Apax Partners analyses how to initiate international development
There are many ways to initiate international development. Bruno Candelier and Franck Hagège, partners at Apax Partners in charge of the retail sector, talk about the strategies that work.
Market screening and concept validation in a target country
Franck Hagège begins by pointing out that “You can’t strike out in all directions at once. Before developing internationally, you have to first select a target country and validate the business model there.” He has three criteria for choosing that first country: market size and growth, competitive pressures and local consumer habits, which are particularly disparate in the retail sector. “Looking at the clothing industry, for example, we can see a real North/South divide in the way people dress,” he continues. Bruno Candelier adds another criterion: the operational dimension and more specifically logistics, property and management challenges. “A territory as vast as the United States, for example, is very difficult to cover logistically. Taking the first international step is a real challenge, even if cultural globalisation has erased differences in consumer habits, making things simpler than they were 10 or 15 years ago. It is thus crucial to analyse the model’s market compatibility before taking action,” he added.
Organic growth or acquisition?
Once the target country has been chosen, it’s time to take action. Companies generally have two options: organic growth or acquisition. “Organic growth is often the more natural and more virtuous path,” Bruno comments. It’s a strategy that assumes you not only have products that make sense in the target market but also a strong, disruptive concept that differentiates you very clearly from the competition. “Organic growth is also the less risky option, even if it can take a lot longer than acquiring a local company,” Franck adds. With regard to acquisitions, Bruno says that “it can be preceded by organic growth. The objective is to validate the choice of country organically, to learn about the market and its competitive environment before moving to a higher growth gear through an acquisition.” He cites THOM Europe as an example. Before acquiring the Italian company Stroili, THOM Europe opened 30 or so Histoire d’Or stores in Italy. Of course, growth by acquisition can also be a strategic choice in a rapidly consolidating market. “This is very much the case in the retail optical market, where companies are competing for size worldwide so as to weigh in the balance against the major international lens manufacturers. The Afflelou Group has understood this, and this is why we support the company in its purchase of franchise chains such as Optical Discount in France and Optimil in Spain.” Lastly, Bruno talks of e-commerce, which sometimes enables companies to test their products on a market at a lower cost before opening physical stores. “Maisons du Monde has made brilliant use of this strategy; after a web presence in Germany over several years, the company has decided to open a brick-and-mortar store.
Apax Partners’ recognized international expertise
If these two partners are so well versed in these subjects, it’s because internationalisation is in Apax Partners’ DNA and has always been one of the fundamental sources of value creation in Apax Partners’ investment funds. “Our mission is simple: find strong concepts requiring a minimum of adaptation and prove that they can be reproduced on an international scale.” To accomplish this, Apax Partners’ priority has been on companies that expand in one direction at a time, rather than spreading themselves thinly over several countries at once. “It leads to better results and creates more value,” Franck explains. Bruno sums it up: “With an average of 15 build-ups per year, including many outside France, and 65% of our portfolio companies’ sales deriving from outside France, we have the experience necessary to help our companies take the plunge and export their French savoir-faire.”