Point 2 - 2/11. FINAL - Bridgepoint Capital

More documents

Recommendations

Info

FEATURE: ANATOMY OF THE DEALSo you thought private equityinvesting was about buying andselling? Wrong. It’s about thesniff test, about due diligence,about the right management withthe right strategy. CatherineWheatley talks plastics in Italyand perfumes in France to revealMaurizio de Constanzo: turned losses into profits at Italian packaging firm CFP...The art of the dealFrom the start it was clear that Mauriziode Costanzo’s plastics business would be aperfect addition to Bridgepoint Capital’sportfolio – but it was far less obvious howto persuade its owners to sell.Staff at Bridgepoint’s Milan office hadbeen eyeing Caffaro Flexible Packaging,which makes plastic film used for food andpharmaceutical cartons since shortly afterde Costanzo joined the business in 1999.Bridgepoint had first discussed apossible sale with the company’s parent,the Italian industrial group SNIA, nearlytwo years ago. When CFP was finally putup for auction last February, Bridgepointwas quick to join the queue of potential buyers.After ten weeks spent pouring over theaccounts, examining the business plan andtalking to the management, Bridgepointmade an offer that trumped rival bids froma string of private equity houses andcompanies including Honeywell, the USaerospace giant. There followed a periodof exclusive and at times toughnegotiations during which Bridgepointcompleted a thorough examination of themanagement and its plans for the company.By August, Bridgepoint had agreed to adeal with SNIA totalling €120m for abusiness that should expand rapidly in afast-growing market. The managementteam, still led by de Costanzo, expectsEuropean demand for CFP’s core productto grow by six per cent per annum over thenext three years. At the same time theindustry is changing rapidly as key oil andchemical companies sell off their plasticsdivisions. And de Costanzo is planning tocomplete a reorganisation that has alreadytransformed a loss-making business into afirm with a 22 per cent profit margin in thethree years he took the helm.“It’s like jumping intoa swimming pool.There comes a pointwhere you just have totake the plunge”“There are two ways forward,” explainsBridgepoint’s Cesare Zetti who worked onthe deal. “We will grow organically, andthere may well be acquisitionopportunities, as a number of plasticsbusinesses are being put up for sale inEurope.” By the time CFP is sold again, inthree to five years’ time, Zetti expects hisinvestment to have trebled in value. Bythen, Bridgepoint will have identifiedseveral potential trade buyers for thebusiness, now renamed CFP FlexiblePackaging.“Honeywell, Mobil Plastics and GEPlastics might all be interested,” Zetti says.As with all Bridgepoint’s acquisitions,the CFP deal displays a mix of judgementand research – with a little luck thrown in.Discovering that the business was finallyup for sale was a stroke of good fortune,but it took the team working flat out forseveral weeks to confirm that it wasdefinitely worth backing. Deciding thereare good growth prospects and futurebuyers for the business is a function ofcareful research, but no-one can becompletely sure what the market will looklike five years from now.“Deal making is an art, but we try to useas many scientific techniques as possible,”admits Bridgepoint’s UK managingdirector Kevin Reynolds. “In the end it’s abit like jumping into a swimming pool.There comes a point where you just haveto take the plunge.”But preparing to leap needs a good dealof work. The first stage in any deal isidentifying acquisition targets with helpfrom a broad network of contacts andintermediaries. Sometimes the inspirationTHE POINT 9
for a deal comes from a cold call orBridgepoint’s own market research. Inaddition, Bridgepoint’s relationships withthe investment banking and intermediarycommunities will pay off.Even though Bridgepoint had spottedCFP’s potential, it actually took a call fromBNP Paribas to let the company knowthat SNIA was planning a sale. If a deal isworth pursuing, it must pass what somecall the “sniff test”, a list of criteria thatincludes price, projected return, managementquality and market dynamics.Typically, Bridgepoint is aiming to trebleits investment. To achieve that, the pricemust be ‘right’, the management strong,and the market must have attractivegrowth prospects. There must also be anexit route, which these days is unlikely tobe a flotation. As a consequence, getting toknow the board is important part of theprocess. For a buyout to succeed, theremust be trust between Bridgepoint andthe management team. “We are lookingfor a proven track record of successand