Interview with Stephane Klecha, founder of Klecha & Co., a corporate finance advisory firm specialising in technology, software and IT. The company is headquartered in Milan, London and New York and deals with two main strands: corporate finance (M&A, capital raising) and equity research.
The competitive environment for companies is currently evolving at an unimaginable rate, in terms of both technology and the market. How do you handle this situation?
The international arena in which companies have to compete is changing, and the change is driven largely by technological evolution. This evolution is affecting the business models of all companies: everyone has to work to understand how to deliver their products and services in order to remain competitive. This situation creates risks and opportunities that have never been seen before.
Focusing on the technology sector, what are the main challenges?
There is such a great volume of investment in this area, more so than other sectors, and consequently the rate of innovation is much higher, which has an impact on the speed with which competitors move with new products, deals, and business models. There’s a constant rise of new operators and start-ups that are gaining the advantage in different areas, such as cost base and customer reach, that were previously associated with traditional channels. You have to sustain your rate of innovation, otherwise the market will leave you behind. At the same time you have to be very perceptive and remain active in the marketplace, to see where opportunities and risks arise.
In this scenario, strategy is of the utmost importance. In general terms, what’s the best approach to planning future business development to avoid being unprepared for the changes?
It is of crucial importance, especially for small and medium-sized companies, to remain focused on their core business and expand their international positioning. This is often brought about by growing to a size that allows investment in terms of both technology and geographical expansion. Both of these goals can be achieved through acquisition, which speeds up the results of organic investment and becomes the most efficient way of accelerating innovation, research and internationalisation.
What are the major issues for companies that choose the M&A path to expand?
The difficulties are potentially many: the first is to provide a complete opportunity analysis of the available options, so you need a partner who has the right skills to identify the appropriate targets. With international acquisitions in particular, intercultural management skills are essential, otherwise integration may fail. Another issue is related to evaluation, since it's very difficult to compare Italian companies with organisations of a very different nature, which is why we set up a research division to identify an appropriate benchmark for acquisitions and ensure the market recognises the higher value of the Italian hi-tech industry.
In an increasingly global market, it is often necessary to increase in size and investment volume to be competitive. To do this, you can also use alliances and divestitures - a process that can lead to risks and where partners must be carefully chosen. What can you do to maximise the benefits and reduce the uncertainties?
Work with specialist operators. It is essential to choose the right partner when you go down this path, because you could waste a lot of time. Specialisation ensures that the operators speak the same language and understand each other much better. There are underlying dynamics very specific to the areas in which IT companies in particular operate, at regulatory, competitive and financial levels. It is essential to install a team, starting with the advisor, able to recognise these dynamics that are not clear to all operators. As to investors, some are unsuitable for this industry because the traditional valuation metrics fail to give the right value to these businesses. For example, there are transactions involving hundreds of millions in respect of companies that are losing money, but those who buy them understand the potential of these companies, either as independent businesses or within a different context.
Even for target acquisition companies there are many complexities. What’s the best way to deal with this process in terms of price and potential investor identification?
These are processes that require the investor to fully understand all the major issues of these businesses in order to recognise their real value. Once again the importance of having a specialist advisor comes into play, who can present all the potentialities of these companies to the financial world, reducing information asymmetry.