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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”.