TMF Group “in shape” for M&A thanks to positive cashflow, reduced leverage – CEO

26 February 2021

TMF Group, a professional services firm backed by CVC Capital Partners, is ready to pursue acquisitions thanks to its positive cashflow and shrinking levels of debt, CEO Mark Weil told Mergermarket.

TMF Group, a professional services firm backed by CVC Capital Partners, is ready to pursue acquisitions thanks to its positive cashflow and shrinking levels of debt, CEO Mark Weil told Mergermarket.


“We’re financially in much better shape – leverage coming down, cash-positive from last year. So, I think our buying power has improved,” Weil said. “We went through a significant amount of change in the first two years of CVC’s ownership to really get the business in shape, and that makes for a much better position to acquire, so I’ll be more willing to consider options for us,” he added.


CVC acquired the Netherlands-based group in 2017 for EUR 1.75bn when its previous owner, DH Private Equity, was trying to list the business on the London Stock Exchange, as reported. The acquisition closed in May 2018, followed shortly by Weil’s appointment.


The business generated EUR 529m revenue and EUR 138m adjusted EBITDA in FY16, with adjusted net cash from operating activities of EUR 96m, according to the last annual figures before the sale to CVC was agreed. Net debt stood at 4.8x adjusted EBITDA as of 31 December 2016. Weil did not give a figure for the company’s current level of leverage but said this included refinancing of existing debt plus additional funding.


TMF has historically made some two to four acquisitions a year, but 2021 could see the company exceed that average, he said, describing the pipeline as “robust”. Earlier this month, the group completed the acquisition of Selectra Management Company, a fund services provider in Luxembourg, after unveiling the deal in September. This followed the purchase of IQ-NEXUS, a Dutch corporate services boutique.


Through M&A, the company looks to acquire new capabilities and consolidate its business in existing markets, Weil said, adding that it is unlikely to expand into wholly new service areas and geographies. TMF is present in more than 80 jurisdictions and offers services ranging for HR and payroll to fund administration. Its acquisition strategy is not particularly skewed towards a specific product area or geography, Weil added.


For example, TMF secured an alternative investment fund manager (AIFM) licence through the Selectra deal, a capability required by clients, Weil said. It has previously enlarged its existing business in Vietnam and China through dealmaking, he noted. It is not interested in becoming an auditor or a law firm, he added.


The tech space is “intriguing” for professional services businesses, posing the question of whether to acquire or licence technology, he said, flagging know-your-client (KYC) services. “That’s an area which I think is going to be of interest to us and others: the sort of fintech-type play,” he said, adding however that deciding how far down the technology path to go is not an easy trade-off.


TMF’s acquisitions are typically on the smaller side, as the company is more cautious of transformational deals, Weil said. These are financed through its own operations and facilities, he said, while noting that a substantial opportunity could require a different conversation. CVC has not needed to supply equity capital to date, he added.


Though it has used external advisers, it largely handles smaller deals in-house and has the support of its sponsor, Weil said. It has existing relationships with a number of advisers, he added. The group was assisted on the Selectra acquisition by legal advisor Allen & Overy and by PwC on financial and regulatory due diligence, as per a press release.


Founded in 1988, TMF has 125 offices and employs 9,000 staff, Weil said. Corporate clients make up some 60% of its customer base, while financial institutions represent around 35% and family offices around 5%. By service lines, global entity management activities represent some 40% of its business, with a similar portion stemming from accounting and tax, and the remainder from HR and payroll.


Fund services, which focuses on alternative investments, is the fastest growing area of the business, Andrew O’Shea, TMF’s global fund services head, said. Assets under administration (AUA) stand around USD 125bn and are rising sharply, he said. Fund clients account for nearly half of its financial institutions clientele, Weil added.


Weil did not disclose TMF’s financials but said 2020 has seen good top- and bottom-line growth, adding that the net effect of COVID-19 has been rather positive. The rate of new business was fairly flat year-on-year, and the top line grew by high single digits, he said. Some 90% of revenues are recurring, he added.


Asked about exit prospects, Weil said the business is focused on executing its growth strategy, adding that no decision has been made regarding CVC’s exit.


CVC did not return a request for comment.