The journey that leads to compelling strategic value, an interview with Micropross

How did Micropross come to partner with Ardian?

Philippe Bacle: Our plan was to sell a majority stake to an industrial partner but although we were growing very quickly we didn’t have the right connections and contacts within the major industrial players. However, our advisers were also arranging meetings with some of the leading private equity investors and through that process we met François. 

Max-André Lepoutre: We were a medium size company of 50 people, based in Lille, but we were leaders in testing smart cards for mobile phones and contactless payments. Ninety per cent of our sales were outside France and it was becoming difficult being a medium size company dealing with huge global customers in a fast-growing market. Our competitors were steadily being bought by big industrial companies and we didn’t want to be left behind. 

François Jerphagnon: When we started the discussions with Philippe & Max, their first idea was to sell a majority but we thought it made more sense for them to maintain exposure to future growth. We could see their business was extremely profitable and growing very quickly so we offered a minority transaction to them. It took us six months to convince them and we then finalized a scheme through which they kept 51% of the company. That was a key moment because it showed that everyone understood that partnering with us was a step forward on their journey towards a sale to an industrial buyer. But in the meantime, we could bring things to the table that would help them reach that goal.

How did having Ardian as a shareholder help Micropross?

PB: We really benefited from having a major institutional name behind us. While we were negotiating with Ardian we were also discussing a big R&D project with a huge US mobile phone company, and being able to say that we were bringing in such a strong investor definitely helped us in the negotiation. 

M-AL: It also became obvious - even during the due diligence - that Ardian had very good contacts and we were very impressed by their ability to understand our business. When we talked afterwards we were like, ‘Wow, how could they know that?’ 

FJ: The issue was that Micropross’s margins were outstanding to the point of being suspicious – we had to be sure they were sustainable so we needed to find people who could help us understand the business in great detail. Through our network we identified the right person, which also gave us a great non-executive board member who could be a sparring partner for Philippe and Max-André.

How did you work together to grow the company?

FJ: Looking at acquisitions that either complement the product portfolio or increase geographical exposure is a basic part of our approach and we talked about acquiring a direct competitor of Micropross in Germany. We even arranged a meeting but we decided not to go further as we all felt that integrating the two companies would have been too risky. Instead, we provided contacts to help Philippe and Max increase their presence in the US and Asia. We connected them with the CEO of Arkadin, which we had just sold to NTT in Japan, who was able to share his experience of leading a French company that was expanding in Asia. 

PB: During this period our business really exploded. We won some very big contracts in China, and US blue-chip companies bought our solution. But at the same time the industry was moving quickly and our competitors were still being acquired, so even though we hadn’t been with Ardian for long, at the end of 2014 we knew it was time to start looking for an industrial buyer. A catalyst came when we were in the final stage of a big US tender but we didn’t win because the client felt we were too small to support them worldwide at a large scale. National Instruments was also in that process: they were much bigger than us and didn’t have our technology but the capacity to offer a strong support team worldwide, therefore there was a natural fit.

M-AL: Even though it was a quicker exit than Ardian would normally recommend, they understood that our market was changing rapidly and that this was a good opportunity for us and probably the best buyer we could imagine for our employees. It was a global perspective, not just a financial one.

How did you manage the sale process?

PB: When you start to work on a sale process with Ardian, you are playing in the Champions League. You have the best team you can imagine, which made the process as easy as it could be for us. 

FJ: We already knew the most likely buyers but we needed to create some tension and competition in the process, so we needed a banker with the right connections. The M&A banker to whom we gave the mandate had a long history in the testing and measurement business and already knew the CEOs of the potential acquirers very well. We had to deliver on Philippe and Max’s expectations. Our job is to help our companies agree deals with the best buyers, whether that’s National Instruments in the US, NTT in Japan who bought Arkadin or some other players in Europe. Even though Micropross is a mid-sized French company, it deserves to have access to the top strategic buyers globally. 

The other important point is that it’s our job not to be shy about the price. It’s partly about the intrinsic value of the company and partly helping the buyer to identify the synergies. But for a strategic buyer it’s also a question of opportunity cost – what happens if they don’t get access to this technology? If you lead your process well and have a constructive discussion with the buyers, you can have a strong increase in price. It was very similar with what happened on Arkadin: the price went up 30% between the first and final offers because we were convinced they could go higher.