Jozef Lievens is the managing director of the Belgian Family Business Institute and an attorney with Eubelius lawyers.
Barbara Murray is Consultant Editor of Families in Business magazine.
Since its introduction on the stock exchange in 1984, AvH, one of the world's largest dredgers, has developed a diversified portfolio based on sustainable profit growth and a long-term strategy
Ackermans & van Haaren (AvH) was founded in 1880 by Hendrik-Willem Ackermans and Nicolaas van Haaren, who had been active primarily in the Netherlands building underwater structures. The Ackerman and van Haaren families gradually began to perform works in Belgium, such as reinforcing the banks of the Maas, a major river in the French-speaking part of the country. As the number of assignments in Belgium increased, the families decided to establish themselves in Antwerp and founded AvH.
At the turn of the century, AvH began a campaign of vigorous foreign expansion and was soon working in virtually every part of the world. The group built the port of Rosario in Argentina and, over a period of 70 years, built all the French ports. During World War I, AvH was active in Russia, where it dredged the military port of Saint Petersburg in 1917. Despite its numerous projects in Russia, wars did little good for the Antwerp group: during the Russian revolution, it lost half its fleet, while during World War II its entire fleet was lost. The second time around, AvH had prepared itself for such a disaster, setting aside adequate provisions that allowed it to rebuild the fleet after the war. Resilience and independence were the emerging hallmarks of AvH.
A cyclical business
The dredging sector has its own specific characteristics, as Managing Director Luc Bertrand explains: "The dredging sector is very capital-intensive and exposed to major risks. There's a major battle to secure each and every contract. But once the signatures are dry, the competitor dredgers must collaborate with one another, because the jobs are simply too large or entail too many risks to do alone.
"Dredging is a highly competitive business where partnerships must always be established. Years ago it was also a very cyclical business. It still is today, but a good deal less. This means that if you invest during a favourable period, you can earn a lot of money. By contrast, if the timing or the investments are wrong, things become difficult. And so in the recent past the sector has been through an enormous consolidation process. In the 1980s, there were still 25 to 30 international players in the dredging world. Today, there are at most five."
In 1974, the dredging interests of AvH and of the Generale Bank were brought together in a new group: Dredging International. At the same time, AvH also became a holding company with an interest in a related activity: offshore drilling. Forasol-Foramer was formed as a joint venture with French company Soletanche as its most important shareholder (34%) and a third partner, Dutch firm IHC.
The alliance by these three family firms, which had known each other for years, made it possible to take greater risks, have a more solid basis and develop a strong international business from scratch. The then French general director had a great deal of international experience and secured some very large contracts. So once again, AvH entered into a partnership in a cyclical sector with high risks.
Ten years later, in 1984, AvH went public. At that time, the interest in Forasol-Foramer represented 80% of the value of the holding company. "Scarcely five years later this was reversed because the cycle had changed," says Bertrand. "We realised that we were in a business that was too cyclical and too capital-intensive. In the dredging division there was no need for new investments, and there we attempted to compress the costs.
"In the drilling sector, half the companies went bankrupt due to a lack of contracts. Long-term investments were often financed through debt and short-term contracts. But our experiences with the dredging business and the major contracts had taught us to not assume too much debt. This has to do with the family aspect in our partnerships. The families were close to the companies, and thus also close to the risk management. We were generally more cautious than our competitors. Therefore we could survive."
Eventually IHC withdrew from the offshore partnership. AvH and Soletanche brought the company on to the Nasdaq stock exchange, and a short time later these activities merged with a company that was listed on the New York Stock Exchange. This merger resulted in a bigger fleet (20) for the company. "In order to ensure growth, both Soletanche and AvH had to invest US$200 million dollars," recalls Bertrand.
"These investments became too great for our balance sheet, and we were getting nothing back for the risks we were taking. The returns on the risks were insufficient. That was the reason we decided to withdraw progressively from this business. If you look at our history, you see that in a cyclical sector we were able to control and survive the financial risks. Because we had lost our fleet twice, we had a conservative approach."
