Pitch Best Small Cap Deal 2023: Cerios acquires Valori

Stem op deze deal via de stempagina: Mena.nl/genomineerden-best-small-cap-deal-2023

Name of the deal: Sale of Valori by Holland Capital to Cerios
Date announced: 04-04-2023
Published value: N/A
Buyer(s): Salves/ Cerios (backed by Avedon Capital Partners)
Target: Valori
Seller: Holland Capital and management

Involved firms and advisors
Legal Advisory Corporate/M&A | Orange Clover
Financial Due Diligence | KPMG
Tax Advisory | JSA Tax
M&A Advisory | Capitalmind
Legal Advisory Corporate/M&A | HSA Lawyers
Financial Due Diligence | SINCERIUS

Pitch
Salves, a Dutch provider of software testing services, has acquired Valori, a Dutch Software Testing and Quality Assurance company, from Holland Capital, a Dutch private equity firm. With this acquisition and the acquisitions of The Agile Testers and Quality Accelerators, a new cluster of companies is formed which will continue under the name “Cerios”. With this partnership, the companies are creating more opportunities for their consultants and a broader proposition for their clients.

Deal Outline
With the support of Holland Capital, the company underwent a highly successful transformation spanning nearly four years. This transformation serves as a shining example of a win-win scenario, benefiting both employees (higher satisfaction and reduced turnover) and shareholders (tripling profitability and doubling the multiple). It ultimately led to the company becoming part of the Cerios group, backed by Avedon Capital Partners.

Why This Deal Should Win the Award for Best Deal Small-Cap 2023
Valori is a consultancy specialized in Software Testing and Quality Assurance. After Holland Capital’s investment in 2019, the company embarked on a remarkably successful transformation that spanned nearly four years. This transformation is a prime illustration of a win-win scenario for employees (increased satisfaction and reduced turnover) and shareholders (significant profitability growth and valuation multiple increase). Additionally, it paved the way for the company’s entry into the mid-market and its integration into the Cerios group, with the support of Avedon Capital Partners.

Right from the beginning, when Holland Capital evaluated Valori, it was evident that the company possessed solid fundamentals, such as being a household name and the largest independent player in the market in terms of FTEs. Valori also demonstrated an entrepreneurial spirit that fostered innovation and specialized knowledge of low-code technologies, including Mendix, Outsystems, PEGA, and USoft.

Simultaneously, the company operated with a complex and inefficient structure: a convoluted governance and legal framework involving 25 shareholders across 14 legal entities, a top-heavy, founder-led matrix organizational model, and a low profitability rate of less than 5%. Recognizing these challenges, Holland Capital saw an opportunity to transform the company into a more efficient consultancy organization. As an experienced, hands-on investment firm with 42 years of expertise in software and IT SME companies, they took on this challenge.

The transformation encompassed several key elements:
– Laying the groundwork for growth
– Strategy development
– Replacing the founders with a high-performance management team led by Jaap Merkus (former CEO of Gazelle and strategy partner at EY)
– Implementing an ERP system (Exact) to replace six legacy IT systems with one
– Simplifying the legal structure from 14 to three legal entities
– Initiating cultural changes to create a more commercial, high-performance environment with a focus on personal development

Furthermore, the transformation emphasized operational excellence:

– Establishing an efficient organizational model inspired by Eckart Wintzen’s “celstructuur”
– Eliminating non-core activities, such as hiring independent subcontractors, business development activities in the US, loss-making software development initiatives, non-specialized functional testing, and more
– Initiating new growth initiatives by acquiring two small complementary companies focused on high-end Quality Assurance advisory and automated code analysis software

The transformation also addressed scalable support services (overhead) through outsourcing:
– HR and recruitment
– Payrolling
– Marketing
– Leasing

Even as Valori attracted attention from national and international private equity-backed consolidators entering the software testing market, Holland Capital, together with management, recognized the right time to sell and prepare the company for the mid-market, while finalizing the last transformation steps in Q4 2022 and Q1 2023. Capitalmind Investec conducted a thorough market screening, and a VDD was prepared by Sincerius. The company was showcased to a select number of strategic buyers, among which was Cerios (including software tester Salves). It’s worth noting that Salves and Valori had previously attempted to merge but failed to reach an agreement. Backed by Avedon Capital Partners, both companies were granted a second opportunity, which succeeded.

In summary, the company faced significant challenges but, with the support of Holland Capital, it achieved success and transitioned into the mid-market. Most notably, the transformation’s effectiveness was confirmed by improvements in employee satisfaction and churn metrics between entry and exit. This was acknowledged earlier in the year when the deal received the “Best PE/VC firm exit award of 2023” at the ACG Holland Growth Awards 2023.

For all the reasons outlined, this deal deserves a nomination for the Best Small-Cap Deal of the Year.

Deal Rationale
The company underwent a significant transformation and executed two smaller yet highly complementary acquisitions. Holland Capital demonstrated its value by preparing the company for the mid-market, which was becoming increasingly crowded with private equity-backed strategic consolidators.

Impact of This Deal on the Company
Becoming part of mid-market consolidator Cerios (backed by Avedon) offers Valori and its employees new business and personal development opportunities. Valori can achieve greater success in tenders, provide its staff with additional technological specializations and industries for personal growth, and the group of companies can leverage each other’s products and services to realize cross-sales with clients.

Impact of This Deal on Direct Stakeholders
– Employees: Broader development opportunities, including new technologies, industries, and countries.
– Clients: Benefitting from a full-service product and service offering.
– Financiers (Holland Capital and Rabobank): Achieved a significant return on their invested capital.

Impact of This Deal on Society
Cerios and Valori, by joining forces and complementing each other’s service offerings, can be more relevant and impactful with clients. The partnership stimulates innovation and provides clients with additional opportunities to enhance the quality and efficiency of software development. By implementing these improvements with numerous clients, both companies contribute to the digital transformation, growth, and innovation of society as a whole.

Most Complex Aspect of This Deal
Changing the company’s culture toward a high-performance environment was essential to remain competitive in an increasingly competitive market. However, not everyone was willing or able to adapt to these changes. This process required careful management and incremental steps to ensure the company’s continuity.