Tech investment bank GP Bullhound just opened an office in Berlin by taking over Pure Equity Advisors, a seven-month-old mergers and acquisitions (M&A) advisory house led by Julian Riedlbauer.
GP Bullhound, which also has outposts in Stockholm, London, and San Francisco, wanted to get closer to what it described this week as one of the hottest start-up cities on the planet. Pure Equity Advisors wanted better access to international buyers for its clients.Riedlbauer got his start selling modems as the teenage founder of Connect Service Riedlbauer, then eventually joined Corporate Finance Partners (CFP), possibly best-known for brokering the sale of Jamba! to VeriSign in 2004. In 2011, he brokered deals worth a combined €300 million.
We asked Riedlbauer about the high-testosterone world of tech M&A and where he sees Berlin heading in the next few years.
Do you actually sit in on deals with your clients?
Absolutely… For the major presentations and negotiations, we’re present in each of them to support our clients and negotiate hard for them.
You’ve said before the M&A firm is often positioned as the bad guy. What dynamics do you experience?
The client, or the company, has to work for a long time with the investor or the acquirer, which means the management, the founders, and often the main shareholders, they’ll be part of the group and the company…
So they should keep a very good relationship to all of the potential acquirers – not negotiate too hard and not use all the negotiation tactics. The buyer could get annoyed or angry and that would harm the relationship in future. That’s why the M&A advisor is important, to be the negotiator and put full force behind it. That’s an accepted role.
Do you get paid a percentage of the deal?
The majority of the fee comes in with the success fee, so we definitely fight for our clients to get a success. The percentage of the success fee depends on the size of the transaction. In Germany, typically fees [are] between two and five per cent of the transaction.
You could use a poker metaphor here. Do you watch for body language?
Absolutely. We use a lot of negotiation tactics to get the best deal for our clients. Some of them are secret. … But, for example, we definitely try to create competition among buyers, try to increase the valuation and terms by putting more than one buyer into competition.
In the biggest deal this year – Facebook and Instagram — there were reports Instagram did the same with Facebook and Twitter, playing them against each other. What are your thoughts on that deal?
It’s astonishing how high the valuation got. It is definitely an example of how, if you have a very interested buyer, create competition, and you’re fully financed, you can drive the valuation to very high levels.
Your first company, before you got into this line of work, wasn’t it selling computer modems?
Yes, it was the leading modem and network equipment distributor at that time. [I started it] out of high school, at the age of 16, 17. … It’s astonishing how many former clients of the modem business are now entrepreneurs in the online field.
How do you think the Berlin and German scene has changed for founders over the last five years?
Berlin is definitely developing, it’s a very vibrant Internet scene now. We definitely have companies now that are of decent size, even category leaders in Europe, that were set up in Berlin, run by Berlin entrepreneurs. The international investor community is definitely paying attention. They see Berlin as the hotspot in Europe now for Internet investors and internet companies. …
So I think more funding will be available in Berlin. I think we’ll see a lot of good developments in the next 24 months.
What are some of those companies you think are becoming category leaders?
Some examples? Rocket Internet. Zalando is definitely the European leader in online shoes and probably soon fashion. Team Europe, for example, their portfolio companies – like Delivery Hero – this is really becoming a leading player.
Any strong challenges for founders in the next 24 months?
I think the competition will increase. So many companies are becoming successful, so you either have competition for clients and users, or for talent.
To change topic – on the GP Bullhound team page (above), there are only a few women. Why do you think that is?
Maybe women don’t enjoy it so much, or appreciate the job so much? It’s a lot about creating vast documentation, running financial models, doing business planning, negotiating very hard, fighting for the client. You find a lot of alpha males in the industry, unfortunately not many women. …On a partner/managing director level, you can find in more traditional investment banks e.g. at Goetz Partners, a female managing director – Dr Henrietta Schmidt-Wilke, and at B. Metzler, Lucie Gabor. I don’t know them in person.
Any predictions or trends you’d like to make for the rest of the year?
Mobile is big. I wonder what will happen in that industry over the next 12 months. It’s such a fast-growing sector, smartphone penetration rate going up, people getting used to doing more on their phones, more m-commerce going up, also mobile games. Definitely a hot segment.