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

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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
INTERVIEW XXXX XXXX WHAT THE FUTURE HOLDS This year has been one of the most challenging in recent times and prospects for 2012 are highly uncertain. But there are opportunities for those who know where to look. IK News asks the firm’s managing partners Detlef Dinsel and Christopher Masek for their vision of the future. Do they believe the outlook is really bleak or do they feel the current climate presents IK with scope for growth Detlef: “There is no denying that the environment is tough. Markets are highly volatile and there is little financial stability. This creates challenges for our existing portfolio companies, for the companies we would like to buy and for those we are thinking of selling. But we are not completely downhearted. We have made some good investments, we have achieved some highly successful exits and we hope there will be more of the same in 2012. Over the past two decades, we have been through difficult times before. They were very hard but we think we have learnt some valuable lessons. We are also well prepared for this downturn. We started talking about it in 2007, when there were few signs of what was to come and this vigilance has helped us over the past few years. We have a depth of experience in our chosen markets but, in response to current conditions, our due diligence processes have become even more thorough and we learnt to become more agile so we can move quickly when we need to.” chris: “Detlef is right. The climate is difficult but this is not the first time that IK has had to cope with a dverse conditions. In times like these, you need to really work hard to achieve your goals but we are not afraid of hard work. In fact, it is embedded in the IK culture and has been ever since we were founded. there are other points “IK has always focused on adding value by delivering transformational change, however long that takes to achieve. We have shown in the past that we will hold onto companies for several years if need be and we will maintain that discipline in the future.” Detlef Dinsel, Managing Partner, IK in our favour too. operating in the Nordic region, Benelux, France, Germany and CEE, our teams have developed an intimate knowledge of their local markets but benefit from a pan-regional reach. Yet we tend to compete with local or sub-regional firms, which do not have the same experience, geographic scope or breadth of talent that we do. This gives us a real edge when we are investing in new businesses and it means that we are not overly dependent on any one market. We are, of course, extremely risk-averse but we do not and cannot lose sight of the essential need to grow and develop our business.” Q: Where do you see specific opportunities for growth and development detlef: “IK has always focused on adding value by delivering transformational change, even if it takes a while to achieve. We have shown in the past that we will hold onto companies for several years if need be and we will maintain that discipline in the future. That is what we have always done and we are now spending even more time working on each investment case upfront. This is private equity in the raw and it requires a real understanding of business fundamentals. Given our focus on active ownership, we do believe this environment plays to our strengths. It is not clear when the economic climate will improve but we will continue to do whatever it takes to ensure our portfolio companies move in the right direction.” Illustrations by Lina Ekstrand /Agent Molly IK NEWS 2/11 – 17
Page 1 and 2: news issue a newsletter from Ik inv
Page 3 and 4: PORTFOLIO COMPANY NEWS NOTEWORTHY G
Page 5 and 6: its revenues for the current financ
Page 7 and 8: Trigo, the global components qualit
Page 9 and 10: IK Investment Partners’ recent
Page 11 and 12: “There was always pressure on us
Page 13 and 14: Doedijns has four proprietary techn
Page 15: The financial crisis of 2008 left a
Page 19 and 20: XXXX XXXX all our partners both int
Page 21 and 22: period, joined Idex in 1977 and suc
Page 23 and 24: Interview with MIKAEL STERNBERG AS
Page 25 and 26: XXXX XXXX Gooday and senior portfol
Page 27 and 28: XXXX XXXX LUXEMBOURG OFFICE. From l
Page 29 and 30: SOCIAL RETURNS CHARITY/THE KAJOLI S
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