Pitch Best MidCap Deal 2022: Inflexion Private Equity – Enviolo

Name of the deal: Inflexion Private Equity acquires enviolo 
Date announced: 9 February 2022  
Date closed: March 2022  
Published value: USD 245 million  
Buyer(s): Inflexion Private Equity  
Target: envolio  
Seller: Kayne Credit Opportunities Fund  

Involved firms and advisors  

Involved firms and advisors buy side:   
Stepstone Corporate Finance+ (M&A Advisory), Alvarez & Marsal (Financial Due Diligence and Tax Advisory), NautaDutilh (Tax Advisory and Legal advisory Corporate M&A), Latham & Watkins (Legal advisory Corporate M&A), Inflexion Private Equity (Private Equity Management), Deloitte (Debt Advisory), Onda Consulting (Consultancy)  

Involved firms and advisors target:   
Van Doorne (Tax Advisory and Legal advisory Corporate M&A)  

Involved firms and advisors sell side:   
Lazard (M&A Advisory), Ropes and Gray (Tax Advisory and Legal advisory Corporate M&A)  

Pitch   

Brief description deal / Deal outline   
Inflexion Private Equity, a UK-based mid-market private equity firm, has acquired enviolo, a global specialist in the e-bike components market. Headquartered in the Netherlands and with additional operations in Austin, Texas, enviolo designs and develops transmission systems for e-bikes mainly for the European and North American markets. The company’s proprietary technology enables cyclists to intuitively adjust the gear ratio, making riding safer and more enjoyable. enviolo has grown rapidly as the market for e-bikes has developed strongly in the past few years.  

Why should this deal win the Award for Best Deal Mid-Cap 2022?   
The enviolo business originates from Fallbrook Technology which went through a chapter 11 procedure in 2018. Part of the technology of Fallbrook Technology was the continuously variable planetary (CVP) transmission technology used on e-bikes. The continuously and stepless variable planetary transmission enables cyclists to effortlessly change from one gear ratio to the next. This was the start of enviolo which has subsequently grown rapidly and was sold 3 years later for 250mio to Inflexion.  Over 100 OEM brands are making enviolo equipped bikes and over 1 million consumers ride on enviolo equipped bikes.enviolo's headquarter is now in Amsterdam. enviolo has offices in the Netherlands and the United States. The USA office is the operations and engineering department. Business development, marketing and product development are based in Amsterdam. The warehouse and all service related activities are done from Zwolle, the Netherlands.  Inflexion Private Equity started its Dutch office in 2021 and the acquisition of enviolo is the first transaction by the Dutch team, led by Sander Ruijter. The transaction was initiated by Inflexion and not part of an auction process.  
  
Inflexion is supporting enviolo to build on the global transition towards smart and sustainable mobility and increasing e-bike popularity. The business aims to strengthen relationships with existing clients and win new clients in Europe, North America and Asia, along with accelerating investment in new product development, and diversifying its product offering.  

Due to the historic (US) structure the acquisition was complicated from a legal and tax perspective.  From Inflexion’s perspective, enviolo is simply a unique business. A Dutch-American business, with its headquarters and strong roots in the Amsterdam Jordaan area, that most people (outside the bike industry) had never heard of until the transaction was announced. Over the past five years enviolo had however become a large, fast-growing and highly profitable niche market leader in the e-mobility market, that is driven by some of the key global megatrends of sustainability, (urban) e-mobility and increased focus on personal health. enviolo’s specific success is based on a highly differentiated product offering, with unique self-developed IP and a global customer base that includes the majority of the world’s leading e-bike OEMs across Asia, Europe and the Americas. enviolo is however not just a great business, it is driven by a highly purpose-driven team whose mission it is to reach that ultimate goal of sustainable urban mobility in cities across the world by getting people to take more trips on bikes and less trips in cars. Their products play a key role in this by making e-bikes easy and fun to ride, under any condition, and simple to maintain, whilst lasting a lifetime. 

The dynamics of this off-market and bilateral transaction were equally special. Through a long history, enviolo had become owned by a US-based shareholder that was quite distant from the business. As such, enviolo’s leadership became increasingly interested in identifying a more involved partner to drive the next phase of enviolo’s development. By having the right conversations at the right time, with the support of their advisers, Inflexion was able to develop trust, craft a partnership with the team and ultimately present a compelling offer for the shareholders that took away the need for the distractions of a broader process. Without those distractions the team were able to develop a number of innovative elements to the deal that would have been otherwise difficult to achieve. Specifically, to support the purpose of the company around sustainability, as a first for Inflexion, all parties committed to a highly ambitious ESG equity incentive scheme through which enviolo raises the sustainability bar for itself as well as for its broad group of stakeholders in its global supply chain.  

