TRACK RECORD
For over 30 years, Klemm & Co has successfully executed numerous diverse transactions. While we have handled many standard transactions with expertise, here are some of our more challenging deals:
Asset
Challenge
Solution (selected items)
Climate Control
(Germany)
(France)
- Lack of strategic buyers
- Project risks
- Underperformance
Buyer: Restructuring investor
- Experience in project business
- Earn out, vendor loan
Automation Systems Integrator (Germany)
- Focus on deteriorating automotive industry
- Group structure prevented other industry verticals
- Covid challenge
Buyer: Restructuring investor
- Synergies with portfolio companies
- Reduction of overheads
- Flexibility in decision making
Electronics 3D MID
(Switzerland) (Germany)
- Subcritical mass
- Unable to reach profitability stand alone
- High cost structure
Buyer: Competitor
- Synergies with portfolio companies
- Reduction of overheads
- Flexibility in decision making
Real Estate Company (Germany)
- Severe differences among shareholders
- One sided buy-out
- Structured payments
Manufacturer of locomotives (Germany) (China)
- Market niche with very few buyers
- Loss making turn around
- Unpredictable financials
- Senior management changes
- High volume of guarantees
Buyer: Strategic purchaser
- Strong industrial motivation
- Strong balance sheet to assume guarantees
- Willingness to take turn around risks
Manufacturer of Automation Machines (Switzerland) (Germany)
- Carve out analysis and costs
- Attractiveness to buyers
- Impact on group strategy
Reorganisation:
- Reassessment of corporate set up
- Re-invigorated sales efforts
Manufacturer of HVAC Components (Switzerland) (Germany)
- Business model incongruent with parent
- Lack of operating flexibility
- High structural costs due to overheads
Reorganisation:
- Reassessment of corporate set up
- Reallocation of general costs
Manufacturer of Premium Door Fittings (Germany)
- Stand alone production unit without sales organisation
- Loss making due tounderutilisation
Buyer: Restructuring investor
- Business continuity concept
- Mutual support programme
- Build up of sales organisation
- Stand alone production unit without sales organisation
- Loss making due to underutilisation
Wood Packing Solutions for the Automotive Industry (Germany)
- Hugely loss making and overstaffed for its business volume
- Fully dependent on parent company for off-take. No third party business.
- Demotivated, underemployed workforce
Buyer: Restructuring investor
- Long term off-take agreement with flexible product mix
- Working capital to allow building third party business
- No social plan for 2 years to increase labour flexibility
- Two tier acquisition structure
Metal Production Plant – Stand Alone Legal Entity (France) to (Germany)
- Hugely loss making and overstaffed for its business volume
- Fully dependent on parent company for off-take. No third party business.
- Demotivated, underemployed workforce
Buyer: Restructuring investor
- Long term off-take agreement with flexible product mix
- Working capital to allow building third party business
- No social plan for 2 years to increase labour flexibility
- Two tier acquisition structure
Communications Infrastructure Solution for Railway Industry (Switzerland) to
(UK)
- Specialised communications solution combining multiple transmission technologies
- Residual technology after multiple asset sell offs
- Business unit deeply integrated other operations
Buyer: Long term customer
- … dependent on continued supply of technology
- Staggered purchase price payments
- Negative control clauses
- Maintenance of performance guarantees by seller
Automotive Transmission Manufacturing Plant
(Sweden) to
(China)
- Physical asset transfer of a manufacturing entity
- Need to design an 18 month operating project
- Guarantee that plant will work properly after rebuilding in China
- Severe cultural differences
Buyer: Chinese State Owned Enterprise
- Conversion of commercial issues into a corporate finance agreement
- Staggered purchase consideration subject to milestones
Telecom Infra-Structure Services (Switzerland) & (Germany) to (Switzerland)
- Service business to the telco industry which no longer fitted parent strategy
- Loss making due corporate overheads
- Management left during process
Buyer: Strategic
- Local owner managed business with low overhead and clear focus
- Re-definition as core business
Radio Network Planning Software (Sweden) to (France)
- Two software suites obtained as part of a larger acquisition but superfluous
- Business very integrated
- Strong dependence on one customer with uncertain off-take commitment
- Interdependent software applications
- Long time staff loyal to previous parent / Unions
Buyer: Strategic
- Strategic buyer owned by PE/VC with clear growth strategy
- Structured deal with seller’s note and earn out
- Restructuring contribution
- Very detailed LOI to agree all material terms and conditions before due diligence
- Multiple cooperation and licencing agreements
Security and Cash Handling Solutions
(Austria)
- Two very different business units in one company
