Interview with Mike Franz, Co-Founder and Board Member of Netcetera
Netcetera is a leading Swiss IT group with approximately 800 employees working at the headquarters in Zurich and in several other locations in Europe and Asia. Founded in 1996, Netcetera celebrates its 25th anniversary this year.
On September 8, 2020, Netcetera and the German technology group Giesecke+Devrient (G+D) announced the signing of a strategic partnership. In this step, G+D became an anchor shareholder of Netcetera. The partnership as well as the strategic investment are the result of a well-planned process. IFBC proudly acted as Netcetera’s exclusive M&A advisor and accompanied the company from preparation to execution of this groundbreaking transaction.
Mike Franz, co-founder, member of the board of directors, and the M&A project leader for Netcetera, shares his experiences and thoughts on the successful transaction.
What does Netcetera stand for and what characterizes the company?
Netcetera is a global software company providing advanced and trendsetting products as well as individual digital solutions in the areas of secure digital payments, financial technologies, media, transportation, healthcare and insurances. More than 2,000 banks and issuers, as well as 60,000 merchants worldwide rely on our digital payment solutions and globally certified 3-D-Secure products, which makes us the market leader in payment security.
The company covers the entire IT lifecycle, supporting customers from the first idea to strategy and development, as well as to implementation and operation. The well-balanced combination of the latest technologies and proven standards ensures investment security, both for multinational companies with large-scale projects as well as for innovative startups.
How is the software market currently developing in terms of digital payment solutions and customized software?
Especially in the past 15 months, while everybody around the globe has been dealing with the corona pandemic, the software market has once again seen an upswing. Clearly, investments were reduced in certain industries that were severely affected by the crisis. At the same time, however, other sectors have experienced strong investments in digitalization. We assume that the expected recovery of the overall economy will provide an additional boost to the software business.
In our view, digital payment transactions will continue to grow strongly in the upcoming years, and this will enable us to expand our strong position in the domestic market (DACH).
What were the reasons for entering into a strategic partnership with G+D? Why was 2020 the right time to start that partnership?
Actually, we were not looking for a strategic partnership in particular. That option came rather by chance – but let’s take it one step at a time:
Our strategy for 2016-2020 was to strengthen and expand our product business, especially in the area of digital payments. In the past, Netcetera was always able to finance all its investments from its own cash flows. However, by the end of 2017, we realized that parallel investments in the product portfolio and the simultaneous development of an international sales and distribution organization would exceed our financial possibilities. Moreover, we were aware that “time-to-market” will be of crucial importance for us in the near future.
For these reasons we then launched the “ALBULA” project, which initially targeted a private equity partner who would have contributed the necessary growth capital to the company by taking a minority stake.
In parallel to the ALBULA project, initial strategic discussions with G+D took place. These led us to see the alliance with a strategic partner as an alternative to a partnership with a purely financial investor. In addition to the financial possibilities of the German group in its seventh generation, we saw an additional asset in the complementary product range in the area of payments, as well as the more than 100 branches worldwide, which could provide us with comprehensive market and customer access.
This “smart money” approach was the decisive factor, and it motivated us to select a strategic partner to support the further development of our company. The fact that there was an excellent chemistry between all involved parties right from the start certainly helped to successfully cope with the usual challenges of an M&A process (due diligence, contract negotiations), and it certainly paved the way for a very promising future.
The ALBULA project thus came to a successful end after 2 years in September 2020. Actually, we would have wished for a faster overall implementation, but the entire search process for a suitable partner and investor was an exciting project for us, which we had to go through in well-defined steps in order to successfully reach our goals. In retrospect, market timing was not bad at all.
Which were the most prominent challenges that you faced during the implementation of the transaction?
As we split the transaction process into several project phases, my major concerns in my role as ALBULA’s project manager were the ongoing coordination within the board of directors and with the most important shareholders. It is important to understand that for a company like Netcetera, which had been owner-managed and self-financed for almost 25 years, this step into a strategic partnership was of very great importance, also for the many employees who have been with us for so long.
Within the scope of the project, we also had to adapt and improve our accounting standards, to test and reassess our business plans, but also to strengthen and expand our process maturity and documentation. For me personally, the due diligence with the ongoing contract negotiations in parallel, was a real challenge. On one hand, the subject matter was partially new to me and on the other hand a good balance had to be found in order to be able to move positively forward with the potential partner.
In your view, what were the success factors in executing this important transaction?
I would summarize the most important success factors for the transaction as follows:
- Sharing a clear and communicable vision of where the company should be in the year 2025.
- Early involvement and active communication to shareholders and employees (Netcetera has more than 100 shareholders)
- Sufficient courage to regularly question your own earlier decisions
- Lean project organization, complemented by an experienced team of experts who accompanied us throughout the entire process.
Why did Netcetera seek external support for this transaction?
Although Netcetera already had some M&A experience, it was clear to us from the beginning that a project of this size and scope would require some external support. In the M&A partner selection process, we focused on the following criteria:
- Experience with comparable cases with successful outcome on the sell-side
- Access to a wide group of potential investors (directly or indirectly via networks)
- Match in terms of company size between Netcetera and the M&A partner
- Strong personal commitment and involvement at management level of the M&A partner
- Specific knowledge of the company and experience in working with key stakeholders.
How important was IFBC’s support for you? Where or in which phases was the added value of the external support particularly intensive?
IFBC provided us with strong support at various stages of the project. Originally, we only wanted to grant the contract to IFBC for the “transaction readiness” phase. However, based on the successful cooperation in this very important step, it was clear to everyone involved that we would continue with IFBC also for the investor search.
The professional support in the field of “financials” during the preparation phase and the strong leadership in the tendering process have left a lasting impression. Most of the time, the external partner had to push us, so that the ambitious timeline could be kept.
The fact that Dr. Thomas Vettiger, the managing director of IFBC, personally supported the ALBULA project as a lead advisor and always shared his strong expertise gave us great confidence throughout the process.
How has the partnership with G+D developed in the meantime? Are you satisfied with the current development?
The partnership with G+D is now 9 months old and even though it is too early to draw a conclusion, we are very positive about our collaboration, which we are currently experiencing on various levels.
In the operative business, the strategic partnership is being driven with very active involvement on both sides. The first positive successes have already been recorded. The close cooperation with G+D is leading us to completely new perspectives – we can now serve a worldwide customer base with an even broader portfolio.
On the strategic level, the board of directors was strengthened by two additional members nominated by the new anchor shareholder in September 2020. On a positive personal note, I would like to state that this expansion has substantially added competencies and experience. This will be a huge benefit when faced with the challenges of the planned development in the upcoming years.
Where will Netcetera be in five years?
A key factor for the collaboration with the anchor shareholder G+D was that our new strategic partner believes in a successful and independent future path for Netcetera. We are convinced that Netcetera can be globally positioned and that we can achieve our ambitious goals. We want to fully support the planned business development within the framework of our Strategy 2020-2025 and keep as many options open as possible for our future.
Mike Franz is co-founder and member of the board of directors of Netcetera. He holds a degree in electrical engineering from ETH Zurich. After the foundation of Netcetera in 1996, he continuously focused on the acquisition and support of large customer accounts. As head of sales and business development and member of Netcetera’s executive board, he was responsible for the entire sales and business development of the company for many years. Today, Mike Franz is a member of the board of directors of Netcetera and various other IT companies and serves as a member of the bank council of the Thurgauer Kantonalbank. As a consultant, he is supporting various companies in the financial and software sector.