Financing for international M&A transactions

Gene­rally, in order to deve­lop an opti­mal finan­cing struc­ture for a “cross-border acqui­si­tion”, both local finan­cing opti­ons in the coun­try of the target company and the acqui­ring company must be conside­red. Finan­cing part­ners opera­ting across regi­ons can also play a more signi­fi­cant role, and are basi­cally active in both rele­vant markets. At the same time, finan­cing part­ners outside the banking sector are beco­ming more important, espe­ci­ally for indi­vi­dual finan­cing solu­ti­ons, such as those regu­larly sought in the area of acqui­si­tion finan­cing, but often also for pure corpo­rate finan­cing. Many debt funds in parti­cu­lar are active nati­on­wide. The task for a corpo­rate finance advi­sor is to iden­tify the wide range of possi­ble “solu­tion modu­les”, analyze the advan­ta­ges and disad­van­ta­ges of the indi­vi­dual opti­ons and deve­lop an opti­mal over­all finan­cing package. In the context of a corpo­rate tran­sac­tion, the M&A process and the further corpo­rate deve­lo­p­ment stra­tegy asso­cia­ted with the change of owner­ship must also be taken into account for finan­cing purpo­ses. Over­all, It is a complex process to opti­mally link the speci­fics of indi­vi­dual finan­cing compon­ents, regio­nal requi­re­ments for the speci­fic target company. The result should be a custo­mi­zed solu­tion that regu­larly devia­tes from tradi­tio­nal “stan­dard struc­tures” in the banking market.

The coor­di­na­tion effort as well as the demands on docu­men­ta­tion and plan­ning trans­pa­rency are essen­tial argu­ments for the coope­ra­tion with a specia­li­zed consul­tant like ARGONAS. In the case of cross-border corpo­rate tran­sac­tions, the requi­re­ments are regu­larly increased, as tax, accoun­ting and regu­la­tory pecu­lia­ri­ties have to be obser­ved across at least two juris­dic­tions, and thus the manage­ment of the inter­de­pen­den­cies between M&A and the finan­cing process takes on a special signi­fi­cance in the consultant’s activities.

A good exam­ple of this is the acqui­si­tion of the Italian machine manu­fac­tu­rer ITALPRESSE by AUCTUS, which we recently supported. In this tran­sac­tion, a German private equity inves­tor acqui­red an Italian target company with inter­na­tio­nal opera­ti­ons. The senior finan­cing was provi­ded by an Italian banking consor­tium, which provi­ded seve­ral tran­ches of finan­cing as part of a “club deal”. In addi­tion, a Swiss insu­rance company provi­ded guaran­tee lines and a French private debt fund provi­ded mezza­nine capi­tal finan­cing. Finan­cing was provi­ded at both corpo­rate and holding levels in Germany and Italy.

In Germany in parti­cu­lar, we have been in a seller’s market for some time, so prices over­all are very high — in some cases unusually high. This is due on the one hand to the posi­tive econo­mic deve­lo­p­ment in Germany since the finan­cial crisis, but also in parti­cu­lar to very high liqui­dity and invest­ment pres­sure among inves­tors combi­ned with a funda­men­tally extre­mely low inte­rest rate envi­ron­ment. Germany has become a new focus for many inves­tors in recent years, and inves­tors alre­ady active in the German market have addi­tio­nally expan­ded their invol­vement in Germany. In Germany, this means that corpo­rate tran­sac­tions are predo­mi­nantly carried out in compe­ti­tive proces­ses and that compa­ra­tively high valua­tions can curr­ently be achie­ved even for cycli­cal sectors or compa­nies in diffi­culty. Howe­ver, we have also seen in recent months that more caution is slowly being exer­cised again, parti­cu­larly in the valua­tion of some cycli­cal sectors.

In our view, the picture in Europe is hete­ro­ge­neous. In most count­ries, the high German valua­tions cannot be matched, even if the gene­ral valua­tion level is nevert­hel­ess high by histo­ri­cal stan­dards. In the case of compa­nies that have a strong inter­na­tio­nal presence and are less depen­dent on their actual home market, this often crea­tes an oppor­tu­nity to acquire them at a valua­tion discount to compa­ra­ble German compa­nies. Against this back­ground, we are now also seeing more frequently that inves­tors with a focus on Germany are moving to neigh­bor­ing count­ries, espe­ci­ally for add-on acqui­si­ti­ons to exis­ting investments.

As an inde­pen­dent corpo­rate finance consul­tancy, we combine many years of expe­ri­ence in both M&A and finan­cing in our team and are thus able to offer inte­gra­ted corpo­rate finance advice and tailor-made solu­ti­ons for a wide range of possi­ble tran­sac­tions and projects. With this approach, we are both a strong part­ner for dedi­ca­ted M&A and finan­cing proces­ses, but we also excel in parti­cu­lar in projects that include both compon­ents and where the “inter­face” between M&A and finan­cing proces­ses regu­larly poses a chall­enge. Compared to an approach where M&A and finan­cing strands are accom­pa­nied by sepa­rate teams (as is the case in invest­ment banks, but also in many inde­pen­dent consul­ting firms!), we can add signi­fi­cant value here with our inte­gra­ted consul­ting approach. At the same time, as the exam­ple of ITALPRESSE shows, we have the depth of expe­ri­ence and the networks to successfully imple­ment even very complex and deman­ding transactions.

In terms of proces­ses, we basi­cally follow the proces­ses of invest­ment banks, but adapt them for our focus area “small and medium-sized tran­sac­tions”. We ther­e­fore delve parti­cu­larly deeply into busi­ness models and analy­sis of cash flow profiles. In essence, we firmly believe that the success of a tran­sac­tion (whether M&A or finan­cing process), espe­ci­ally for mid-sized compa­nies, depends signi­fi­cantly on fully under­stan­ding these aspects and being able to credi­bly estab­lish a reali­stic “finan­cing” or “invest­ment” case with finan­cing part­ners or buyers. This is the only way we can also attract good inves­tors or finan­ciers for a tran­sac­tion at attrac­tive condi­ti­ons; accor­din­gly, we clearly see oursel­ves as advi­sors and less as “sellers” or “brokers”.