- Sharing of staff between units
- Impossible to separate without adding another admin overhead layer
- Subcritical size of either business
- Different price expectations
Buyer: MBO
- Only buyer able to understand and manage business
- Introduce to MBO candidate scenarios to reduce risk aversion
- Assistance in formulation of business plan
- Balanced contract with off- take commitments
Communication Hardware and Software Distribution
(Czech Republic)
- Small historically grown business with little synergies to parent company
- Two very different business lines
- One line dependent on tender processes with strong local components
Buyer: MBO
- Only buyer able to understand and manage business
- Staggered purchase price to allow self financing cash flow generation
CASE STUDIES
Case Study 1
Disposal of a non-performing, non-core business
Client Context:
Our client is a listed yet family-controlled company in Switzerland. As so often, family values call for a long-term approach, only to be offset by the demands of the capital markets. A French subsidiary, actually no more than a production unit, was kept afloat for much too long until a disposal was attempted.
Our Process:
- The subsidiary was held as a production unit only with no third-party customers. Due to internal group considerations, a large part of the production was shifted to another location leading to a material capacity underutilisation and consequent losses. To compensate for the loss of production of the core heating installation business, the company was endowed with a substantial sheet metal operation. The thinking at the time was that both activities involve metal processing and the skill set of the almost 100 employees should be sufficiently similar to allow a seamless transfer.
- Apart from the very challenging financials, the dual business model proved to be a no-go for strategic buyers. None were capable of absorbing two essentially different businesses. This left only financial buyers as potential investors and as a consequence, a negative purchase price to cover the expected losses for the next two years.
- These were seen very critically by the rather militant CGT trade union and the employee representatives. In order to overcome the resistance a transaction structure was developed to provide funding for both the operating company as well as the acquisition company, which is a special purpose vehicle. The operating funding represented the support of the seller, the funding of the acquisition company would allow for additional financing of the operating company but be seen as a contribution from the buyer. These commitments of support appeased both union and works council.
- The learning from this deal is that even if a transaction is properly structured, a company also needs to be prepared properly for a sale. The seller should have started with developing third party customers much earlier, work on an interchangeable skill set for both business lines and give the company a new positioning prior to the sales process.
Case Study 2
Disposal of a non-performing, non-core business
Client Context:
Our client is a listed company controlled by a small number of core shareholders. A small subsidiary in Germany had been positioned to focus on the automotive sector two years ago, with hindsight the wrong decision. The disposal was to ensure minimal damage to customers and other, non-business stakeholders.
Our Process:
- A German automation systems integrator had been positioned to focus on the automotive sector only. With the downturn of this industry the business underperformed massively and was put up for sale by its parent company.
- Due to the economic turmoil caused by the Covid 19 pandemic, strategic interest was minimal. This despite a very detailed buyer’s analysis carefully setting out the complementary touch points und strategic rationale. Even Asian buyers, who would benefit from a German foothold, could not be persuaded to enter the process.
- Financial investors plugged the gap with vigour. A strong field of bidders allowed an auction process resulting in similar net economics, yet different and very intelligently devised acquisition structures. As usual for project businesses, the salient issues were how to transfer of performance / warranty bonds as well as the normal net working capital levels. Financial support was given by the seller to cover expected future losses.
- The investors lived up to their true form and the sale closed after only 3 months.
- The deal was very interesting because of the absence of a reliable medium-term plan. The impact of the automotive slow down in combination with the Covid-19 crisis made any projections other than the actually recorded order entry pure guesswork. The acquisition structures discussed included variable loans, earn out and additional payment obligations to cover a very broad scope of possible developments.
FREQUENTLY ASKED QUESTIONS
While M&A is often perceived as the domain of C-level executives, it does not need to be mysterious. Similar issues and challenges arise whenever M&A projects are being considered.