15 minutes with… is a Moonbase Capital series that picks searchers’ brains on current market conditions, what challenges they are facing and the actual technicalities of what it takes to be a searcher.
Pierre Donvez, the founder and principal of search fund Sillage Partners, raised EUR 390,000 over two years, and is currently looking to acquire a company in France. He had started his search fund in 2021, the most confusing of times. COVID-19, the Russia-Ukraine war, fears of global recession, rising interest rates, and thus, worsening debt conditions.
Sneak peek at Pierre’s origin story: Being half-French, half-German, Pierre grew up in France, worked all over Europe and concluded his MBA at IESE Business School. That is where he learned about the search fund model, and where he noticed that he had been unknowingly working towards becoming a searcher over the course of his career. He started with a career in sales, then worked at Deloitte for M&A advisory and after three years, he joined an established tech-enabled B2B services company as CFO working hand in hand with the CEO in pivoting to a new business model. Two years ago, he created Sillage Partners. Pierre is expecting to finalise a deal on a B2B service company catering to industrial manufacturers in July this year.
M: What do you like about your job?
P: The best part of my job is getting to know new businesses that I would have never even imagined existed, operating in industries I haven’t heard of before. Seeing how these businesses work feeds my intellectual curiosity. Speaking with founders, self-made entrepreneurs, leaders of successful businesses, is incredibly humbling. The prospect of pursuing their legacy is what gets me out of bed every morning.
M: But it surely isn’t all great all the time.
P: The worst part is the emotional rollercoaster that comes with getting excited about the prospects of acquiring a great business and then having to move on for one of the many reasons that deals fall apart. Searching for the right business and the right deal isn’t for the faint hearted. These emotional cycles can become very tiring after a while. And as a solo searcher, I owe a lot to my relatives, close friends and spouse for sticking with me throughout the entire process. Resilience really is key to all forms of entrepreneurship, including in hashtagEtA.
M: What is one thing that you do every day as a searcher?
P: I read about the latest M&A deals because it opens my eyes to industries that I wouldn’t have thought of before. I was initially focusing on tech companies, but I realised that there are many other great industries and that having an opportunistic approach would increase chances of finding a great business out of the beaten path. Currently, I look at industrial services, education, childcare and generally industries that are here to stay, not easily disrupted by tech and resilient during economic downturns.
M: When you look at a potential company, what do you look at besides the actual financials?
P: The strength of the business model, namely the resilience of the value proposition, and now more than ever, I look at the team, especially in businesses that require technical expertise. You want a competent middle management team that can run the day-to-day operations on their own, especially in niche industries, so that you, as a future operator, can focus on strategy and value creation.
M: You said that you’re looking for companies that are sort of immune to what’s happening around them and the changing times. Especially in the past year, we’ve seen a lot of macroeconomic trends emerging. When you look at a company, what are you trying to hedge against?
P: I’m looking at companies that provide the basics that we will always need, such as services around manufacturing, the food and beverage industry, healthcare, education, etc. So, I’m interested in niches that gravitate around needs that will always exist and that are not easily disrupted by tech enablement or innovation, but rather complemented by it.
M: And how do current high interest rates and the looming recession impact what you do?
P: The biggest impact of high interest rates on us searchers is that we had to adopt a more conservative approach to financial leverage, which in turn limits the IRR generated from deleverage. This forces us to focus on operational value creation and hashtagEBITDA expansion, rather than financial engineering. To me, this is what entrepreneurship is about.
I don’t think that cheap debt has ever been a significant contributor to the high returns generated by search funds as an asset class. In my opinion it’s actually quite the opposite. When interest rates were low, valuations increased and searchers had a harder time finding high quality businesses at reasonable valuations.
M: Are there any future geopolitical and economic trends that you’re watching out for and keeping on your radar?
P: Due to my personal background, I see internationalisation as a natural lever for value creation. The open market structure in the EU is a big advantage. Accordingly, I am concerned by the various political, geopolitical movements which could result in an isolation of markets even on a EU level.
M: How would you describe the searcher market in France and how can a searcher best navigate it?
P: France is highly intermediated by M&A brokers, which presents both a challenge and an opportunity for search funds. Our opportunity as searchers is to show that we have a value proposition that is very different to the buyers that typically show up in a competitive process, such as competitors and PE funds. Sellers are generally happy to speak to us once they realize that we are not some banker, but someone actually interested in getting involved with their business and that our values and interests are aligned. One challenging aspect is that money tends to be a taboo topic for many people in France, especially the older generation, our target group. Several searchers, including myself, lost too much time bonding with sellers before being able to talk numbers. Other countries, such as Spain, seem more transactional. However, under the current market conditions, I feel that there is less competition in brokered processes, leaving a gap for searchers to fill. Brokered deals do have advantages: they can be quicker than proprietary deals and sellers are usually more committed. Part of my mid-search refocus was to increase my focus on broker deal flow.
