Benedikt Joeris discusses GGW Group with Germany-based Finance Magazin

Benedikt Joeris discusses GGW Group with Finance Magazin

9th August 2024 • 5 minute read

Wie der Private-Equity-Investor Hg 50 Add-ons für GGW finanziert hat

This article has been automatically translated from its original German version using Generative AI.

How private equity investor Hg financed 50 add-ons for GGW

Far from plain vanilla private equity:
Hg has built GGW from scratch - and now sold it to Permira for 2 billion euros. This is how the financial investor financed the broker's growth.

Billion-dollar deal in the brokerage market:
In April 2024, Hg sold its portfolio company GGW to Permira for an estimated €2 billion. Today, the insurance broker platform employs 1,800 people and generates annual sales of almost 400 million euros, with the EBITDA margin exceeding 25% according to FINANCE information.

The exciting thing about the transaction:
When the concrete idea for entering a broker platform emerged in 2020, there was no trace of the company as it exists today. Several years earlier, private equity investor, Hg, had been looking for a suitable platform to implement their investment thesis - margin growth through scaling - in the brokerage sector, but without success. The sector is simply too fragmented.

The implementation of the investment thesis then took place in the middle of the coronavirus period: "We have to build our idea with people, not with a nucleus," reports Benedikt Joeris, who was responsible for the transaction as a partner. The risk of being able to invest sufficient equity capital was high, but the scope for design was even greater. Therefore, Hg and insurance manager Tobias Warweg joined forces and initially created the company Warweg Mittelstandsmakler, which was soon joined by Moritz Rutt, a business manager experienced in private equity.

The Hamburg-based company, which was renamed GGW after its takeover in 2021, grew mainly through inorganic means during Hg's holding period: Over the course of four years, the financial investor acquired more than 50 add-ons for the investment. But which lender agreed to this daring project?

Banks did not want to finance GGW's growth

The special financing challenge is obvious:
Hg, given the small-scale and unpredictable M&A strategy at the beginning, could not name a fixed and final investment sum. "It was clear from the outset that we would buy a lot and in very small parts," says Hg partner, Joeris. Financing therefore required special flexibility. The PE investor spoke with many potential lenders, but it quickly became apparent that only a few could and wanted to cover the desired financing spectrum.

In the end, the decision fell on the private debt arm of Ardian, which had already earned its stripes with a similar investment by Hg in the UK, A-Plan, as well as with other transactions in Germany. It is no surprise that private debt won the race in this case, as bank financing is unsuitable for such investment plans as Hg had. Banks usually find it difficult to adjust investment sums and have a longer internal coordination process, which quickly pushes them to the limits of what is possible in situations where speed and agility are required.

Ardian supplemented Berenberg's financing of GGW

GGW was not financed by a credit fund from the outset. "We did the very first deals all-equity," recalls GGW CEO, Rutt. The first externally financed acquisitions were initially handled by Berenberg Bank. This bank, however, is well acquainted with the private debt business and its practices due to its own credit fund - and is therefore considered a more agile and uncomplicated corporate bank in the leveraged finance market.

Ardian gradually supplemented Berenberg's super-senior financing, using an unconventional, reverse, first-out-second-out structure: "We set up the financing so that the super-senior part of Berenberg was initially larger. Our senior share then grew larger with each increase, while Berenberg's tranche proportionally shrank further," explains Ardian's Head of Private Credit DACH, Lukas Stepanek.

The switch to private debt financing turned out to be a good move for Hg and GGW. Ardian increased the financing volume a total of eight times, and in the end, it was about five times as large as at the beginning of the project. Ardian did not disclose the exact volume when asked by FINANCE.

GGW CEO: "Uncomplicated financing discussions"

The big advantage of working with Ardian, according to both the financial investor and the company, was the uncomplicated collaboration. "Ardian was able to demonstrate flexible levels of financing right from the start - and it was okay that sometimes only in hindsight did it become clear how much capital we ultimately needed for an acquisition. We were not forced to make promises that we could not keep," says Joeris. Only ongoing provisioning fees were contractually agreed upon, if Hg and GGW did not draw the requested lines.

However, this did not happen, Hg used the entire volume. For Rutt too, working with Ardian was a great relief: "Usually, one has to conduct often time-consuming financing discussions, even if nothing changes in the financing except for minor details. This can even distract from the operational business. With Ardian, the discussions were always uncomplicated," praises the managing director.

Flexibility of Private Debt has its price

It is also clear, however: the flexibility of a debt fund has its price. The parties are silent on specific financing details, but the "pricing was adjusted several times during the holding period, but always only by a few basis points upwards," emphasizes private debt manager Stepanek. Both the initial and the final margin were, however, in the single-digit percentage range.

When asked whether the margin for such a risky investment should not have been set higher, the Ardian manager replies: "Yes, we initially took a potentially higher risk - but because we knew the sector and the partner very well, we had the necessary comfort." It certainly also helped that Ardian "was never surprised by issues" during the investment period, as Stepanek assures FINANCE.

There were also critical points in the collaboration, for example when it came to expanding abroad and it was not finally clarified how the securities of small companies in other countries should be reflected in the contracts. "We are responsible for the business plan, so we would have been in debt," admits GGW CEO, Rutt, but is also pleased that the issue was finally resolved.

Permira also bought Engel & Völkers

In the spring, Hg brought the financial investor Permira on board and re-invested significantly in GGW as part of the transaction via the Saturn fund. The shares not held by GGW's management are now equally divided between Hg and Permira. It is now up to them to continue the company's success story.

Permira financed the deal with a €950 million unitranche, among others from Blackstone. Ardian Private Credit has exited as a financing partner due to the new deal size. The sweet spot of the debt fund lies with average volumes between about €40 and €300 million.

At least: Permira knows the industry very well and also has a German company from the sector, Engel & Völkers, in its portfolio. Hg still holds a minority stake in GGW, together with Permira, the investor holds the majority of the shares. The parties remain silent on how much money was realized on exit. "We have completed a very successful investment, adjusted for risk," is all Hg says.