The extraordinary story behind the sale of HQ Pack

Suppliers must grow with ASML

It was announced in late January that the US and the Netherlands reached an agreement: ASML will further restrict sales of its chip machines to China. The exact content of the agreements remains secret - the matter is too sensitive.

The world's most powerful country fussing over one Dutch company in the escalating battle with its most powerful rival. It marks ASML's unique position; the company is indispensable to the global chip industry. TSMC, Samsung and Intel - the three largest chip manufacturers in the world - all depend on ASML.

Ten days before news of the agreement broke, another deal was made public: investment company NPM Capital had taken a majority stake in HQ Pack, an Eindhoven-based packaging solutions company.

To outsiders, the two deals seem unrelated, but in reality they both stem from ASML's stormy rise. "You really have to see the sale of HQ Pack as a 'cornerstone deal' to be part of the ASML ecosystem," explains Ronald van Rijn. "Because of its role on the world stage, ASML is growing so fast, and suppliers have to keep up with that growth. Under the wings of NPM Capital, HQ Pack is able to do just that."

Van Rijn is managing partner of JBR. The firm's Corporate Finance team accompanied the selling founder of HQ Pack throughout the acquisition process. It turned out to be one of the most fascinating mandates Van Rijn and his team worked on, something they themselves did not immediately see coming: "We stepped into a special world that at first we also barely understood ourselves."

The ecosystem

HQ Pack's story begins some 20 years ago in Eindhoven, says Thomas van Amerongen, senior corporate finance consultant at JBR. "Back then it was called Hakapak B.V. and was more of a traditional packaging company. Driven by the booming technology sector around Eindhoven, however, it soon became increasingly focused on the high-end segment."

In the process, HQ Pack increasingly set its sights on one company: ASML. "What you have to understand is that ASML is not a manufacturing company," Van Amerongen explains. "They don't produce anything themselves at all. They develop, have manufactured and assembled. That means there are lots of suppliers around ASML - from big players like VDL Groep and lens maker Zeiss to smaller producers of metal parts, precision cleaning companies and more."

"And what we've learned," Van Rijn adds, "is that once you're in that world, nothing can match it. Even the pharma sector doesn't come close to the demands made by ASML on suppliers, for example in terms of precision and purity. It really is Champions League in all areas."

Van Amerongen: "To give an impression: HQ Pack works with ISO Class 7 cleanrooms and the packages are checked with UV light for residual particles. A package can cost 500 euros, but also 50,000 euros."

Guts and vision

So getting through to the Champions League, HQ Pack succeeded. Van Rijn: "Then you have to imagine that as Volendam you are suddenly playing at the very highest level. You have to build a big stadium and structurally play against the Barcelona's and Bayerns of this world."

The comparison raises a question, however, because although Volendam is doing nicely these days, the club is simply still in the right-hand row of the Eredivisie. How did HQ Pack manage to reach the Champions League?

"That's really to the credit of the founder," Van Amerongen replied. "He ran ahead of the music: he didn't ask what ASML needed, but did single-handedly what he thought ASML needed. He built cleanrooms in Eindhoven and expanded to Asia and the U.S. because ASML went there, too. So before ASML asked him to, he was already there, and that takes guts."

"All of those suppliers are growing out of business. And that may also be reason to think about future ownership."

It also required vision, Van Rijn explains. "Now it might seem logical to bet all your money on that one horse, but HQ Pack did that 15 years ago. Back then, ASML was far from the company it is today, and not many people recognized its enormous potential."

The founder of HQ Pack saw it. The world is digitizing at a dizzying rate, and microchips are the building blocks of that digital world. They are in countless products, as many people painfully discovered during the massive chip shortage of the past few years.

As the world's leading supplier of chip machines, ASML is an indispensable link in the global chip chain. In fact, for those who want to produce the most advanced chips, there is no alternative: ASML is the only company in the world that makes the EUV machines needed to do so.

Growing out of your shell

Added up, this unique position and the skyrocketing demand for chips mean that ASML is growing very fast, and anyone who wants to keep up in the ecosystem around the company should follow. This finally brings us back to the sale of HQ Pack to NPM Capital.

"What you see is that all these suppliers are outgrowing them," Van Rijn explains. "They are getting so big that they need a corporate-like structure. It requires a professionalization drive - different systems, different leadership, further internationalization. This all involves large investments. And all in all, it can also be reason to think about future ownership."

