The acquisition strategy of House of HR

This article was previously published on houseofexecutives.be.

The largest debt-financed buy-out ever by a private equity fund in Belgium. Negotiated in part by Rika Coppens, the newly appointed Manager of the Year 2022. The M&A Awards jury awarded the Best Large Cap Private Equity Deal 2022 to the acquisition of House of HR by Bain Capital. What a story, starting from humble beginnings.

It's 1995 in Roeselare, West Flanders. Conny Vandendriessche and Philip Cracco open the first Accent Jobs employment agency. Almost 30 years later, the company has grown into House of HR. A European group specializing in HR services for niche markets, with over 5,000 internal employees and offices in Belgium, the Netherlands, France, Germany, Poland, Romania, Hungary, Spain. Together, they employ over 57,000 people every month, generating nearly three billion euros in revenue in 2022.

Who would have dared to dream that? Well, undoubtedly the founders themselves. "They already had the very entrepreneurial mentality that still characterizes us," says current CEO Rika Coppens. But the international growth of House of HR would especially take off from 2014 when Naxicap Partners acquired the majority of the shares.

How the fantastic expansion began

Above the fortifications of Accent Jobs, there is now a holding - House of HR - in which Naxicap Partners, one of the leading French private equity companies, also participates. "This leads us to wonder if there are more HR companies with the same mindset and passion as House of HR, in Belgium and the rest of Europe, that we can acquire to grow even faster."

"In late 2015 and 2016, we made our first acquisitions," reflects Rika Coppens. "I also joined the board and became CEO in 2017. One of my tasks was to make the acquisitions not only financially successful but also practical. How do we make the acquired companies work together, in what structure? And how do we ensure that people enjoy working in our group without feeling too much like a group, causing them to fear losing their individuality?"

The solution? "We grant a lot of autonomy to the companies we acquire within a decentralized structure. Local managers are allowed to decide a lot themselves as long as they fulfill their promises in terms of results. We strongly emphasize ownership. Quite literally: hundreds of managers are also shareholders of House of HR." Today, still, more on that later.

We use five criteria for acquisitions: growth, profitability, niche market, management, and cultural fit.

"Specifically, we use five criteria for acquisitions: the companies must have experienced strong growth, have very high profitability, be specialized in a niche market like ourselves, have a management team willing to stay on board, and have a strong cultural fit with House of HR. Sharing the same spirit, that everything can always be improved, no matter how well we are already doing. For the candidates, our own employees, and the clients who rely on us."

First time in the showcase

In 2022, Naxicap Partners deems it the right time to sell House of HR. "That is to say: we had been in the showcase once before, in 2019. We spoke to about ten parties, including Bain Capital back then. But in the end, we didn't reach a deal. Among other reasons, because none of the parties had a solution for our many managers who were shareholders."

Several years of great international success pass. "In December 2021, Bain Capital calls me again. 'Rika, we need to talk again. What do we need to do to become shareholders?'" To which Rika promptly responds, "In your first non-binding offer, you must immediately make a proposal for the management. Because they are the essence of our success. They make the difference."

Bain Capital calls back because they have seen the light. They now truly understand why House of HR is such an interesting investment. "Firstly, the long-term trends are extremely favorable for our business. The labor market is becoming increasingly tight, employees change jobs more often, more and more people want to freelance... At the same time, it is becoming increasingly difficult to enter our market as a new HR player. Due to the ever more complex legislation, but also because we have to invest more and more in digitization."

What is our secret? Among other things, the self-governance and entrepreneurship of our local managers and our foreign recruitment. But also our focus on attractive niche markets.

And when you look at who performs best in that market, House of HR immediately stands out. "In the past ten years, we grew faster than average, with higher profitability. Thanks to the many acquisitions, but also organically. And consistently. Even through crises, we grew organically by eight percent."

Crucial part of the deal

At the same time, Bain Capital followed Rika's advice. "Together with their advisors, they come up with a very good solution for our managers, allowing them to remain co-owners. Preferably, 500 managerial shareholders first sell their shares, after which they can buy back in. Other managers can enjoy a long-term incentive plan, totaling 700 directors. If added value is created, we return a portion of it. Money that they can then reinvest in the future of House of HR."

This solution alone makes the acquisition deal particularly complex. "Also in light of the capital gains tax: we must be sure that each party and each manager would pay the correct taxes, as required in their country. For this, many advisors are enlisted: Freshfields for the management, Lydian for Naxicap Partners, Stibbe for founder Conny Vandendriessche, Allen & Overy for the company House of HR, and NautaDutilh and Latham & Watkins for Bain Capital. The tax and corporate structure is outlined by EY."

On top of that comes a complex equity and debt financing structure, as well as the obligation to seek European antitrust approval. "According to the involved lawyers, this was one of the most complicated deals they have ever helped close. Negotiations begin in mid-March 2021. We can sign by the end of May. Due to the complexity, the closing takes until early November, also to get all managers on board. Ultimately, 60 percent of their funds are reinvested. They clearly have confidence in it."

The rest of House of HR remains in the hands of management (25%), including Rika Coppens, Naxicap Partners, and founder Conny Vandendriessche. "However, Bain Capital not only offers capital but also expertise. For example, in areas such as cybersecurity, HR and management assessment, digitization, e-commerce, and M&A. We are good at that, but they are clearly too (laughs)."

Such a complex, massive deal—no wonder this achievement won the M&A Award 2022 for the Best Large Cap Private Equity Deal. "We worked on it during weekends, evenings, nights. That makes this recognition a special acknowledgment." And then Rika Coppens was also named Trends Manager of the Year 2022. What a triumph.

Where do Bain Capital and House of HR want to go now?

During the discussions for the deal, all parties were clearly on the same wavelength, especially when it came to future plans. "What do we want to do in the coming years? On the one hand, we want to continue focusing on digitization. In 2017, for example, we launched NOWJOBS, an app that allows companies to find and deploy flexible employees end-to-end. We want to further roll out this successful application to become the app for students and flex workers in Europe. At the same time, we continue to digitize to simplify the administrative hassle in recruitments and to find candidates through digital marketing."

On the other hand, Bain Capital fully recognizes that House of HR is following the right strategy to further grow internationally. "Exactly in the way and with the entrepreneurial spirit that I just outlined. We don't necessarily want to become the largest European provider of specialized HR services, but the best. Riding the waves of trends such as labor shortages and the development of flexible work."