Boosted by the financial support and growth expertise of Astorg Partners since 2015, SGG Group has continued its international expansion. Their momentum doesn’t show any signs of slowing. Matthew Hignett, the group’s newly appointed corporate development leader, decodes SGG’s acquisition strategy and the industry’s trends.
Leaders League: What is your scope of activity?
Matthew Hignett. I joined SGG at a time of rapid expansion and development. Late 2015, the company was acquired by Astorg-Partners, a renowned European private equity investment firm. They recognize the potential of the trust & corporate services sector and consider SGG a key player within that sector with great ability to grow internationally.
Under Astorg’s ownership, we have already acquired four businesses in the past year. The first one is Equitis, a Paris-based alternative fund management company and one of the French leaders in fiduciary services, whose niche activity is complementary to what we do. Another is in Mauritius, CIM Global Business, a leading provider of fund administration and corporate services with offices in Mauritius, South Africa and Singapore. This acquisition gives us a bigger footprint in Africa and Asia, enabling us to grow in the African continent, which has been attracting a lot of US & European private equity capital over the last few years, and a lot of structuring activity for Africa comes from Mauritius. What’s more, in Luxembourg we recently acquired W&Cie, a multi-family office specialized in complex corporate and financing structures, as well as LuxGlobal Trust Services (LGTS), focused on corporate and trust services, wealth planning and fund services.
In total we have spent over €100 million in the last year on global acquisitions, and the combined business now has revenues of over €115 million. Our ambition is to take the business over the next three to four years to €250 – €300 million through organic growth and acquisitions.
With a background in corporate development, I joined the group in April 2017 to work closely with Astorg to identify M&A opportunities. Our M&A strategy is based on where we want to grow our business and is complementary to our organic expansion, so I spend a lot of time with the leaders of all our businesses to understand their strategies and priorities.
Why did SGG choose to set up its corporate development activity in London?
A lot of intermediaries, banks and law firms who cover the trust & corporate services industry are based in London, so it makes sense for me to be based in London. As one of the top three players in Luxembourg, we certainly see Luxembourg as an important market, but our main focus will be geographical expansion and increasing the percentage of fund-related revenue in our global activity. Mauritius is a good example of adding new geographies and growing our fund business. Roughly 55% of our current revenue is fund related, and we are looking to grow that segment to two-thirds to 70% over the next three years.
What jurisdictions interest SGG in particular?
We would like to grow bigger in the Channel Islands, Ireland and the US over time, but we also want a stronger presence in Asia, especially in major financial centers like Singapore and Hong Kong. These are the key jurisdictions to build our global business.
And how do you choose your targets?
We evaluate our targets on a case-by-case basis, and we are happy to look at different sizes of targets. For instance, we invested a significant sum on the acquisition of CIM Global Business, but some of the businesses we acquired in Luxembourg were much smaller. Astorg are very interested in this sector and are keen to deploy more capital, so potentially we would be deploying several hundred million euros on acquisitions over the next two to three years.
How do you ensure the smooth post integration of these acquisitions?
Basically, we do our work upstream. The evaluation process is classic due diligence, in the sense that we analyze every element ranging from the potential of the business, the strength of the management team, to the business’ ability to integrate with our own business, etc. We also conduct integration work during the due diligence process, with a quite high-level review, making sure there are no key integration risks. The real planning process around integration begins once we acquire the business, between announcing and completing the deal. Once the business is acquired, we tend to establish a ten-day plan, then a first month plan and a 100 day plan after that. Finally, post integration evaluation normally happens 12 months after the deal, where we evaluate the performance of the acquired company, and see where we can drive the business’ growth.
What impact has Brexit had?
At the moment, I think people are still waiting to see what happens. It depends on, what we end up with, a soft or hard Brexit, and what the deal is around passporting financial services. So far I haven’t yet felt any pressure from Brexit, but clearly some of the banks have started thinking about transferring their activities, and a number of investment fund managers are opening an office in Luxembourg or using our AIFM capabilities. Luxembourg is certainly a business-attractive jurisdiction and is likely to continue to benefit from the continued uncertainty.
Does the current international political upheaval add difficulty to your activity?
As long as the sectors that are we are servicing continue to grow, the outlook remains positive. There is a lot of noise around the sector, but we are servicing firms that are growing capital internationally, and a significant amount of capital has been raised by private equity, hedge funds and other alternative services, and this growth only benefits our industry.
What’s your assessment of the changes currently taking place in the industry?
A number of large global investment banks are moving out of fund services. For example, in February 2017, UBS sold its fund administration servicing units in Luxembourg and Switzerland to Northern Trust, and other banks are likely to exit this market as they shed non-core operations. But there are still a number of the banks and other independent players focusing on fund services.
Will we continue to see consolidation in the fund servicing industry?
Over the last two years there has been a significant amount of consolidation activity of small firms acquired by private equity firms or bigger players of the industry. A lot of players are now owned by PE, so I think there will continue to be significant activity in the next five years.
Will the industry come to be dominated by a few global players or will small specialized players thrive?
Overall, the industry is quite fragmented. The top three players represent 15% of the market, the top ten 25%, but there are a huge number of other businesses. The global market is around €6 or €7 billion. From my perspective, the market will continue to consolidate over the next five to ten years, which represents an excellent opportunity for the biggest players, and we clearly are one of the consolidators.
What does the future hold for SGG?
Apart from fund-related activities, we will also continue to focus on building up private clients for our family office services. Having made two recent acquisitions in Luxembourg, we are looking to build these businesses and are still evaluating the best growth strategy.
We have circa €115 million in revenues now, and we want to have revenue of between €250 and €300 million by 2020 and have a bigger global footprint, generating significant revenue in Asia and the US.
Source: Leaders League