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You were the first searcher in Hungary. What led you to pursue the SF model, and how did your background prepare you for this journey?
Whilst Budapest was my base for practical reasons, I ran essentially an international search. We ended up acquiring two businesses, one in Germany and one in Hungary. Launching a search fund was sort of a natural progression for me. An international career in private equity and M&A had given me a sense of how to go about sourcing and closing my deal. I had been operationally involved in scaling several entrepreneurial businesses, and found much joy in the process. At INSEAD, where I did my MBA, there were courses and a solid community revolving around the concept. These were all solid nudges but at the end, if I may use a chronically overused idea, nothing prepares you for the journey but the journey itself.
What was your search strategy in Central Europe, where the SF concept was still relatively unknown? Can you walk us through how you sourced and ultimately selected FF Zrt. and Med-Systeme GmbH for acquisition?
No surprises here: a sizeable pool of prospects along a defined strategy, then desktop research, lots of legwork, cold-calling, warm-calling, networking, schmoozing, you name it. Dealsourcing is fundamentally a sales pipeline. I found the two companies early, then I kept them firmly on the radar while letting the relationship with the prospective Seller evolve. Unlike what I’d experienced before, I saw there are benefits to a slow deal process. It allows deeper insights through closely following the business over a stretch of time. Looking at its financials month after month is the ultimate confidence-builder. Still, if I had to highlight one key learning from this process: the journey doesn’t end with acquisition, so one must grasp the nature of his mandate, and decide if it is the right fit personally. Early in the process I discarded an opportunity in cosmetics, regardless of the deal’s attractions. One has to see the bigger picture: this project requires long-term commitment, so better drop it if you aren’t sufficiently excited. Of course, the numbers need to be right also. In that sense FF and Med-Systeme ticked all the boxes.
What were the key aspects you focused on during due diligence, and how did you build trust with the sellers?
Deal basics and due diligence are standard across the board but if I had to highlight something, quality of revenue and cash generation will save your life post-acquisition. To that end, we made meeting key clients as a condition for closing. Otherwise, due diligence is a great input to the work that awaits post-closing. Especially with legacy businesses – and many in manufacturing would fall within that group – one ought to understand what it takes to modernize and scale. A lot can be inferred from due diligence reports. At the end, however, we also rely on insights gained from the seller. By spending time, being curious, and investing in the relationship, one can understand the secret sauce that’d made the company successful. It also sheds light on challenges and risks – past and present. The seller is our best resource throughout the process. Sellers want the business to prosper even if they aren’t there anymore. I believe this realization on the part of the searcher also allows trust to emerge. I am grateful that we convinced the seller to re-invest into the deal.
How did you manage the initial transition period after the acquisition? What were the biggest surprises or challenges you encountered?
Due diligence helped us understand the broad outlines of what to expect. Of course, the story had its own positive and negative twists. The biggest surprises ultimately revolve around the quality of the management team. You find some latent superstars who you can build on, and who will give you an immense energy boost. These will be your biggest champions once you rally them along a common goal. On the other hand, not everyone will be willing or able to buy into your future direction. This can be especially hard emotionally when it’s with decent people who have given their best for the company over the years. Hiring well and building a healthy culture determines the outcome. Do that well and all else is merely a challenge to be overcome. Of course, you need the quality revenues and cash generation. Then challenges will be energizing, and to be encountered with the excitement that matches their immense learning value.
How have you approached modernizing and professionalizing operations since the acquisition? What changes have you introduced in terms of technology, processes, or organizational culture?
I believe I may be describing a common scenario. Imagine your day one as CEO. You take over from a leader who has gone through hell to take the company from 0 to success. He commands authority through the grit and heroism needed to take it to where you are now starting off. It is your first town hall meeting and several hundred pairs of eyes are fixated on you. This is the point when the first hundred days plans typically run aground. But this moment, and the next weeks are crucial so that you can figure out what sort of a leader you want to be. For me it was relatively straightforward. As I have never been an industry expert, I’d rely on others’ competence and be fine not to be the smartest person in the room. This is a good basis to start building trust and empower people. It works amazingly well with the sort of people you actually want to be with you during this journey.
Many legacy businesses sit on oodles of competence and untapped human potential. Real decision power, influence over long-term strategy and culture-shaping is a way to turn them into proper leaders. As this core team develops, life becomes much easier. Of course, after the fact it sounds trivial but it takes time, with some hits and misses. We were also lucky to hire well for key positions that really strengthened the core and improved our culture further. Throughout the process, nonetheless, we have been extremely conscious of retaining the values that had made us successful in the past. It is often forgotten amidst the exuberance brought by modernization.
In more functional terms though, we started a broad digitalization plan along a clearly defined roadmap. In industrial SMEs this is usually an underinvested area with huge ROI potential. Building a sales organisation has been the other key element of our growth plan. In the background though it is processes, data, RACIs – whilst trying to balance the entrepreneurial, loyal, can-do attitude that we inherited.
How do you involve your leadership team in shaping and executing the company’s vision? What practices have you found effective in building alignment and motivation across the broader team?
Taking a leaf out of the classic book, The Five Dysfunctions of a Team, we got cracking with forging a solid management team based on trust, openness, and accountability. We have spent considerable time on how we work as a team, including on management retreats, often with external facilitators. Two years on this time has probably the best investment we could have made.
We also started involving a broader group for strategic decisions, through a formal quarterly workshop. Our aim is to apply our collective insight to identify focus areas, and initiatives to make us successful. It is a great tool to ensure robust discussions and alignment around a common set of objectives. Luckily there are plenty of best practices around on how to conduct such workshops. We also take our monthly business review meetings very seriously. If boring then it isn’t working! We have been implementing similar principles lower down into the organization. It is amazing how much clarity you get from the workers on the shopfloor.
At the end it all boils down to communication – of the type that goes both ways. It is our most effective tool, and one I wish we had cracked much sooner.
How does your board support you as CEO? Can you share an example of a time when their input made a significant difference? How do you align your incentives with those of the investors and the long-term health of the company?
I am lucky to have an amazing Board, people with tons of experience as entrepreneurs and business builders. The value of their input accrues over time but probably what I am most grateful for is the one-on-one discussions with Board directors. In terms of aligning incentives, one great thing about the search fund model is that it simplifies the story greatly. Do what is best for the business and trust the system.
Two years in, what are your priorities for the next phase of growth for both companies? What advice would you give to aspiring searchers in Central and Eastern Europe?
We hired well in key positions and have grown the business, especially in the past 9-10 months. We are looking towards expanding our market footprint beyond DACH. One way or the other we want to be on the forefront of the consolidation wave that is coming to our sector. We’ve put in a lot of hard work to make us scalable – something that cannot be taken for granted in manufacturing. The best is yet to come!
My advice? Searching and then being CEO can be a lonely job. Don’t be alone! Reach out to peers, your team, board, shareholders, and don’t be alone.