Deal rationale:   
enviolo was owned by Kayne Anderson Capital after the chapter 11 procedure of Fallbrook Technologies. The acquisition by Inflexion will give it a more European centric focus and growth potential.  

• Backing a large, fast-growing and highly profitable niche market leader, and its full management team, to grab a unique opportunity in the e-bike market  
• Active in a growth market driven by true global megatrends: sustainability, (urban) e-mobility and increased focus on personal health 
• successful and differentiated existing product proposition that is supported by self-developed IP, with an interesting and well-advanced new product pipeline behind that  
• Highly entrenched position with a very well-diversified client base of 100+ OEMs across Asia, Europe and the Americas   
• Multiple growth avenues for the next decade, by (i) leveraging the existing core business with new clients, new segments and new geographies, and (ii) building out enviolo’s proposition through new product & IP development, as well as potentially M&A  
• Further developing a special and scarce, ESG-aligned company, both inherently by the products it sells, as well as specifically by driving a broad set of ambitious ESG objectives that should not just impact enviolo, but also its broader supply chain

What is the impact of this deal for the company?   
With the investment of Inflexion enviolo can improve sales in Europe, North America and Asia, accelerate investment in new product development, and diversifying its product offering.    

Pre-deal, enviolo and Inflexion identified a number of specific areas where Inflexion could be supporting the company in its further development. Whilst still a mid-market business, enviolo already had activities across many continents and countries, including contract manufacturers in China, India and Europe and a large proportion of the R&D team in the US. Through Inflexion’s on the ground people and offices in China and India in particular, the investor has started supporting enviolo in further improving its relationships with such key suppliers. Other areas where enviolo and Inflexion have started to closely work together include professionalising the business’s digital infrastructure and working closely together in further strengthening the senior management of the company as well as bringing on board a Chair with considerable experience in scaling up high-growth technology businesses.  

What is the impact of this deal for the direct stakeholders?   
Kayne Anderson Capital became owner of the business through the chapter 11 procedure in 2018. It has now realized a solid return on its investment and management has benefited from its stake in the company.  

For the enviolo management team, the transaction meant they entered into a partnership with a shareholder that was interested to be much more involved with the company, and with a time horizon for value creation that matched their own. This was one of the key reasons they were initially interested to engage with Inflexion. The team reinvested a significant proportion of their proceeds back into the business and there has been full continuity for the key leadership of the company. From an external stakeholder perspective, the transaction has created an enhanced awareness of the maturity and quality of enviolo as a business, having been a very small company only five years ago. From the perspective of the company, this can help getting even more OEMs to spec enviolo on their best bike models.  

What is the impact of this deal on society?   
enviolo is part of the global transition towards smart and sustainable mobility and increasing e-bike popularity. This deal will help support that growth.    

One of enviolo’s attractive features is that it is a purpose-driven organisation playing a role in the global shift towards more sustainable urban mobility. It continues to be enviolo’s mission to reach that goal in cities across the world by getting people to take more trips on bikes and less trips in cars. Their products play a key role in this by making e-bikes easy and fun to ride, under any condition, and simple to maintain, whilst lasting a lifetime. Since 2021, more than one million people have purchased an e-bike enhanced by enviolo’s transmissions and technology.  

Beyond the inherent attributes of its products, the enviolo team also feel a broader responsibility for enhancing their own performance from an ESG perspective, as well as still raising the ESG bar for itself and its external stakeholders. Specifically, to support this, as a first for Inflexion, all parties committed to a highly ambitious ESG equity incentive scheme. The framework of this scheme has been shaped following the initial deal, over a considerable period of time, and in consultation with internal and external stakeholders to ensure objectives are set where they matter most and to avoid it becoming a unilateral initiative.  

What was most complex about this deal?   
Due to the historic US structure (after the chapter 11 procedure) the acquisition was complicated from a legal and tax perspective.  

It is a challenge to create alignment with various stakeholders, and particularly parting shareholders, regarding a transaction structurefor a business that grows at 50-100% per year, outside a broad, price-setting process. Whilst relatively distant from the business, the former shareholders had of course become impressed with enviolo’s financial performance and the future upside of enviolo had to be recognised to realise the right deal. With the support of advisers on both sides, eventually, a structure was agreed to allow all shareholders, former and new, to benefit from the future performance of the company.