Robert Dennewald, Anne Canel, Jean-Bernard Lafonta, Jean-Philippe Hecketsweiler and Xavier Buck.
Luxembourg in the center of HLD Group’s European ambitions
LPEA Insight/ Out | Issue 1, February 2018
HLD Group is a French investment firm founded in 2010 providing long-term financing to French and European companies and managing today in excess of EUR700 million. With an atypical investor base as well as investment horizon, HLD made the decision, early in its history, to turn to Luxembourg to support its European ambitions. Let’s come back on the why and how with HLD Group’s CFO Anne Canel and two iconic Luxembourg entrepreneurs acting as independent directors in HLD’s investment vehicle, Robert Dennewald and Xavier Buck.
Interview conducted by Arnaud Bon, Member of LPEA’s Promotion Committee and Director at Deloitte.
Given that HLD Associés is a relatively young French investment firm with a very strong footprint in France but limited presence or activities in other countries, what drove you to open an office in Luxembourg a few years ago?
Anne Canel (AC): HLD Group was founded in 2010, with wealthy French entrepreneurs as anchor investors and partners but also a main investment focus in France. We quickly perceived that growth meant we needed a hub that would be less French-centric and more open to the international world, both to penetrate new investment markets and for fundraising purposes. This was the main driver for opening our Luxembourg operations in June 2015.
We raised €70 million the following year through a bond issuance on the Luxembourg stock exchange. We would likely not have been as successful in France, as our main fundraising efforts in Luxembourg focused on the private banking and wealth management sectors. For HLD, this has been a real chance to diversify its source of funding from a handful of French industrial families, such as DentresSangle, Bébéar or Decaux. Further to the bond issuance, we also admitted the Italian De Agostini as equity investors in our vehicle.
We not only used Luxembourg as a fundraising hub but also an investment platform outside of France. In September 2017, we completed our first investment in M-Cube, an Italian technology company, to help it expand internationally. HLD’s management believes that Luxembourg is an ideal location from which potential acquisitions can be sourced, structured, and managed.
Besides Luxembourg, were other countries and cities considered to give this international touch to HLD?
AC: At the time, London and Brussels were also considered. Luxembourg was eventually chosen for its geographic location as well as for the recognition it receives internationally as a hub for Private Equity investments.
In Luxembourg, we have found a developed Private Equity environment with a rich investment vehicle toolbox as well as a mature ecosystem composed of fund managers and service providers. We understand that Luxembourg has made Private Equity development one of its priorities, which is comforting when operating an evergreen investment vehicle for which we need long-term legal, regulatory, and tax stability.
I understand one of HLD’s trademarks is the fact that the fund you structured is evergreen, with a stable investor base composed of private investors. How does it make HLD different from other PE investment firms?
AC: We can afford the luxury of time. Our investment time horizon is not constrained by the term of the fund. HLD invests in companies with a sound development project and we can take the time we need to achieve that objective.
This allows us to have a real industrial approach. HLD efficiently combines an industrial approach with a financial approach, inherent to all investment activity, where time remains the best ally to create value at the portfolio level.
Robert, Xavier, you are both, in your respective fields, captains of the industry. Is this the reason you decided to join HLD as independent directors?
Robert Dennewald (RD): I come from the industry, and more particularly, a company that has been operating for over a century. Aligning long-term investment and target development strategy is key to success. In my world, when considering investment options, the time horizon rarely counts in anything else then decades. HLD’s approach of accompanying its portfolio companies until maturity—meaning when a sale makes sense for the target rather than the investor—is an important differentiator from other Private Equity players I have seen operate.
In addition, having different business exposures than HLD’s management and team, I can contribute to deal sourcing in my activity sectors.
Xavier Buck (XB): Another interesting differentiator lies in HLD’s approach with respect to sectors. We have invested in targets as different as Kiloutou, signed in December 2017, Gekko, an online hotel-booking platform sold to AccorHotels in October 2017, and Filorga, acquired in 2010 and now a worldwide success with an annual growth of over 40 percent.
With each of those acquisitions comes a dedicated team of specialists. After all, management and investment are first about people. It is consequently important for a firm to invest in what its professionals understand. Giving all the merit to the investment team based in Paris, at our level, Robert and myself bring our industry and sector expertise and experience.
HLD has an office in Luxembourg—Anne you act as the Group’s CFO. I would consequently assume that you did not decide to appoint Robert and Xavier as independent directors for what is usually referred to as “substance reasons”…
AC: This is correct. We have all the “substance” we should have in Luxembourg but wanted to make sure we also had the adequate governance at the level of our investment vehicle. We are of the opinion that proper governance is a key success factor for any enterprise, be it in the investment management industry or else. This is a source of comfort for our investors, as Xavier and Robert are truly independent and can bring divergent opinions, views, and experience in the discussion.
We also wanted to compose a board well-balanced in term of competences and personalities.
How does this governance work in practice?
RD: HLD Europe replicated the French management model, with a board of directors and a supervisory board. This two-headed organization creates safeguards at the top management level.
The board would typically meet on a monthly basis by default, with a standard agenda covering Luxembourg operations as well as, most importantly, investment activity reviews, such as deal flow, investment monitoring, and discussions on potential exits.
XB: In addition to discipline in the board meeting’s organization, the quality of the exchanges between board members is paramount to their success. I feel, as an independent board member, that no topic or opinion is taboo, and I have not been proven wrong so far! All decisions of the board are systematically made unanimously, meaning that should divergent opinions arise, we all work together toward a decision respectful of these opinions.
AC: Sufficient preparation before the discussion is also essential. Because each board member is provided with all relevant documents at least a week in advance, when someone opposes a proposed decision, we all understand that there might be serious reasons for this position. It takes mutual professional respect both to prepare a board discussion of the meeting and to accept all opinions around the table.
I would assume it also takes time to properly prepare.
RD: It does indeed. In this way, the policy of the CSSF is to limit the number of mandates a person can hold as a director. One cannot contribute to a board to his or her full capacity when substantial time has not been invested ahead of the meetings.
It also takes time to discuss; our agendas are generally so rich that we had to extend the standard duration of the meetings to three hours.
What could we do to further reinforce or help the industry develop in Luxembourg?
AC: Luxembourg, in general, has done a great job attracting Private Equity fund managers. It is now mainly up to each player to reach a market level playing field consistent with the quality expected from professionals in this sector. Where LPEA could further help would be to offer specific programs to PE board members on relevant topics.
“Luxembourg, in general, has done a great job attracting Private Equity fund managers.”
A Case in Action – Governance tips
Double-headed management structure with a board of directors and a supervisory board
Balanced composition in the board
Monthly board meetings with a standard agenda covering all relevant dimensions of the investment vehicles
Board pack shared sufficiently in advance to allow a proper review and preparation by board members
Sufficient board meeting duration
Mutual professional respect between members to accept “no” as an answer or dare say “no”
“We have all the “substance” we should have in Luxembourg but wanted to make sure we also had the adequate governance at the level of our investment vehicle.”