the chemistry has to be right,”Reynolds says. “We want to sell ourselvesto the management but we don’t wantto overpay.”If a deal is worthpursuing it must passthe sniff test on price,return, managementand market dynamicsAccording to Reynolds, Bridgepointlooks for experienced leaders who arehungry, dynamic and motivated. They hadbeen impressed with de Costanzo’sachievements at Mobil Plastics, where heled the European polypropylene division,and his more recent performance at CFP.He has already restructured the companyby closing the arm that manufactured andsold polymer resin, a large but shrinking partof the business.Sometimes a deal has all the rightingredients except a team with enoughexperience to push through toughnew strategies. When this happens,Bridgepoint might search for outsidemanagers prepared to take on thechallenge, as it did in 1996 when itacquired Jessops, the British photographicretailer it sold to ABN Amro in Septemberfor €185.6m.Jessops, a family-owned business with astrong culture of knowledgeable service,had been speaking to a number ofpotential buyers.Bridgepoint, meanwhile, had approachedTim Brookes, former chief executive ofindependent retail landlord In Shops, tolead a management buyin. The firm hadbeen impressed with Brookes’ track recordat In Shops, Lloyds Chemists andCheltenham & Gloucester where he hadbeen a non-executive director.“It was a very difficult position becauseI was split three ways. I was selling myselfto Bridgepoint, the incumbent team, andto the vendor Alan Jessop,” recallsBrookes. “But once the managementtrusted me, I could tell them that Bridgepointwere good, and they believed me.”Clearly, the management must also feelcomfortable with Bridgepoint. “It’s like amarriage,” admits de Costanzo. “I amworking with them because they are ashareholder in the company but alsobecause they support my programmes.”Once Bridgepoint decides to pressahead, due diligence can take months tocomplete. Accountants examine thebusiness plan, lawyers scan the contracts,investment banks assess possible exitroutes, and human resources experts checkreferences and even carry out personalitytests on the management team.But the acquisition is just the start of along slog to improve the company’s valuein advance of a future sale. A plan is drawnup long before the deal is completed, andwork begins as soon as the papers are signed.Typically, the strategy will fall into oneof four categories: exploiting a fastgrowingmarket, buying and buildingthrough acquisition, breaking a businessup, or making a family-owned firm moreefficient and effective.“The first hundred days are veryimportant. Once the deal has been done,Bridgepoint and the management team arenaturally tired, and if you’re not carefulpeople’s eyes can leave the ball. You haveto be clear about what you’ve bought,”admits Reynolds.Often steps are taken very quickly.Fitness chain Virgin Active opened threenew clubs within six months ofBridgepoint acquiring a stake in thebusiness last February. In most cases it isthe management teams, with their detailedknowledge of the sector, that draw up thestrategy alongside Bridgepoint. DanielVercamer, the founder and president ofFrench perfume and cosmetics retailerNocibé, is already planning to expand thebusiness following its acquisition byBridgepoint and the European fund TCRIndustrial Managers in October.During 2000 and 2001 its former owner,Dutch group Kruidvat, had trebled thenumber of Nocibé stores by acquiringseveral smaller chains including ProcessBlue and Baiser Sauvage. First the teamwill consolidate its portfolio with aKevin Reynolds: “We are looking for a proven track record of sucFinding the investmentvia contacts, intermediaries,market researchand cold-callingprogramme of store refurbishments andenlargements. Next, it will expandorganically in Paris and eastern France.Finally, it will seek acquisitions in Italy, andpossibly Spain and Scandinavia, where themanagement believes the concept of a self-via contacts, intermediaries,the odoes the deal work on price, projected return,didoes the business aPassing the sniff testartDuedoes the deal work on price, projected return,management quality and market dynamics?10 THE POINT
Page 2: Intelligent private equity investin
Page 5 and 6: NEWSJessops photographic chain sold
Page 7: NEWS ANALYSISProcurement programme
Page 11 and 12: INTERVIEWRobert Waley-Cohenstarted
Page 13 and 14: MarketWhile French corporateslabour
Page 15: FEATURE: EUROPEAN RETAILstors to en
Page 20: “NewsFrom Stockholm to Madrid:Bri

Point 2 - 2/11. FINAL - Bridgepoint Capital

You also want an ePaper? Increase the reach of your titles

Delete template?

Save as template?