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Density-based Business Models

14th April 2021

Creating market leaders through consolidation, go-to-market excellence and route optimisation

A wide variety of companies operate density-driven business models. Their business is predicated on physically visiting one customer after another to deliver a product or service, typically via vans driving a route from a warehouse or depot. While the costs of each route are mostly fixed (e.g. fuel, truck, driver), revenue – and therefore profit - per route can be maximised through increasing the number of customers visited (e.g. # of stops) as well as cross- and upsell and pricing initiatives. Therefore higher density of customers leads to better economics which in turn can be (partly) reinvested in better pricing or better service for the customers which will lead to above-market growth.

The market opportunity

We are attracted to companies operating such business models across verticals as these businesses benefit from scale effects. Market leaders can achieve higher margins and faster growth. And faster growth leads to better margins and better service for the customer. And across all these businesses similar value creation levers can be utilised, such as driving organic growth through pricing initiatives and cross- and up-selling as well as sales excellenceimproving margins through route optimisation and M&A. Furthermore, often density-driven businesses have attractive characteristics such as high cash-flow generation, a recurring client base, and growing end markets.

Leveraging deep experience

Apax has a long and successful track record of partnering with density-driven businesses. This includes portfolio companies across a variety of sectors and geographies. For example, SafetyKleen (chemical applications; Europe), Rhiag Group (automotive spare parts; Europe), Sulo (waste management; Europe), Tosca Services and IFCO Systems (both perishable grocery; global), and Garda World (security and cash logistics; global). It is this track record that gives Apax a unique network and differentiated insight to help investment companies accelerate their growth. 

Apax’s playbook has delivered consistently strong results

Through repeat investments in the same sub-sector, the Services team – in partnership with the Operational Excellence Practice - has developed a “playbook” of value creation initiatives to enhance the profitability of density-driven businesses. This includes:

  • Sales and go-to-market strategies to capture new market opportunities and accelerate top-line sales, such as in the case of GardaWorld, Rhiag Group, SafetyKleen and Azelis.

  • Pricing excellence to professionalise systems and optimise yields, while also cross/up-selling, as evidenced through initiatives at Azelis, ADCO, Quality Distribution and SafetyKleen.

  • M&A to build scale quickly while also being accretive, for example through smaller add-on acquisitions (e.g. Quality Distribution, Rhiag Group and SafetyKleen), as well as more transformational transactions (e.g. GardaWorld and Azelis).