Putting the philosophy to work
Then came an expansion of the portfolio. "In 1985-1986 we decided to diversify in order to limit the impact of the cycles. That was the time of the first management buy-outs and management buy-ins," remembers Bertrand. "Thanks to the talent that we had in-house, we garnered the confidence of the banking world and the other partners. Therefore, we were able to diversify, to make acquisitions and set up companies.
"We are an industrial group that can manage its human capital and our diversification is oriented towards people and the development of new businesses. We don't enter into companies in order to cash in our shares and exit in the short- term. We invest in people, in systems, in strategy. We try to understand the markets and work hard to make the companies where we are present grow.
"Thus, for example, we entered the brewery sector and, with the takeover of Maes Pils, we helped build Belgium's second most important brewery group, after Interbrew. We took over several smaller breweries, and a couple of years later we merged with the number three on the market, a subsidiary of Kronenbourg. We quickly came to understand that the contribution AvH could offer compared to partner Kronenbourg was small. Technically, Kronenbourg is a better brewer than we were. Kronenbourg has more know-how in-house, possesses a broader financial basis and had developed a distribution network.
"Conflicts of interest arose with the minority partner. So we decided to get out of this investment because we believed that our added value had become too limited. We earned a nice return, but the Board of Directors pointed out that this was not our strategy. Rather, we follow an industrial strategy with long-term investments – perhaps this is to do with our experiences in the dredging sector."
Then followed two new buy-outs. The first, a 1989 takeover of a UK plastic packaging company, was not successful. Two years after the acquisition, the cosmetics sector landed in a crisis. Thanks to good management, this company too could be disposed of. "It was a buy-out with debts and we did not want to be present in an enterprise that we could not keep under control financially. Our limited resources at that time compelled us to develop an instrument of equity leverage, not of debt leverage," Bertrand explains.
"This is why we took a 30% interest in the holding company Belcofi, a group with more than $100 million in assets," says Bertrand, describing the further diversification of AvH. "Among other things, Belcofi had an interest in the stockbroker Bank Delen. The Board of Directors asked whether we really had to maintain the participation in Bank Delen, given that stock brokerage businesses at that time did not have the best reputation and the company was not soundly capitalised. But we saw it as a company with a very conservative strategy. The family firm leader also had an education in computer programming and understood the importance of systems. At AvH we had a similar vision.
"We also took over a stockbroker in Antwerp and a bank in Liège, and transformed the brokerage business into a small bank together with our Luxembourg banking activities. Over the years we have further developed Bank Delen. This also includes the takeover of the Bank van Breda, a medium-sized bank that focuses on the liberal professions and small- and medium-sized companies. Today there is a beautiful synergy between Bank Delen and the Bank van Breda. Eight years ago the stockbroker held over €400 million in deposits. Now that figure is €6 billion. We can thus speak of a success that is based on the people, on the focus strategy and the good understanding between management and shareholders. We have already received many takeover offers, but we aren't selling."
Bertrand feels that the Belcofi deal was a good move for AvH: "Thanks to Belcofi, we could generate the resources to take over the privatised Nationale Investeringsmaatschappij (NIM). AvH and Tractebel joined forces for this. After all, Tractebel had a pre-emptive right on the shares of the gas distribution subsidiary Distrigas of the NIM. We were ready to sell the gas distributor to Tractebel. This led to discussions on the political level, because through this operation Tractebel would control the whole Belgian energy sector. It cost us nearly two years to acquire the NIM, but we succeeded because we had a clear objective and because we had a good partner. Without Tractebel it wouldn't have worked, while without us Tractebel would have had a great deal more difficulty in absorbing Distrigas.
