Smile: a management buyout success story

Private Equity - 12/1/2016

When the founders of the Smile Group announced that they were exiting the company's capital, Marc Palazon, then Chairman of the Board, took on the challenge. Already a company shareholder with a 6% holding, he mobilised 30 managers for a buyout. Marc Palazon tells us about his experience as a manager becoming a shareholder and gives us some advice.


How did you prepare to take a stake in Smile ?

Marc Palazon: My career at Smile is a bit unusual. I joined the group 16 years ago, in 2000, as a developer. There were 35 employees at the time. I became the Group's sales manager from 2004 to 2006, then became Chairman of the Board in 2007. It seemed like a natural step to take over when the founders announced that they wanted to withdraw from the company.

Becoming a shareholder takes preparation! In Smile's case, the process began in 2009 when Edmond de Rothschild Investment Partners joined the shareholders' financing round for a capital increase.

The financial partner's role is to provide support. We assist managers as much as possible in their value creation approach for their company. This includes our experience in external growth, financial arrangements and the contribution of proven financial management and reporting tools which we adapt to each situation. Our shared goal with company management is long-term growth after the LBO. André Renaison Investment Director, Edmond de Rothschild Investment Partners
A_Renaison

The transaction was launched for three reasons: to generate a cash-out and secure the founders' assets; to bring in an investor to support the growth strategy; and, to benefit from the investor's expertise to make the founders' exit as smooth as possible. The Edmond de Rothschild Investment Partners team supported and advised me on the buyout together with 30 of the Group's managers.



 

 

What advice would you give a manager thinking of taking over their company?

MP: They should talk to their family about it, stay true to themselves and get good advice.

Becoming a company shareholder is an important step in life. It's a long-term commitment (both timewise and from an investment standpoint) that involves more than just the manager. I would recommend that the entire family commit to the new life.

You also have be sure not to change, to maintain your values and your way of working, which made you successful up to that point.

Lastly, you have to have surround yourself with good partners and advisers who will provide support during the years you're learning to be a shareholder.  There are many pitfalls along the way: you shouldn't go it alone.

It's important to anticipate the outcome of the LBO from the start to be sure to implement the right structures. And it's important to adjust plans to comply with regulations. We prefer a collective support approach and recommend that advisers (bankers, notaries, accountants, etc.) be brought to the table together to deliver a joint solution which meets the stated objective. Yvan Vaillant
Director of Wealth Engineering, Edmond de Rothschild (France)
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How do you reconcile operations management and shareholder responsibility?

MP: It takes time to prepare and implement the LBO: negotiations with the banks, tax, legal and financial structuring...And it doesn't end when the LBO is completed since the manager has to take on shareholder responsibilities also.

You learn to work harder. I gave it 100% before and shifted to 150% to ensure the buyout's success. I haven't slowed down. The project is fascinating, so I was glad to do it. I have grown up during this period and learned the keys that enable me to help Smile move forward, together with other managers.

Our actions are proof: in 2015, we purchased OpenWide, the second-ranked player in our industry with €14 million in turnover.

Growth spurred by external financing





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