Christian Nellemann is the CEO and Founder of XLN, which provides telecoms and utilities to small businesses. He tells Rachel Bridge at Drax how private equity has played a big role in its growth
Christian Nellemann has had more experience than most entrepreneurs of dealing with private equity, having gone through not one but three successful sales processes.
His first encounter came in 2008 when private equity firm Zeus, now called Palatine, backed the management buyout of his telecoms business XLN, taking a majority stake. Zeus sold their stake in 2011 in a secondary buyout to ECI Partners, making a 4.5x return on their money.
Four years later ECI sold its stake back to Christian, making a 3x return, with GSO, the credit arm of Blackstone private equity firm, taking a call on a minority stake.
Christian started his telecoms business XLN in 2002 after realising that the deregulation of the telecoms market would enable him to provide small businesses with cheaper prices than BT. It has since expanded into also providing them with broadband, wifi, energy, water and card payment services, and more services are planned.
He says: “I have made it my mission to make life better for small businesses.”
Having private equity investors has been an extremely beneficial experience, both for him and for the business, he says. Indeed he hasn’t ruled out doing it again.
He says: “I think getting private equity on board was a good idea for many reasons. It is always really useful, productive and helpful to work with smart people who potentially have a different viewpoint or approach. Private equity people bring a lot of best practise experience, they are very well connected and they suggest a lot of options.”
He adds: “I learnt a lot of things from them that I didn’t know how to do and we now have a really well run business.”
Christian says that while some entrepreneurs find it stressful having private equity investors, for him the most difficult part was the sales process beforehand.
He says: “Selling a business to private equity is one of the more stressful things you can do in your life. It is full on, 20 hours a day for a six month period and some of it under a lot of pressure. There are people crawling all over you doing technical, legal, financial and commercial due diligence, and you have still got to make sure that the business is performing. Your management can get distracted from the day to day running of the business and that can mean that your current trading starts falling off, which means that the buyer might start chipping away at the price. It is really hardcore and very intense.”
Making his first private-equity backed acquisition in 2008 was also quite stressful as it coincided not only with the financial crisis but also with Christian trying to buy some land to build a house on.
He says: “I had a week of complete insomnia for the first time ever. It felt as though I was literally going mad. I tried progressively more radical things to try and fall asleep and I finally succeeded on the Friday.”
Despite his positive experiences, Christian says that private equity is not for everyone. He says: “If you have treated your business like your little fiefdom and turned up when it suited you, you are going to get a shock. The way you survive private equity is by delivering. If you don’t deliver and find solutions to problems then you will be in trouble.”
Even if you are the founder CEO, you need to be aware that you may be expendable and that there is no room for sentimentality, Christian says. “Private equity don’t want to change management and they certainly don’t want to change the founder CEO, but if that is the only option, they won’t hesitate.”
Despite the pressure, both he and XLN have clearly thrived under private equity, with turnover now £70 million and EBITDA £20 million, valuing the business at around £300 million.
Christian’s involvement with private equity has yielded other unexpected benefits too. When he put the business up for sale the first time round, he hired a corporate finance advisor from KPMG called Neil Conaghan to conduct the sales process. Christian was so impressed with Neil’s performance that he hired him again to conduct the sale to ECI.
When that was completed Christian managed to persuade Neil to join XLN as group CFO, and he has been with the business ever since.
Drax sector lead: Ruby Sheera
Director, Technology and Tech-enabled businesses
Tel: 0203 178 3668