Q&A: Embracing opportunities

Alex Hay, partner at Sovereign Capital Partners, and portfolio company Acolin's CEO Theo Splinter, discuss with Real Deals how to successfully run a buy-and-build process, the challenges involved and how to integrate new businesses.

What did Acolin look like before Sovereign first invested?

Alex Hay: Acolin was a business of scale. It provided regulatory services to over 500 asset management clients, operated from five European locations and was the largest independent provider of legal representation services in Switzerland. We recognised they were an innovator because they had also established a distribution network, but the business was still flying a bit under the radar. The market wasn’t aware of the full range of services offered.

We believed that with our capital, we could invest more into technological development, extend geographic coverage and further strengthen the business.

In addition, Sovereign was well placed to assist with succession planning – something we have a great deal of experience in. Acolin's founder, Daniel Haefele, has built an outstanding business but was ready to step back from the day-to-day running and take a non-executive role. That is where Theo comes in.

How did you assess opportunities for buy-and-build and how were new businesses integrated into Acolin?

Hay: Our origination team at Sovereign had been mapping providers of regulatory services within asset management and had a deep knowledge of the sector and the businesses within it. This was how we first came across Acolin. We recognised the breadth of outsourced services required by asset managers, which led us to identify other businesses that we thought could, and would, make very interesting acquisition targets.

We backed the MBO of Acolin in June 2020 and have already made two acquisitions, Fundbase and GFA, accelerating a number of the company’s growth objectives.

Acolin's founder's long-standing market insight gave us a great perspective on both targets. GFA establishes a meaningful presence in Luxembourg, which is a key European financial centre for cross-border fund formation and management, together with the addition of a modular, technology-enabled proposition in a core area of regulatory compliance, whilst Fundbase realises the business’ vision for establishing a digital marketplace platform.

Theo Splinter: To successfully integrate any sort of buy-and-build strategy, it is all about the fit between the two businesses. The tipping point for me is seeing energy behind a common goal, and a shared understanding of each of the original elements (functions, talents & people), and having a role to play to achieve that goal.

Realistically, you also ensure that acquisitions are onboarded on your company’s fundamentals, such as CRM, finance and management reporting structure. Operating your business, especially when onboarding another company, is equally about creating success as an outcome of your process, as well as structurally collecting data to build information and knowledge. While there’s the feature of internal development and decision making, there is also a platform of marketable intelligence.

The add-on acquisitions brought not only commercial and geographical reach for Acolin, they also brought a technical focus and those associated capabilities. Technology will allow us to focus human effort on delivering services and facing customers.

Integrating the businesses will not stop at process automation.

What are the challenges of a buy-and-build strategy?

Hay: You need to have the ability to have choice and options - to be able to walk away when things aren’t quite right. A huge part of our strategy is generating a range of options. We can do a lot of work around market mapping and customer propositions, but ultimately it is the integration of the businesses that Theo touched on that is absolutely critical. Once you’ve done all the desktop-led or board-led discussions, you need to focus on the people, to see if that energy or chemistry comes through.

Competition is naturally also a big factor and challenge with buy-and- build. A number of the tech-based markets we operate in are very hot at the moment, meaning there’s active competition for assets. We try to address that challenge through the long-term nature of our approach, by forming relationships with companies over time, and demonstrating what our intentions and purposes are, so they can judge us sufficiently.

How are ESG considerations taken into account prior to acquiring an add-on?

Hay: Whilst we have robust ESG due diligence processes at Sovereign, Acolin brings a wealth of positive ESG practices to the table. They achieved their carbon neutral accreditation earlier this year. We like to learn from our portfolio companies and evolve our own programme as we go.

Splinter: As well as the increasing ESG requirements in our industry, driven by new legislations, I’m also happy to see a shift in focus on new generations of employees. I feel as though my generation is being questioned by younger people who want to see their work-life and the way it is executed, contribute to bigger goals, and ACOLIN looks to incorporate that into the design of their working life. It takes me out of my comfort zone every now and again, but it’s refreshing and it unites both the father and the businessman in me.

What are the plans for Acolin going forward?

Hay: There is definitely still room to expand geographically in Europe, now we’ve got a foothold in Luxembourg, with potential to deepen our presence in London and Dublin. In the medium- term, the next step will be to expand into Asia and America. There’s a huge potential audience for the business in those areas. We’ve now also got a major focus on integration aspects and technological enablement, which will give better insight into our customers through a developing analytics tool. That’s the narrative we want to be taking forward.

Splinter: Our passion is to provide high value and sustainable service solutions to our clients, enabling asset managers to access new markets, meet regulatory obligations and ultimately grow assets across multiple jurisdictions, whilst navigating investors through an increasingly complex investment environment.

We plan to make Acolin the best we can for our customers, our people and our partners in the industry. An active M&A approach is certainly part of that and Sovereign has already put us in a great position to begin with.