"With NIM we received a portfolio of holdings. Some people reproach us that we earned money with the NIM money because we paid too little for it. I think rather that, first, we succeeded in keeping the core activities within the portfolio and developing them. It is also important that, via the NIM subsidiary Sofinim, we were able to develop the private equity arm, even if it took some time before we understood that this opportunity was there.
"There are already plans to organise several exits in the near future, yet here too we are following a long-term vision. It isn't a venture capital fund like those of our competitors. We can enter into a company without discussing how and when we organise the exit. Moreover, we are continually reinvesting. Today this business has an EVCA value of approximately €300 million."
AvH admits that people may believe that its dredging activities were used as a milk cow to develop the other activities within the holding company. But Bertrand refutes that allegation: "The opposite is true. Today the dredging company is four to five times larger than a decade ago. Here, too, we have been constantly reinvesting. We developed a good management structure and are more diversified than most of our competitors. We derive 20% of our revenue from the environment. We do more than dredge up polluted sand and just dump it somewhere. We also do clean-up work, and we have attracted competent people for this in recent years. Of the total 400 engineers in the dredging company, 60 are working on environmental clean-up projects. We have even acquired patents for a number of decontamination processes." While the dredging activities did lead to other, profitable activities, they were not lost in the shuffle. Rather, they expanded, too.
"Another excellent example is how we developed our business in the sector of temporary labour," notes Bertrand. "In 1991, Creyf's – now Solvus – achieved a turnover of around €40 million. Today it is a company that, in 10 European countries, books a revenue of a €1.500 million. In Europe, Solvus occupies fifth place in the temporary employment sector. It is a stock exchange-listed company with around 4,000 employees.
"AvH worked out the strategy for this expansion, but Solvus is an autonomous international company where AvH retains control. Thus we monitor Solvus closely; however, the management shares our strategy."
Maintaining family control
AvH is now going through the transition to the fifth generation. The family is active at the level of the Board of Directors – the operations of their various businesses are handled by professional non-family managers. But the strategy followed by management and the major decisions taken fit perfectly into the family's philosophy. The professionalisation of the management does not mean that no family members are active on the operational level.
"They are treated in the same way as the non-family members," assures Bertrand. "And at the level of the Board of Directors, AvH wants to maintain the presence of the family."
At the level of the holding company, the family holds around 33% of the shares. The AvH holding company has been built up together with institutional investors. Something that, under Belgian standards, is unusual: no certificates, no double or triple board. The objective was to build up a structure that authorises the family to exercise constant control. In addition, the family participates directly for 20%. Thus a bit less than a half is in the hands of the market.
"We keep the shareholders involved in the group, even with the transition to the fifth generation," explains Bertrand. "Until now we have continued to be able to present good results. We are listed; thus the value of the share is easy to follow. And we have Dutch roots, we are realists. The shareholders understand that you don't always get everything you want. At the same time they have allowed us to continually reinvest our profits. Each year, less than a fifth of the profits go towards dividends. The rest remains within the group to finance the necessary growth.
"Since we went on to the stock exchange in 1984, the value of the share has increased by a factor 12. The last two years there has been a general market slump. We always try to do better than the market. On the other hand there are no written agreements, no pre-emptive rights and so on. When you have people sign such agreements, the first consequence is that they think how they can get out of them. We have more informal arrangements. Given that everyone feels good and sees a substantial value creation, the family has remained together."
The Board of Directors is mainly manned by family members. "We have seven board members," says Bertrand. "In order to appoint these we don't look at the number of shares and the size of the package of shares. We want the smaller shareholders to have a 'corporate feeling' as well. We search for the best possible persons. It's been a while since we've done that, but we will soon be bringing in once or twice a year the younger generation to explain our strategy and our business."
The plan is to then select new directors from this group. While there won't be a shortage of bodies, Bertrand says: "The difficulty is rather finding the right people with the right skills. Given that our business has grown strongly and become more complex, there is no question that we will need people of a certain calibre."
Looking at AvH's capacity for resilience over the last century, there's no doubt that it can meet this challenge.