CHRISTOPHER MASEK AND DETLEF DINSEL: - IK Investment ...

EXIT ETANCO
“Etanco increased its sales force from 40 to 50 people, hiring from competitors and
taking on new staff. This helped the business to increase market share substantially.
We also continued to invest in new products, broadening our range so we not only
acquired new customers but sold more to existing clients too.”
However, even as Etanco invested in people and products, cost-savings
were made and the business became more efficient. Under IK’s guidance,
the company rationalised distribution, closing two sub-scale sites and
focusing on two main factories, one in France and the other in Italy.
Centralising production reduced costs, enhanced efficiency and helped the
business improve service levels.
IK also overhauled Etanco’s internal and external reporting systems,
putting the business on a more professional footing and providing greater
transparency around working capital, inventory levels and sourcing.
“We gained a much better grip of Etanco’s overall financials, e specially
its working capital. We were then able to control inventory levels, r educing
them significantly while at the same time getting a strong grasp on
receivables. As a result, we cut working capital by €10 million, taking it
from 126 days of sales to 110. This was particularly challenging in a difficult
environment when everyone else was trying to do the same,” says Buttiaux.
IK encouraged Etanco to improve procurement too, increasing the
amount of goods sourced from Asia and taking advantage of the company’s
strong pricing power.
At the same time the group focused on quality and service,
distinguishing itself from its peer group by offering a greater breadth of
products and exceptional speed of distribution. The company promises to
deliver within 24 hours, particularly beneficial in an industry where more
than 50 per cent of overall costs come from labour, while fasteners account
for less than 5 per cent of budget.
“The building trade is peopled with entrepreneurs who tend to make
decisions at the last-minute. But the last thing they want is to hold up work
while they wait for materials to arrive. That wastes valuable manpower
time so they are often prepared to pay a little bit more for goods provided
they arrive quickly,” Buttiaux explains.
By March 2011 Etanco was making tangible progress. EBITDA margins
had improved from 20.5 per cent to 23.8 per cent, the market had begun to
recover and prospects were good. It seemed a propitious time to consider
an exit. After an exceptionally tough few years however, IK decided to
adopt a particularly prudent approach to the exit process, creating a
comprehensive vendor due diligence plan for interested parties.
The firm commissioned independent consultancy LEK Consulting to
prepare a commercial and strategic vendor due
diligence report. Running to 500 pages, the
document analysed market trends, Etanco’s
position within the market, its past performance
and prospects for the future. Once completed, it
provided a detailed picture of the company, showing
its achievements to date and its potential.
A detailed financial due diligence report was
also produced, analysing Etanco’s figures and
business plan under private equity ownership;
a legal and tax report was commissioned and
insurance and environmental reports were
completed too.
“We spent a lot of time on the vendor due
diligence plan. We analysed Etanco as if we
ourselves were buying it and by mid-June, we
had a complete package, with all the information
that any prospective buyer would need,” says
Buttiaux.
Initially IK planned to pre-market Etanco
from late June, officially launching the sales
process in September. But there was immediate
interest in the business, from three potential
buyers, two of whom had competed with IK for
Etanco back in 2008. These firms already knew
the business relatively well so they were given
a pre-emption window until the end of July. By
30th of that month, a fully-financed deal had
been struck with investment firm 3i, valuing
Etanco at €370 million.
“The exit would not have been nearly as
smooth without the comprehensive preparation
we undertook. Not only did it provide
prospective purchasers with all the information they could possibly want,
but it also gave comfort to the banks,” Buttiaux points out.
Rigorously managed, the entire process was fast, effective and efficient.
Despite a difficult financing environment, the capital was raised and three
banks committed to funding, two of whom had been the original lenders
to IK in 2008. IK also made a small but high-interest loan to 3i, which will
deliver further value to investors.
The speed with which the exit was achieved was serendipitous. By
September, when the official launch was scheduled to begin, markets
had lurched down again and the environment was far more challenging.
But the way in which the exit process was managed reflected the entire
period of IK’s investment in Etanco. Buying a supplier to the construction
industry just months before the most dramatic financial crisis in living
memory; investing in the business during an intense economic downturn;
improving operating efficiencies and working capital and delivering strong,
consistent sales and margin growth – all these factors are testament to IK’s
commitment to fundamental, sustainable value creation. The Etanco story
also demonstrates IK’s ethos for listening and working in partnership with
portfolio companies.
Etanco was the first exit from IK’s 2007 fund. Generating robust
returns for investors, it highlights the firm’s ability to deliver and perform
whatever the external environment.
Ronan Lebraut, Chief Executive, Etanco
16 – IK NEWS 2/11