Chapters Group: how to build a billion-dollar search fund investor

Disclaimer: Unless noted otherwise, views and analysis expressed here are the author's own and based on public sources. The article is intended for informational and entertainment purposes only. This is not financial advice. Please consult a professional for investment decisions. The author maintains a position in the CHG.

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Firstly, a huge thanks to everyone who’s signed up to our “AI in Rollups” Deal Summit in London on 10 September. We are sold out with almost 30 people on the waitlist. If you cannot join, please let us know and we will release the ticket 🙏 

Secondly… Chapters Group (CG). Oh boy, is the Team from Hamburg flying high! Having raised c.€180M (c.$210M) in equity and debt financing since January 2024, this listed “HoldCo of HoldCos” is briskly minting new platforms - and deals. In the 6-month period up to the July AGM, CG’s subsidiaries had completed 10 (!) software acquisitions, up from 13 for the whole of 2024 (source). 

On that basis, CG is going head-to-head with Europe’s most active Vertical Market Software acquirers, including Volaris (part of Constellation Software, whose playbooks we recently covered), Hawk Infinity (read our primer), and Valsoft (which we are going to cover in Q4). 

Compared to July 2018, the day before the-then Medical Columbus announced the divestment of core assets for €19M (source), thus marking its rebirth as a compounder, the share price has risen 10-fold. Notwithstanding the recent slide, CG’s market cap is a cool €950 million ($1.1 billion). 

What is fuelling this deal, and shareholder bonanza? 

A couple of factors. 

Firstly, the succession opportunity in Germany, European Union’s most populous country and - still - its largest economy. 

Secondly, the steady supply of capital from well-resourced allocators like Antheia, the family office of the Spotify founder Daniel Ek; the MIT endowment; Sator Grove; and of course Mitch Rales, a co-founder of Danaher and a software HoldCo super-fan.  

Thirdly, and most importantly, CG’s creative capital and organisational structures have enabled it to expand at a blistering speed.  

In creating their unique blueprint, the firm’s leadership - Jan-Hendrik Mohr (CEO), Marlene Carl (CFO) and Marc Maurer (COO) have borrowed from the playbooks of banks, search fund investors, and of course HoldCos to create a scalable M&A machine.

The resulting concoction has three distinct ingredients: 

1. A “layer cake” capital structure that blends TopCo equity and unsecured debt; and PortCo recourse debt to maximise multiple arbitrage

2. A recruitment machine part managed by CG’s leading investors, that is adept at identifying future HoldCo builders

3. A decentralised org structure that leaves the actual M&A to the platforms, freeing up the HQ team to focus on Investor Relations / storytelling and more recent initiatives like operational excellence (the “Manuscript Method” championed by Marc Maurer) - read more below!

In this article, we go over each of the 3 ingredients. Finally, we break down the governance and economic terms of 2 of CG’s software platforms: 

Why these two names? Because public filings show a clear trend: since 2018, when CG seeded the first 2 platforms (Ookam and NGC), its deal terms have steadily tightened. While the headline ownership split remains intact (80/20), subsequent platforms have less autonomy and the minority buyback terms are less generous. 

Still, the CG proposition is arguably superior to fellow compounders that issue little (Constellation, Banyan) or no equity (Valsoft, Forum Family Office). 

What’s more, we have heard that the day-to-day vibe is not as lonely as inside a search fund. Nor as mean as inside a PE-backed rollup. 

Important caveat: our analysis is based on public filings. We understand that, in addition to those, CG’s platforms tend to have further non-public shareholder agreements.    

Let’s dive in… after you have read this week’s advertisement.

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• Value expectation: $10M fixed (6x EBITDA); seller financing available.

Interested? Hit reply to get in touch!

Success ingredient #1: the “layer cake” capital structure 

CG may be the poster boy for permanent equity in Europe - but make no mistake: the base ingredients of its returns recipe are very Private Equity-like: leverage and multiple expansion. 

Here’s how this works. The HoldCos are encouraged to maintain autonomous capital structures, repaying TopCo financing in the form of (mostly) preferred equity carrying 10% interest as soon as practically possible. 

