Oikos has consistently traded above budget and its order book was full, so we knew there was clear visibility of what the company’s turnover would be for the next 18 to 24 months.

It was clear that at the current rate of growth a further capacity increase was on the cards for Oikos, so through the summer of 2020, early conversations with the Oikos management team, led by CEO Marco Hammer, took place to map out a timeline for when Oikos would need to invest in a new factory.

The analysis showed that investment in additional capacity would have to start in 2022, with the new factory scheduled to start loading new orders from 2022/2023. To plan carefully, potential delays of six to 12 months and cost overruns of 10%-15% need to be considered when building a new site, which would have taken us up to 2024. As a new site has to show real numbers once opened before any prospective sale, it would need at least another 12 months of trading before being in a position to look at a potential sale.

While Equistone Fund V had the capacity to fund this next phase of the company’s growth, the business was in a position to transition to an owner with deeper pockets to fund the capacity expansion and to facilitate international growth.

Hanse Haus - Oikos Hanse Haus - Oikos

Preparing for exit

Together with the management team, Equistone decided that the window was open to try for an exit with the option to continue for another three to four years if an appropriate valuation was not secured.

The partnership between Equistone and the management has been central to the success Oikos has achieved, so securing their support for the project was very important. It was clear to the management team that this was a good point to accelerate growth with new partners.

Equistone's David Zahnd and Tanja Berg.
Equistone's David Zahnd and Tanja Berg.

In June and July 2020 an internal longlist of M&A advisers was drawn up, and amid very strong competition, it was decided to go with Alantra, led by the firm’s Frankfurt Managing Partner Wolfram Schmerl. Alantra advised Adcuram on the Oikos deal three years ago. In some cases that is an advantage, because the adviser knows the business well, but Alantra demonstrated an understanding of how the business had changed and grasped the importance of the digitalisation and operational programme. Alantra also built an excellent relationship with the management team early on, which was very important to us.

Diligence with a difference

Work on the process began in September 2020. Preparing the company for a sale and facilitating due diligence came with its challenges, given travel restrictions and social distancing.

Meetings with the management team and site visits were offered, but much of the work took place online and digitally. Drones were used to film the factory site and produce a virtual site tour, and there was a large amount of interaction online between all parties. In fact, there were no delays at all – the process began at the end of September 2020, we had first round bids in early January 2020, and by March 2021 Equistone and Goldman Sachs could announce the deal.

Curating the buyer universe

As the sale progressed it became very clear that Oikos was an attractive asset, drawing a lot of interest. There was significant inbound interest, but we weren’t afraid to advise that certain parties were kept out of the process if they weren’t a good fit for the business. It was a very closely fought race, with other parties going all the way to the line with Goldman Sachs, who prevailed in the process.

Valuation was obviously crucial, but the bidders in the final run were all there on pricing. The factor that proved decisive was the buyer’s fit with the company and the management. Goldman Sachs was very strong here and also had that international scope that the business and management team were looking for.

The potential buyers all recognised the earnings quality of the business and the fact that Oikos had traded ahead of budget despite the disruption of the pandemic and lockdowns across Europe.

A strong value creation story

The potential buyers all recognised the earnings quality of the business and the fact that Oikos had traded ahead of budget despite the disruption of the pandemic and lockdowns across Europe. There was also a recognition of the journey the company has been on through the last three years and Oikos’ compelling value creation story.

When Equistone Fund V first backed Oikos it was a collection of two unrelated prefabricated-housing companies, Bien-Zenker and Hanse Haus, with separate accounting systems and budgets and no operational synergies. One of the first initiatives was to integrate financial reporting, bring in a new CFO, consolidate the brands under the Oikos holding company, which was newly created, and appoint a group management with Marco Hammer CEO.

In terms of the operational-improvement drive, digitalisation was a priority. On entry Oikos’ customer acquisition was primarily through catalogues and showroom networks. As we emerged from the first wave of the pandemic, between 80% and 90% of Oikos’ customers had their first contact with the company through the internet.

The implementation of the digital transformation early in the hold period was of immense benefit through lockdowns, when showrooms had to close. Construction is an old-fashioned industry and has been slow to embrace digitalisation.

In addition, the operational programme has also seen the business increase onsite production, consolidate its supply base and facilitate the sharing of best practice across its constituent brands, leading to additional sales and improved margins.

A story I like to tell, to show the value of sharing best practice, is how the Oikos brands discovered that each company produced the same parts but with different sizes. There was no technical or design reason for doing it this way. It is just the way that they had always done it. When they realised this, substantial cost and efficiency savings were captured by configuring a process to make all parts the same size. The accumulation of these gains through information sharing and operational best practice has enabled Oikos to improve overheads and shorten lead times.

Through the course of the sales process, buyers saw a business that was outperforming its peer group in prefabricated-housing, which itself was outgrowing the traditional construction sector.

Looking ahead

Oikos has been a very successful investment for Equistone and the exit process has gone as smoothly as anyone could have hoped.

The partnership between Equistone and the management team was key, and management have been fantastic about embracing the operational and digital vision we had for Oikos. I remember that within six months of when management started out the operational change programme with Munich Strategy, some of the biggest changes were already implemented. That is to the management team’s credit. It is a team that has always set out a clear direction for the company, but always remained open to new ideas.

Oikos is on a solid foundation, and has exciting opportunities ahead to expand its production footprint and grow its brands internationally. We wish them the best of luck. 

A full version of this article appeared in PLATFORM 05, Summer 2021