Pitch Best Small Cap 2019: NetRom – IceLake Capital

De genomineerde deals maken dit jaar kans op de M&A Award voor Best Small Cap Deal 2019. Deze pitch is ingezonden door Willem Daris van PhiDelphi Corporate Finance

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Date deal closed
24 september 2019

Published value

IceLake Capital. IceLake Capital is a new investment fund that was set up by Bastiaan Hagenouw, Vincent Lüning and Matteo Racca. NetRom is their first of many investments to come.

NetRom, founded in 1999, is a software development company specialized in R&D / new product development for software companies. NetRom generates an annual revenue of almost EUR 20 million and has developed into one of the leading software developers for Dutch software vendors and corporate end-users.

The Company operates from locations in Breda and Arnhem, the Netherlands and has a delivery center in Craiova, Romania where it employs around 330 developers. NetRom provides high added value services and has obtained significant knowledge in specific sectors, such as the telecom-, fintech- and healthcare-sector.

CEO and five informal investors who backed NetRom since the establishment in 1999.

Involved firms and advisors sell side
M&A: PhiDelphi Corporate Finance: Joris Heerkens, Aart Bijkerk, Koen Crolla, assisted by DC Advisory (UK, Poland /Eastern-Europe and India)  Legal: Wijn & Stael: Humphrey Lakens, Abbas Ali Hyder  Amstone Tax Lawyers: Wendela van de Rijt.

Involved firms and advisors target
DRV   BDO Romania.

Involved firms and advisors buy side
Financial Advisory: Deloitte: Roën Blom, Onno Meijering, Anamarija Uzbinec, Toon Mees   Acquisition Finance: Alexander Olgers, Tom Nijsten, Alexis Santis, Wout van Blommestein  Legal: Biesheuvel Jansen Advocaten, Quirijn Biesheuvel  Tax: Atlas Fiscalisten: Matthijs Wierenga, Simon Huizinga, Yvonne Bakker.

Brief description deal / Deal outline
In 2017, PhiDelphi was hired by all six shareholders of NetRom to assist in the sale of the company. There was a strong rationale to find new shareholders, with an aim to replace at least 80% of shareholders.     Given the risk that investors would put a discount on the dependence on Romania, PhiDelphi made sure to fully understand the company, the Romanian dynamics and sector specifics. A larger group of investors, both Western-European and Eastern-European, were included in the process.   PhiDelphi imposed strong pre-selection to minimize distraction of the process, which was key in ensuring the company could outperform it’s already steep growth forecast.     Selected parties were invited for management presentation in the Netherlands, followed by site visits in Romania. After an intensive process, agreement was reached within four months.

Deal rationale
Over the years, NetRom has evolved from a low-cost nearshoring company into a state-of-the-art software R&D partner. The company aims to become the development partner of choice for a broad range of software companies, based on high quality software engineers and state-of-the-art expertise. To realise this strategy, the company needs to increase the investments in talent.  Not all shareholders were prepared to support the continued investments in the company, due to changes in personal risk appetites and investment horizons. This triggered the search for a new shareholder, which was prepared to invest capital in the company with a longer time horizon.

What is the impact of this deal for the company?
With the new shareholder, NetRom can move forward to realise the company’s full potential. The company will invest over EUR 10 million in the construction of a unique campus with state-of-the-art facilities for its Romanian employees, in knowledge development and in recruitment of high-potential IT-professionals from local prestigious universities.

What is the impact of this deal for the direct stakeholders?
All employees – both existing and new – will benefit from job openings, personal development opportunities and investments in quality. And customers will benefit from all the investments in the professionalization of the company. All stakeholders will benefit from the more stable shareholder base going forward.

What is the impact of this deal on the society?
NetRom is the largest IT employer of the region, with an incredible reputation. The company has an important role to prevent a brain drain from the rural region of Dolj (600k inhabitants). With further growth, the company can quadruple its local workforce, while setting the standards for employment conditions, employee training and corporate social responsibility, and contributing to the economic development of the region.

Why does this deal deserve a nomination?
This deal clearly proves that M&A is more than optimizing a zero-sum game. During the deal preparation, that took almost one and a half years, PhiDelphi advised the company to implement strategic and operational improvements that would increase exit value. The process towards the new shareholder structure was a balancing act in many ways, with a constant threat of failure which would have destroyed a lot of shareholder value.     Long story short, this transaction may be small cap, but had the complexity of an international deal combined with the dynamics of a family business sale… In the end, preparation, dedication and determination made sure that this deal was a true win-win.

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