In times of crisis, accelerate

Many companies are experiencing an unprecedented rush of new trends, bringing with them an equal number of challenges and growth opportunities, from new customer preferences, to the importance of e-commerce, to the need for a flexible organisation and a sound financial condition. Argos Wityu takes a look at the choices made by six of the companies it supports and the strategies they have implemented.

01

Redeploying the company’s e-commerce strategy

2020 will be remembered as the year of exponential growth in online sales. This was the most immediate consequence of travel restrictions around the world. Maison Berger, the home fragrances specialist, is one of the companies where Argos fostered the acceleration of the e-commerce strategy the last few years. As a result, they were able to ramp up their digital operations when necessary to respond to new consumer expectations. “Being stuck at home made people want to take care of their interior,” says Olivier Sillion, CEO of Maison Berger. “And our products meet this demand. Lockdowns have catalysed change at Maison Berger, transferring part of our retail activity to the web.” In 2020, the company launched e-commerce sites in Germany, Belgium, Spain and Canada to raise its digital profile. At the same time, consumers have been sharing information on social media like never before. For example, Maison Berger now has 50% more followers in France. David Serandour, Head of Digital, emphasised the results the company has obtained. “Online sales are up sharply on all markets: in the United States, in France (up 70%) and in Germany (up 40%).”

Similarly, Juratoys, specialist in the design of traditional, educational toys and games, had already begun digitalising its sales. Present on the websites of its pure-player customers, the company initiated its B2C activity in 2019 in France and Belgium with the launch of its Janod.com e-shop. “But 2020 was clearly the year that boosted our B2C activity,” explains Ludovic Martin, CEO. “The public health crisis only confirmed the importance of digitalising our company.” The figures speak for themselves: sales increased sevenfold during the first lockdown compared with the previous months. Christmas 2020 sales rose threefold compared with Christmas 2019. Nevertheless, Juratoys wants to continue putting priority on its relationship with specialised resellers and independent toy shops. This strategy requires a strong commitment in support of the digitalisation of stores that open e-commerce sites or use social media to offer click-and-collect services. “Next spring, we plan to launch a product information management system that will aggregate content and make it easier to put e-commerce sites online,” explains Nathalie Calipari, Director of e-commerce.

02

Making people central to the company

This turbulent period was also an opportunity to redefine the relationship between the employee and the company. It is in this context that Sword France, independent leader in digital IT and software, is launching a new plan on the occasion of its acquisition by Argos Wityu. “It’s a collective plan,” emphasised Philippe Le Calvé, the company’s CEO. “We want to involve as many people as possible, both in terms of the company’s financial structure – the share capital is being opened up to employees – and on a daily basis, collectively and operationally.” With emulation and mutual assistance underpinning the success of the company, every employee must be given the opportunity to make a contribution. This approach took on new importance in 2020, when recourse to teleworking impacted both how companies are managed and the confidence companies place in their employees. “Argos Wityu was very receptive to our desire to promote collective commitment,” Philippe reports. “The objective is to build a plan together including the greatest number of people possible. We are working hand-in-hand around common, fundamental values: commitment, respect, sharing.”

03

Reinventing the company’s products

Travel restrictions have also brought about changes in consumer needs in many areas. World leader in the design, production, and distribution of packaging machines, films and software for the fresh food market, Fabbri Group had to offer solutions to respond to the development of e-commerce and to the emergence of black stores, retail businesses closed to the public that process online food orders. Stefano Mele, CEO of this Italian group, explains, “We have enlarged our product range, creating new stretch and barrier films for packaging and delivering food.” The market has been moving towards preserving food products from contaminations and protecting them during delivery, while keeping all their organoleptic properties and freshness, and the pandemic has only accentuated this trend. To meet this objective, at the very end of 2019, Fabbri Group acquired CAVECO, specialised in the design of robust, reliable, and flexible tray-sealing lines and machines. “The lockdowns have forced us to innovate in a major way and in record time- says Stefano – so new products are expected to reach the market between now and the first half of 2021, including a biodegradable barrier film, another consumer expectation. In cooperation with its polymer supplier BASF, Fabbri Group has recently launched Nature Fresh, the world’s first biodegradable, compostable stretch film, which won the Italian prestigious prize “Oscar dell’Imballaggio” (Packaging Oscars), and, together with the UK client Westaway Sausages, the UK Packaging Awards 2020 as “Innovation of the Year”.

Wibit, the world’s leading manufacturer of inflatable aquatic parks, is another prime example of a company reinventing its product line. With stay-at-home orders in place throughout the world, demand for nearby activities has grown. “Wibit’s DNA has not changed,” says Robert Cirjak, CEO, “but we are now targeting many more small leisure installations, because people want to stay closer to home, opting for example for a local lake instead of a more distant, major installation.” Several new products have been created to reach this new clientele, including the world’s first water mask and BeachCocoon for more intimacy and security on the beach. At the same time, the company has adapted its marketing strategy in countries where domestic tourism is booming. All of these challenges have benefited from Argos Wityu’s decisive support. “During the first lockdown, we had daily discussions with the Argos Wityu team,” says Robert. “Their experience, in particular during the 2008 crisis, was very valuable.”

04

Robert Cirjak, CEO of Wibit, explains how his company has adapted its product strategy in response to the boom in domestic tourism.

           

05

Rethinking cash management

Obviously, many companies saw their business disrupted, to differing degrees, by the Covid-19 crisis. To best manage the risks it faced, Zodiac Milpro chose to rethink its cash management. Its objective was to optimise cash without putting the brakes on growth. A series of good practices were implemented over a six-month period: improved stock management, settlement of customer debit balances, pre-financing in certain markets (France, Canada USA), and transverse project teams including factory managers. The company was thus able to reconstitute a comfortable level of cash without restructuring. “The crisis revealed just how robust Zodiac Milpro was,” Agnès Bucher, the Group’s CFO says in hindsight. “We are preparing for the future by securing the present, with the confidence of our financial backers.” This confidence has proven to be decisive both in answering major calls for tender and for investing in productive capacity with an eye to new innovative projects. Indeed, the company needed to feel safe and secure in the face of uncertainty in order to project its growth momentum into the future.

