Dear Friends,
As the first half of 2024 comes to a close, we have a sense from the broader investment and company community there’s a more balanced, cautiously optimistic environment out there. Customer demand seems to have leveled off or is inching back up again in certain sectors, with anything AI-related being growth outliers. The risk of a major economic downturn also looks to be declining, barring a new black swan event. Companies have re-set expectations, re-aligned resources and are executing relatively well, including delivering some successful exits. We are grateful that our 3TS/Catalyst annual meeting event ended up oversubscribed with so many investors, portfolio companies, and broader network members attending. We hope everyone will have a chance to take some time off this summer, meanwhile we look forward to seeing many of you at various events if not in the coming weeks, then in the fall.
The 3TS Team
3TS KEY LEARNINGS
3 Key Learnings – Acquisition of Perfect Gym: Driving a Successful Exit in Challenging Times
Successful companies are bought not sold therefore, start early
Setting up the ingredients for getting bought takes planning, time and execution, like any other process. Start early – ideally two years or more in advance. This is even more important in tougher environments like now. Perfect Gym identified the right investment banker for their sector (GP Bullhound) and started the work to prepare 18 months in advance of the exit. That entailed a combination of setting the right KPIs to enable a successful exit, executing along the way to hit those metrics, optimizing its financial model, organizing its operations to be ready for diligence and aligning all shareholders to pre-agreed exit targets. The investment banker helped shape the positioning of the company, kept the process moving and begun pre-introducing Perfect Gym to potential buyers ahead of the process.
Maximum value comes from generating competitive dynamics
Sounds obvious, but many companies don’t take this seriously and find out the hard way. It is never easy, but getting multiple bidders is a requirement to maximize exit value, or at a minimum to have alternatives. M&A data shows that exit values increase by 40% on average (and over 200% in extreme cases) in competitive processes. In the first phase of Perfect Gym’s path to exit there was one interested party which seemed promising to pre-empt the entire process, but did not materialize in part because there was only one, single negotiation without alternatives. Towards the last phase of the process, the company and its bankers were able to attract three offers. This set up the right competitive dynamics to increase exit value by over 40% and drive toward closing a deal. Having multiple offers also provided for having an important back-up which in this case was ultimately the winning bidder.
It’s not over till it’s over – no detail is too small
Diligence processes driven by experienced strategic buyers or private equity investors are always broader, deeper and more exhaustive than companies expect. Be prepared. Take what investment bankers and investors say seriously. Perfect Gym took a proactive approach to get its house in order across corporate governance, documented internal controls, high quality financial operations, clean books/records/audits, no looming legal/tax issues, and employment topics. The company also took sanctions seriously and divested out of its Russian operations, not only because it was the right thing to do, but also because compliance is a requirement from potential buyers. Toward the end of the process, attention to detail played out in the buyer’s depth of technology diligence, every client renewal, and achievement of revenue targets down to the last 5%.
In the end Perfect Gym prevailed and drove a successful exit, despite a very challenging time for M&A and the broader investment market.
As a bonus to the 3 Key Learnings since we are at the end of Q2, a reminder to all company executives about 3TS’ best practice highlighted last year – Getting Ready for the Mid-Year Review. It is a way to assess what is working, what’s not and how to make impactful changes for the second half of the year. Don’t miss this opportunity at mid-year.
3TS PORTFOLIO & NETWORK NEWS
Perfect Gym Acquired by PSG backed Sport Alliance
Congratulations to Perfect Gym for building a leading international health club management player, used by over 1,800 clubs in more than 50 countries. 3TS was fortunate to be part of the journey and provide strategic guidance as the company grew 4x since the original investment, leading to an exit with a revenue multiple 60% higher than the peer group. It’s especially rewarding for the Perfect Gym team to be acquired by Sport Alliance GmbH, which is funded by PSG Equity, a premier global private equity firm. Good luck to everyone!
Best Attended 3TS/Catalyst Annual Meeting Yet
Last month we hosted the annual 3TS Capital Partners/Catalyst Romania event in Bucharest with over 150 investors, portfolio companies, service providers and other participants from the Romanian and broader CEE ecosystem. We are especially thankful for the participation of so many of our fund investors and other distinguished guests from all over Europe and the US. The event covered topics including breakthrough innovations, scaling companies globally, bringing more capital into the CEE region, driving successful exits, and more.
Happy 30th Birthday EIF!
Our largest investor, European Investment Fund (EIF), celebrated its 30th birthday in Luxembourg mid-June. Impressive to hear that EIF has financed over 2.1m SMEs in its history, with a capital volume of over €130b. 3TS has contributed several dozens of companies as well over the years. Happy birthday EIF, and all the best for the next 30 years to come!
NEXD Earns the Coveted “5-Stars” in G2 Client Reviews
Nothing is a stronger vote of confidence than direct client testimonials. That’s why for NEXD reaching this level on G2 is a critical milestone and supports the company’s leadership position. NEXD came in ahead of many other much larger players in the mobile ad space.
ITH’s Vola.ro is the First Travel & Tourism Brand to Win the Effie Awards
Vola.ro has established itself as the leading online airline ticketing platform in Romania, with over 60% market share. It’s a well-deserved honor to also win the coveted Effie Award for best advertising campaign in 2024, in partnership with their agency Saatchi & Saatchi.
GOOD READS & GREAT IDEAS
Growth Levers and How to Find Them,by Matt Lerner
Which B2B company doesn’t need more growth levers? This quick-read post covers the 13 most important growth levers including discovery, speed, continuous testing, flowcharting the customer cycle, removing rate-limiting steps, how to optimize against customer facing SSS (Struggle/Seach/Selection) and more.
Benchmarkit 2024 SaaS Metrics Benchmark Report,by Ray Rike
One of the seminal SaaS Metrics Reports is out. Benchmarkit covers critical leading indicators and KPIs relevant for all B2B leaders, as companies complete mid-year reviews, head into 2H and start thinking about 2025. Use it to tune and refine growth expectation, resource allocations and become more efficient.
5 Pricing Mistakes You’re Probably Making,by Kyle Poyar
Defining a value-based, scalable pricing strategy is something most executives miss. Many companies price too low, don’t have a way to expand, make pricing an impediment to the buying cycle, or all of the above. This article outlines the main issues in pricing and how to optimize each one of them.
How to set up a customer education program from scratch,by ChurnZero
Informing customers about the best ways to solve their problems with your solutions is critical, in order to achieve scalable net revenue retention rates with low churn and high up-sell. Not enough companies take client education (nor client-facing marketing) seriously enough. Upselling should be 50% of growth, especially in times when new clients are not as easy to close.