- HNC Capital
BEHIND THE PORTFOLIO: WERBEZEICHEN
“The most uncrowded path to profound wealth is often subtle improvements in an existing industry so beautifully boring as to not attract attention from those attempting to sharpen a unicorn horn instead”
Werbezeichen is trying to revolutionize and digitize the out-dated promotional product industry by implementing end-to-end digital processes supported by a strong brand.
We invested in Werbezeichen in late 2018 and couldn’t be more impressed with its current development.
In the following article, we want to give you a look behind the curtain and explore Werbezeichen’s industry and their growth strategy. Additionally, we will look into the investment case for HNC Capital.
An industry ripe for disruption
The market for promotional products is worth € 3.5 billion in Germany alone. The market is growing slowly, but steadily. The CAGR of the last eight years was just over 2 % annually. The growth in the next few years should be similar and will be driven by expanding marketing budgets and the need for haptic marketing options in a world dominated by online marketing tools.
The promotional product market is highly fragmented and controlled by family-owned businesses. Over 4.000 of these small and aging companies currently have a market share of 48 %. A majority of these family-owned companies are being driven out of the market due to the absence of successors and a lack of the necessary capital and know-how to master the challenges of technological advances. A growing market with fewer competitors will create an excellent environment for Werbezeichen to organically take market share. Furthermore, many family-business owners will look to sell out and have their assets monetized.
Build and Buy Strategy
Werbezeichen follows a two-pronged growth strategy. Primarily, Werbezeichen is focused to serve its customers through technological innovations. Werbezeichen invests a lot of capital into its digital infrastructure in order to make the order flow as intuitive, easy and seamless as possible for its customers. Furthermore, a big chunk of its digital budget flows into the optimization of its internal processes. All of these investments are designed to make these internal processes more efficient. These actions should be margin accretive and free up time to serve its customers better.
The other part of the growth strategy involves buying up competitors. As explained before there are over 4.000 family-owned businesses in Germany, many of which are struggling with ever-expanding technological requirements. Additionally, the topic of who will succeed the owners, once they retire leaves a big question mark. Another problem, which currently exists for these owners is that the market for acquisitions of promotional product companies is not very active. This environment enables Werbezeichen to make opportunistic acquisitions at attractive prices. Acquisitions will be financed either through internal free cash flow generation or through external debt or equity financing.
In October Werbezeichen completed its first large acquisition. The acquired company was twice the size of Werbezeichen in terms of revenue. Therefore execution will be key. Throughout the next months, Werbezeichen will be highly focused to integrate the newly acquired company and implement “best practices” from both sides.
Why we invested in Werbezeichen
First of all, Werbezeichen ticked all our boxes. Werbezeichen has an easy-to-understand and unique business model with many opportunities to expand its business profitably. Furthermore, Werbezeichen is led by a laser-focused and highly capable management team. Lastly, we were able to invest at a valuation that should make every venture capitalist jealous.
Find out more about Werbezeichen at werbezeichen.de