How do entrepreneurs and sponsors
build strong relationships?

By Dominique Gaillard, Head of Ardian Direct Funds & Éric Terré, Chairman of the Solina Group

What’s the secret to a successful partnership between a company and its financial sponsor?

Eric Terré: We are now on our fifth LBO and we have learned a lot about what it takes to succeed over the years. The most important element for us is that we should first define our strategy internally and agree where we want to go. Then we must make sure our plans correspond completely with the financial sponsor’s thinking, which was clearly the case with Ardian.

Dominique Gaillard: Getting that alignment is critical. Equity is everywhere now so if we are going to create excellent returns for our investors we have to do more than simply providing equity. That’s why we look for companies like Solina where we can create value through buy-and-build strategies that accelerate their growth. But this only works if the management’s goals are completely aligned with ours.

Why did you choose to work together?

Eric Terré: When we did our LBO with Ardian we already knew them, because in 2012 we acquired a company they owned, Sfinc, and they retained a minority stake and took a seat on our board. Their record of carrying out buy ‑ and‑build strategies with many other companies was a guarantee that they meant what they were telling us about how they would support our development.

Dominique Gaillard: Our reputation in the market has become more and more important in helping us to win deals. Very often companies choose to go with us – even if our offer isn’t the highest – because they check with managements we have worked with previously that we have done what we told them we would do.

Apart from financial support, what practical help can a sponsor provide?

Eric Terré: We are receiving extra support from Ardian for our in-house acquisitions team. We haven’t had this kind of support in the past but Ardian offered us two members of their team who spend half their time working with us on due diligence because we don’t have the capacity to do everything ourselves.

Dominique Gaillard: Some investors are much more passive and I don’t think managements should settle for that. We are helping with due diligence and thanks to our network we can also put forward external people for the board who can make major contributions because of their management experience or their knowledge of a particular sector or market. We want to do all we can to help the company execute business plan and create value.

Alt text “Some financial sponsors think that having a lot of employee shareholders causes problems but we have always believed the opposite.” Dominique Gaillard

How do you balance long‑term strategy with the five-year horizon of a financial sponsor?

Eric Terré: We have three different timescales: the very short term to make sure we are delivering on the plan, the medium term, which is our partnership with Ardian, and our long‑term strategy. The important thing is not to sacrifice the long‑term potential of the business and the security of our employees to deliver short or medium‑term performance. As long as we have a good understanding with our sponsor on this, we can strike the right balance.

Dominique Gaillard: Although the management has a 10 ‑ year plan it doesn’t necessarily need a 10 ‑ year investor. We work on creating value from day one because we have a five ‑ year horizon but I’m sure that after we exit, Solina will find another sponsor with the same view as us on value creation, so it will be a 10 ‑ year plan divided in half with two sponsors.

And what kind of dialog do you have?

Eric Terré: We meet formally every month and we talk informally whenever we need to, but what I really like about our dialog is that we ask Ardian to challenge us. You need a different point of view to test your ideas. I want a sponsor to be an external adviser that I can call on when I need them – in the end the decision should ideally rest with the company but we need to hear from others first.

Dominique Gaillard: We like being a confidential sparring partner for the management. We have a team of five people who attend every meeting with the company so that all our knowledge is shared and we can contribute as many ideas and as much value as possible.

Alt text “Ardian’s record of carrying out buy-and-build strategies with many other companies was a guarantee that they meant what they were telling us.” Éric Terré

So there’s an advantage to starting afresh every five years?

Eric Terré: I think so. We need to look at how things are going and work out how much money we need for the next step. We are still expanding in Europe but by 2020 we want to have a presence in North America. After five years it’s good to start again with a clean sheet of paper.

Dominique Gaillard: There’s also an advantage in terms of attracting and retaining talent because doing a fresh LBO gives us a chance to keep some shares aside to offer to people who join the business and want to invest or to provide an exit for existing managers who want to retire and realize their holdings.

How many employees of Solina have become shareholders in the company?

Eric Terré: Today we have 200 employees out of 1,200 who have shares in the company – from 2002 we offered the opportunity to everyone with one year‘s service. Some people invest simply to make money but a lot of them say‘ if I own some shares it’s my company too’ and they commit for the long‑term.

Dominique Gaillard: This is something that really differentiates Ardian. Some sponsors think that having a lot of employee shareholders causes problems but we have always believed the opposite. Whenever a management shares our philosophy we push for as many shareholders in the workforce as possible.

“We create Solutions for tomorrow’s Food”. Solina Group is a major player in the global food ingredients market. With 14 production facilities, multiple R&D centers and local sales offices, Solina‘s services feature personalized ingredient solutions for the Food Industry.

Eric Terré is the Chairman of the Solina Group. Since founding the company in 1988, Eric Terré has overseen fifteen successful external expansions, and carried out his first LBO in 1999, with 2015 seeing his fifth with Ardian. Eric Terré, originally an agricultural engineer and PhD student at the INRA Technologie Laitière de Rennes, began his career at Arôme de Bretagne, where he was head of research and development. Under Eric Terré’s leadership, the company has grown substantially, with seventeen offices worldwide, twelve industrial sites, 1,200 employees, 18,000 clients and a turnover of €335m in 2016.

Dominique Gaillard joined Ardian in 1997. He is Member of the Executive Committee and Head of Direct Funds. Previously he spent seven years with Charterhouse France beginning as a Project Manager before progressing to become a Director and Member of the Executive Committee. He began his career at aluminum conglomerate, Péchiney.