LMBO at French broker Siaci Saint Honoré
Ardian and Edmond de Rothschild in June 2018 announced they would transfer control of French brokerage Siaci Saint Honoré (SSH) to its management with the support of investment fund Charterhouse.
Investment fund Ardian now owns 51% and Edmond de Rothschild 19% of the company. The value of the deal, which is expected to close in September 2018, has not been disclosed but is understood to stand at a little over 1 billion euros. In February 2015, at the time of its acquisition by Ardian, SSH’s total enterprise value was estimated at some 520 million euros.
Management already owns 30% and will control the majority of the capital. Charterhouse will become the second largest shareholder. Ardian may still choose to keep a minority stake.
For several months now, acquisitive investment funds had registered their interest in SSH. Competitors from the insurance industry were not allowed to make bids.
In 2017, SSH’s turnover increased by 14% to 350 million euros, and the stated goal is to reach 500 million euros by 2020.
SSH already generates more than 25% of its turnover outside of France and will continue its external growth strategy, targeting continental Europe, Asia, Africa and the Middle East.
Background and Comments
Back in 2015, SSH was acquired by Ardian (formerly AXA Private Equity), at a time when the broker’s turnover was 259 million euros (2014). The deal value is rumored to have been around 500 million euros and the acquisition was financed in part by senior debt for 250 million euros – about 5 times the company’s EBITDA, and quite a high level of leverage. The loan has a maturity of seven years (2022) and is repayable in fine. There also is a line of credit of 35 million euros to finance acquisitions. To use another metric, the purchase price in 2015 was around 10 times EBITDA.
If we accept that SSH’s enterprise value is based on a multiplier of sales of 2 as in 2015, the company’s current valuation should be around 700 million euros, not 1 billion. One billion can only be justified by projected 2020 sales or by using a multiplier of 3, which is at the high end of the usual range. Of course, determining the value of a company by multiplying sales by some factor makes little sense from a financial analysis standpoint. If we now look at EBITDA, it may have reached close to 70 million in 2017, which implies a multiplier of around 15 times EBITDA to reach 1 billion. A multiplier of 15 is at the high end of the usual 6x to 15x range.
In conclusion, where the 2015 deal was made at a reasonable, middle-of-the-range price, Ardian’s exit three years later occurs at a very favorable level. In other words, management is preparing to buy the company at a rather high price. Going forward, the question is, how will the same management create enough value to justify the price it paid? What is certain is, they will work “for free” until the company reaches 500 million in sales. According to plan, that is in 2020. Unless, that is, they know something their former shareholders do not; or they trust they can find a “strategic” buyer, i.e., someone ready to pay almost any price to buy Siaci Saint Honoré.