Deal Mechanic: Getting the house in order

Meilleurtaux was not a typical Equistone Partners Europe investment. In 2012, when HSBC was selling the mortgage broker for French bank BCPE, it was loss-making, and the business was only just breaking even when the deal was completed in 2013.

But three key elements persuaded the firm Meilleurtaux was a good investment. The first was the strength of the management team, led by chief executive Hervé Hatt. The second was the market opportunity.

“We were convinced there was a great potential for this business in the French market,” Equistone managing partner Guillaume Jacqueau tells Private Equity International.

Jacqueau was particularly interested by the fact that the market share of mortgage brokers in France was just above 20 percent, while in the UK it was more than 60 percent.

“Even if the UK market is much more mature than the French market, there was such a gap between the two countries on the market share of mortgage loan brokers that it was quite obvious to me that there was a great potential for this business in France.”

The third attractive aspect was the strength of the Meilleurtaux brand name.

“It’s a great brand name with very high brand awareness, known by almost everyone in France,” Jacqueau says.

Equistone is understood to have invested €25 million to acquire BCPE’s 100 percent holding in Meilleurtaux in April 2013.

1 FRANCHISING

Meilleurtaux operated online and through more than 200 high-street agencies. A key part of Hatt’s recovery plan for the business was to turn those agencies from subsidiaries into franchises.

“I would not say it was low-hanging fruit, but it was something which was relatively easy to understand and not too complex to implement,” Jacqueau says.

As well as dramatically reducing cost, franchising created a different, more positive dynamic.

“The dynamic of franchises is much more positive; people manage their agency like their own business because it is their own business, so they have an incentive to manage it as efficiently as possible.”

2 BUILDING ON THE BRAND

The strong brand meant Equistone could expand the number of products and services the company offered.

“Hervé Hatt had been very clear from day one that he wanted to expand the service and product offering,” Jacqueau says. “The idea was to make Meilleurtaux a kind of financial services supermarket with a lot of new products and services.”

During Equistone’s ownership, the company diversified from its original remit of selling just mortgages and loan insurance, and began to offer debt consolidation, consumer loans, bank accounts, general insurance and loans for small and medium-sized enterprises.

There was also significant growth in Meilleurtaux’s core mortgage offering through developing the sales function and expanding the customer base. Meilleurtaux opened several new agencies across France, bringing the number up to 250.

Equistone worked with Hatt and his team to optimise and improve the quality of the company’s website. These efforts paid off with visitors more than doubling during the four-year investment period to 26 million per year in 2016.

3 GROWING THE PLATFORM

“When we announced the deal in 2013, Meilleurtaux was identified as a natural platform for consolidation, so we received a lot of inbound investment opportunities,” Jacqueau says.

During the hold period, Meilleurtaux completed five bolt-on acquisitions, which helped the company build out its product offerings.

The first, in 2014, was bank comparison website Choisir-ma-banque. This was followed by loan insurance comparator and broker Multi-Impact and online debt consolidation specialist Préféo in January 2016 then insurance comparison website MerciHenri.com. All were rebranded under the Meilleurtaux banner.

“I think we’ve been helpful in this context,” Jacqueau says. “Hervé Hatt is a great professional who did not necessarily need our help understanding the business opportunity, but given our experience in M&A, we helped in the way we could set the price, in the way we could negotiate the deal, in the co-ordination of the due diligence, in the legal aspects, in the asset and liability aspect.”

Meilleurtaux also began a programme of international expansion, establishing a presence in Morocco in 2015. Towards the end of Equistone’s holding period Meilleurtaux acquired a minority stake in MelhorTaxa.com, an online comparison and brokerage firm in Brazil.

By this time, Equistone was being repeatedly approached by potential buyers.

“The developments we set out to achieve took less time than expected. When you have a lot of unsolicited approaches you come to a point where you just realise that you have to be opportunistic,” Jacqueau says.

“We came to the conclusion that it was probably the right timing to exit because in four years we had made more than we expected. Hervé Hatt was comfortable with the idea of taking the business into a new phase of growth and it was, in his view, the right timing.”

The auction process for the business attracted more than a dozen bidders. In the end, the winner was Goldman Sachs, which acquired the business in a deal understood to value Meilleurtaux at around €260 million. The investment bank used capital from West Street Capital Partners VII, which held a first close in December 2016 on $4.5 billion, and is its first buyout fund since 2007.

The transaction delivered a return to investors in the €1.5 billion Equistone Partners IV of 8.2x and a gross internal rate of return of more than 70 percent.

For Jacqueau, the investment confirmed Equistone’s strategy of being open to invest in complex situations.

“One should not forget that it was a relatively high-risk transaction, it was a loss-making business when we bought it. Equistone is open to complexity and I think it’s one of the positive aspects of our investment strategy,” he says.