In this, too, HQ Pack's founder showed his vision. Van Amerongen: "He recognized earlier that things were going so fast that he was in over his head, and put someone else forward as CEO. That also requires that you can step over your own ego and say: from now on someone else can do it better. And so he realized it when the time came for a new owner with the clout to support growth."

Mutual dependence

That's how it started a year ago. JBR beat several investment banks and was allowed to guide HQ Pack in the search for a suitable buyer. That turned out to be a special challenge for several reasons.

First, potential buyers and financiers had to be taken step by step into HQ Pack's extraordinary story. "It's an incredibly valuable company with even greater potential, but before you see that, you have to learn to understand the company and the world in which it operates," Van Rijn explains. "We didn't see it ourselves right away either."

Part of the explanation concerned the special relationship with ASML. Van Rijn: "If you don't understand that world, that customer dependence quickly evokes fear: what if ASML suddenly drops out, shouldn't you make sure you have more spread?"

"But HQ Pack, on the contrary, has deliberately positioned itself entirely toward ASML," Van Amerongen points out. "They started doing that fifteen years ago, so if a competitor would want anything at all, they are fifteen years behind. There is no second supply chain partner like HQ Pack. In short: there is a dependency, but it is mutual."

Click with buyer

What also contributed to the complexity of the deal was that the buyer had to meet quite a few conditions. Candidates who did not understand the mutual dependency with ASML immediately dropped out, but HQ Pack also proved too high for many others.

"Our client was initially leaning toward a strategic buyer," Van Rijn explains. "But because HQ Pack is already pretty big and really operates in a niche, strategic buyers quickly start to overhang: it's too big and too specific."

"But if you go into business with a financial party you are again dependent on bank financing," he explains. "Before that it was not a favorable time. Moreover, HQ Pack was too big for one bank, so you are dependent on a 'club deal' and thus usually again on foreign banks."

Ultimately, the goal was to find a financial player, but it had to be a party with a long-term horizon. "Buying and moving on after a few years was not the intention," Van Rijn said.

"And because the founder and management retain a stake in the new set-up, it was also important that there was a good click with the buyer," Van Amerongen explains. "That also meant that the freedom of action - the daring and risk-taking that brought HQ Pack here - had to be retained under the new owner."

Moreover, because of the special bond with ASML, the chip machine maker was also polled about what he thought of the potential new shareholder. Van Rijn: "ASML also has a preference. If suddenly a Chinese investor comes... It's an extreme example, but on the scale of extreme there are of course still tastes."

Growing against the wind

In addition to all these factors that had to be considered, during an acquisition process you also have to deal with numerous developments beyond your control. Shortly after the process was initiated, Russia invaded Ukraine and the world suddenly changed.

"That, of course, also affects such a sales process," Van Rijn said. "Questions arise: what are the consequences for the economy and for chip usage? How do banks look at it? How does private equity stand - do they still dare to do these kinds of big deals? Of course, the M&A market has cooled a bit."

"More and more companies are waking up. They see how huge this world is and what opportunities there are."

But despite all the economic headwinds, HQ Pack kept growing. "Growth finally reached 50% last year," Van Amerongen says. "All expectations in our information memorandum were exceeded by the company - and that in a world that was very turbulent anyway. As a result, we were able to bet along the way precisely on an ever-improving deal."

Interesting times

That deal came together late last year. Just before Christmas, the contract was signed, with NPM Capital now owning the majority of the shares. The investment vehicle of SHV, the Netherlands' largest family-owned company, is estimated to pay several hundred million for the majority stake.

Thus ended an "honorable mandate," as Van Rijn put it. "We all still have to kick off a bit I think. Not two days go by that I don't have contact with the principal."

So shortly after the deal was announced, there was suddenly this other deal: ASML is allowed to sell even fewer chip machines to China. Isn't HQ Pack going to feel this indirectly? "HQ Pack breathes with ASML, but it is very questionable whether ASML will be affected at all by this boycott," Van Amerongen argues. "The world yearns for more chips and they have to be made somewhere. If not China, it will be Taiwan or South Korea."

So we don't have to worry about ASML and HQ Pack, Van Rijn and Van Amerongen assure us. And in the near future, they themselves at JBR will be talking to other parties that operate within ASML's ecosystem, or would like to penetrate it.

"There are few parties that have done such a transaction," Van Rijn said. "We are approached a lot - from the Netherlands, but also the US, for example. What plays out at HQ Pack you also see at many other suppliers - they have to keep growing. In addition, more and more companies are waking up. They see how huge this world is and what opportunities there are. These are going to be interesting times yet."

Text: Diederik Visser
Source: Consultancy.co.uk