Press article - 27 June 2023
At what stage of development does an ESN have an interest in opening up its capital, building backing, or preserving its independence? Elements of response.
With a growth of 5.1% in 2022, the ESN sector, which is worth €32 billion, has held up despite the unstable economic and geopolitical context, according to Numeum [1],the professional union of the digital ecosystem in France. In this market, the challenges of 2023 are numerous, the first of which is the worsening shortage of talent.
So, what are the best strategies to ensure successful development?
In contact with ESNs of all sizes for more than twenty years, we have identified three main levels to overcome and are able to provide elements of response in the different configurations.
Every week, an ESN is created, positioned on a new technology that, at this stage, does not interest the major players. Initially, the company grows independently and develops its brand, forging its specialist character.
When the turnover reaches €10 million, this corresponds to a workforce of around a hundred people. The company has become too large to remain a single product or service. How can we prepare for the future and conquer new markets?
Passing this milestone is not easy, even with a real corporate culture and loyal employees. The founding manager may consider making a little cash-out by bringing in a private equity fund (OBO), but this scheme will not help him to design the new trajectory of the company; the investor will be a minority and generally not very active.
Corporates are very interested in these niche players who bring specific know-how and an expert and recognized team. Under these conditions, the vast majority of operations of this size consist of relying on a competitor.
In this configuration, it is about sustaining growth and being referenced by customers to gain commercial recurrence. With a workforce of between 200 and 400 employees, it is essential to consolidate the corporate culture and develop the employer brand to start recruiting en masse.
The entrepreneur must surround himself. He must now share everything he used to do on his own. He must also and above all share HIS company with new budding shareholders: key people identified internally or from outside. Shareholding must be organized to get the company's growth on the right track.
Private equity is a very good answer to this problem. The minority or majority investor will help structure the relationships between the old and new shareholders. A majority private equity fund will allow the entrepreneur to make more cash-out, and therefore to know how to take more risks to accelerate the development of the company.
The ESN has entered the big leagues and is aiming for 1,000 employees. With the resources allocated by its financial shareholder, it will be able to widely deploy an external growth policy, both by acquiring specialists and direct competitors, to consolidate its positions and get closer to the size objective. It will equip itself with solid administrative services and strengthen its corporate culture. Employees will be able to envisage long-term career projects, and places will be up for grabs to be part of the adventure. External growth will challenge the corporate culture and it will evolve according to new arrivals without losing its own DNA. National and international development will open the company to other mergers with corporates or large private equity funds.
The rise of post-Covid digitalization, the rise of ESG, new work organizations, permanent innovation, so many challenges that ESNs must face at all stages of their existence and which are changing the game. Founders, shareholders and managers have an interest in clarifying their ambitions and projects to give themselves the perspectives that best meet their expectations.
With offices in Paris, Lyon, Nantes, Brussels and Geneva, Largillière Finance is an independent investment bank dedicated to assisting managers and shareholders of small and medium-sized companies with their capital transactions: company sales and acquisitions, financing (capital and/or debt), financial engineering (valuation, etc.) and financial strategy.