06

[Jérôme Hervé Interview]
Blurring the Lines between Venture Capital, Growth Capital, and Private Equity

Jérôme Hervé, entrepreneur and investor at JHnext

Jérôme Hervé,
entrepreneur and investor at JHnext.

 

What started as a reaction to the COVID-19 global health crisis has morphed into a new global business landscape. How should investment funds react? Jérôme Hervé, entrepreneur and investor at JHnext and former Senior Partner and MD and BCG, shares his insights.

Like the companies they support, investment funds have gone beyond the period of adaptation particularly in terms of investment. How is that changing the investment criteria, particularly in terms of debt and solvency?

In terms of how companies navigated the crisis, remember: there was no instruction manual for this event unprecedented in living history. So, having teamwork – with professional investors acting as true shareholders, supporting filings for state-guaranteed loans to help weather the crisis, and providing employees with the reassurance and protective gear (such as masks) while adapting processes to the new environment – was vital. It took intense teamwork, but it worked to navigate the crisis and make a positive difference to where we are today.

In general, we can say that companies emerging in the best shape from the health crisis are those which were the most agile (on all dimensions in particular the social one), and the most digital. Tech savvy companies managed digital supply chains better and were less disturbed by work-from-home regulations, etc. Overall, companies that could shift their business model online (e-commerce, e-health etc.) have done better and will do better whatever the sector. However, continued volatility reminds us that leverage can be a dangerous game and should be handled with care.

One could have expected the investment market to stop short, as happened in 2011. This did not happen. The deal flow never dried-up; in fact, three classifications of companies are still very much in focus for investment today:

  • Very-high-demand companies, which have increased their revenues during the crisis. Surprisingly, there are many companies in many sectors in this situation. In general, these were the well-run companies, already digitized, with strong governance and a compelling competitive advantage. Aside from industries which have been badly hit such as hospitality and travel, there are many sectors like education, agriculture and even real estate where we find well run companies. There is a lot of dry powder in investors’ pockets, but there are fewer targets, and this is pushing the price up for these targets. To some extent this is logical, because the health crisis is an acid test of resilience.
  • Companies in the « wrong sector ». The crisis was so violent some companies had no choice but to restructure, and I am amazed by the speed at which companies in aerospace and defense, for example, have adapted their cost structure. The paradox is that the survivors are likely to be fitter after the crisis. This creates opportunities for investors who have a specific risk appetite. Of course, expectations have been updated – sometimes with a massive discount to BP’s designed before the crisis.
  • The large majority of companies, performing in parallel with the overall economy. That is, -10% in 2020. The dust has not settled yet, but investors have adapted their lenses to determine which ones are the most promising.

I am not sure debt and solvency will be the issue for well-run companies in the short term. The ECB has done its job and promises funding will remain strong for good quality assets.

In addition, we are likely to see a case for deep transformation on the sustainability front. A wave of new regulations is coming, the elections in the US have changed the mindset, a “green deal” could be part of the next phase of the US stimulus package, etc. As with digital transformation, there will be winners and losers in this category.

Have investment funds reviewed their priorities in terms of sectors in which to invest? Artificial intelligence, training, customer journey management etc.?

It is more about being picky in each sector than choosing new sectors. Even the no-fly-zone sectors will have investment opportunities.

If you were an active investor in AI before the crisis, you are likely to be wealthier. In my view this is more about the importance of the digital readiness of existing companies rather than about the health crisis.

Have companies modified their value-creation strategies to adapt to this context?

The crisis has likely reinforced the importance of the digital lever over and above the traditional levers of good cost management, sound organic growth, and build-up acquisitions.

In the longer term, the lines between Venture Capital, Growth Capital, and Private Equity will blur. On the one side the best start-ups will be valued more than established companies, on the other side, well established companies will have to behave more like start-ups, acquire some of them, attract new talents which will help them capture new growth opportunities unleashed by technologies and therefore twist their equity story towards more organic growth and increase their multiples.

Do you see an increase in employee shareholding, an effective lever for rewarding teams and strengthening cohesion around a corporate project?

This crisis has shown that a good team can make a difference. Certainly, employee shareholding will remain a key lever for attracting talents and retaining them.

However, investment is a risky game, and I would remain cautious about broadening employee shareholding too much, because employees should not take risks with their savings. It is reasonable to share part of the upside if any, but it cannot be symmetrical. A professional investor knows that he can lose his shirt; this is not acceptable for employees in general.

Are the strategic development axes also being rethought? ESG, relocation of production in sensitive sectors (such as pharmaceuticals, for example), development of e-commerce, composition of governance …?

ESG is not an option today. It is no longer just about compliance; it goes beyond that. Today, we see that ESG can be strategic, leading to new business opportunities, leveraging new consumer behaviors and expectations, and potentially leveraging public spending and new regulations.

Some industries like automotive or aerospace will be challenged very badly and will have to reinvent their model if they want to survive. This will require big investments, a lot of agility but the Tesla example shows that being ahead of the pack on the innovation route can lead to superior returns and valuation.

The money injected in the economy for energy consumption reduction and building renovation will very likely open new avenues of value creation for all incumbents. Anticipating to be at the right place at the right time will have a lot of value.

07

Louis Godron, Managing Partner at Argos Wityu explains why the fund’s strategy represents a real opportunity for the companies it supports.

           

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