LGT European Capital: Playing to Win

For Etienne Haubold, a longstanding partner at LGT European Capital, Asmodee’s success story is a textbook example of what the right kind of financing can do for a company: in 2013, Asmodee, a publisher and distributor of board and card games, was number one in France, but a relatively small player internationally.

While its previous owner had perfectly initiated the European expansion and achieved growth above plan, the company’s ambitious management team had decided it was time for a more global expansion, and they therefore began to look for a financially strong private equity investor. The idea was for this investor to acquire Asmodee and partner with management in continuing their ambitious growth plan.

Ideal Financing Solution

In order to further optimize the company’s toolbox for growth, however, management and its private equity partner soon realized their plan required a lender who could provide a flexible financing solution as well as a strong commitment to the company’s further expansion based on a shared vision of the roadmap.

The advisor responsible for the sale of the company therefore contacted Haubold, with whom he had worked in the past. He knew that LGT European Capital, a private debt fund manager based out of Paris and London, had introduced so-called unitranche financing in Europe in 2007. Although this flexible form of lending was still relatively unknown, it seemed to him like the ideal financing solution.

Thorough Examination

At LGT European Capital, a small team began to prepare a detailed financing offer. «Although we were of course familiar with a number of the company’s games, the company itself was practically unknown to us», recalls Olivier Meline, Managing Director. But that was about to change: in contrast to other private debt providers, LGT European Capital do not, as a matter of principle, rely solely on the analyses conducted by the buyer.

Instead, they always thoroughly examine a company by themselves: «As a lender, we couldn’t afford to have a flop on our hands. That’s why we take a very close look before we invest. And because we currently have a leading position in Europe, we are invited to participate in the most interesting deals and have the luxury of being able to be choosy,» says Haubold.

Toy Stores and Supermarkets

In the weeks that followed, the team reviewed the key financial data, searched through specialized databases, conducted numerous interviews with industry experts and closely analyzed the various distribution channels. «We even visited toy and specialized stores as well as supermarkets to get a feel for the physical distribution,» says Samantha Schwartz, who had just recently joined LGT European Capital.

The team quickly realized that more than just the numbers added up: with its expertise in publishing, an outstanding network of leading game authors as well as a marketing apparatus that was precisely tailored to the various distribution channels, Asmodee had the ideal prerequisites for international expansion. In November 2013, LGT European Capital presented a tailored financing proposal that in addition to the standard interest and fee payments also comprised an equity participation component.

The proposal was so convincing that the two potential buyers who made it to the final stages of the bidding process mandated LGT European Capital to provide the financing of the acquisition if they were to be the winning bidder. Haubold and his team were therefore relatively relaxed as they waited to see which buyer would come out on top – they would be on board whichever the outcome.

A Flying New Start

The sale was concluded in January 2014 and after less than a year, Asmodee had already made three major international acquisitions. In order to address the increased need for financing, LGT put together a second financing package. Thanks to internal growth and a series of strategic acquisitions, only four years after getting its new start, the company is now the global number two and ranks among the big players even in the U.K. and the U.S. Turnover has increased from 100 million euros in 2013 to over 400 million euros.

And thanks to its strong performance, Asmodee has in the meantime been able to replace the unitranche financing with more conventional bank loans. For Haubold, this is a classic win-win situation: «We were able to contribute to the success of Asmodee and at the same time generate a very attractive return for our investors. And last but not least: the transaction has contributed to further establishing unitranche as an attractive form of debt financing in the private equity space.»

Private debt: Investing in an equity participation in an unlisted company is referred to as a private equity transaction. In addition to equity, such transactions are usually financed to a significant degree through loans. Particularly in Europe, these have traditionally been granted by banking consortia. Following the financial crisis, banks increasingly retreated from this business due to new regulations, but also to mitigate risks.

The void this created has been filled by loan or so-called private debt funds that are specialized in a number of different financing instruments including unitranche financing. In the case of consortium loans, financing tranches are provided by a number of banks, and have differing collateral and maturities. In contrast, unitranche typically has only one lender who finances the company’s entire borrowing needs through a single loan.

A potential buyer must therefore only negotiate with one lender, making the process significantly less complex and faster while allowing for more flexible solutions. The fees and interest rates for unitranche financing are therefore generally higher than those for traditional bank loans or corporate bonds. Investments in private debt funds are primarily attractive for institutional investors who can tie up their capital for longer periods and carry the ensuing risks.