Where do these prefs come from? CG’s highly rated stock allows it to raise ever-larger amounts of equity - and unsecured debt. According to CG 2024 annual report:     

“[CG] provides the necessary funds for the acquisition of new portfolio companies by the platform companies and, to a lesser extent, to finance the expansion of business operations in the form of shareholder loans or payments into the capital reserves of subsidiaries. Regularly, part of the purchase price is financed by debt capital provided by banks. If bridge loans are required <...> this is provided in the form of shareholder loans as well. Refinancing usually takes place within a few weeks”. 

The bulk of CG’s shareholder loans are long-term in nature. To quote from the annual report once more, such loans “are to be repaid over the next years from the operating cash flow of the acquired companies”. 

Repayment should not be a problem. Anecdotally, we know that CG’s German HoldCos are able to lever up to 3x EBITDA or more. 

Here’s how this works in practice. 

In December 2020, Ookam acquired OPAS: an ERP for orchestras based in the quiet Bavarian town of Bamberg. A 2023 press article sheds light on the business model: 

• A client base of 260 orchestras built over a 30+ year history

• The pricing depends on the number of seats/modules, with basic packages around €5,000/year  

• The CEO anticipates organic growth in the 10-20% range

OPAS’ accounts reveal how the transaction was financed: with €570K of bank debt and €850K in shareholder loans. That’s €1.4M purchase consideration for a business producing €350K in EBITDA - with 6 employees (14, including support personnel in the US, Netherlands and Brazil).     

Core insight: as long as CG’s cost of capital remains below the yield on new acquisitions (the inverse of the multiples paid), theoretically, it can create infinite shareholder value by running this exercise on loop:

1. Raising fresh equity at the TopCo level  

2. Channelling funding to the HoldCos at 10% yield

3. The HoldCos buy new assets at 15% yield (6x EBITDA)

4. The HoldCos replace preferred equity with cheaper, asset-level financing  

5. Repeat

Want to juice up returns? Throw in cheap debt! Just last week, CG raised €32M by issuing a 5-year, unsecured bond bearing a 7% coupon.      

To me, this sounds part bank, part (Micro)Strategy (albeit backed by a highly cash generative pool of assets!). Whimsical…but it works.    

If this strategy is so profitable, and so simple - at least outside-in - how come everyone isn't doing this?

Because talent is scarce.   

Success ingredient #2: the magic recruitment machine

Jan Hendrik-Mohr understood the power of the search fund model years before his countrymen. Recruit a 2-3 person founding team, hand them a 20% stake in the platform and access to preferred equity - and off they go. 

Founded by Niels Reinhard and Steffen von Bünau in 2018, Ookam was CG’s first-ever software platform. CG took an 80% stake. Niels and Steffen took 10% each. Over its 6-year autonomous life, Ookam completed 23 acquisitions, reaching an estimated €50M run-rate revenue at a 30% EBITDA margin (source: CG annual report, RollUpEurope analysis).

Ookam's early employees Jascha Graefingholt and Georg Wachter were given the opportunity to set up their HoldCos (Vortex and Via Unita, respectively).

NGC, led by Alex Preussner, performed equally. Among other things, its business services portfolio includes language schools; fire safety engineering (ENTRO Service); and facilities management (Arudi). All in all, €80M revenue with a 20% EBITDA margin!  

When Alex Preussner founded NGC, he had 7 years of full-time work experience gained in Private Equity. He knew how to do deals. He knew how to speak to business owners. He was motivated to succeed - and he did. 

Encouraged by these results, in 2022-23 CG went on a hiring spree, setting up new platforms in the UK (Software Circle) and France (mlog).

Its biggest coup, admittedly, was closer to home.

In 2024, CG lifted out a two-person team from the Dutch VMS giant Total Software Solutions: Jens Buchloch and Jan Regenbogen. The same year, Timm Overmans, another software M&A veteran (Everfield, Visma, Constellation) joined Altamount, another platform.  

What were the terms? And how much did the founders of Ookam collect for their 20% stake?

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