Acquirer Spring 2013 - Livingstone Partners

SPRING 2013cquırerTheThe corporate finance magazine from Livingstone PartnersThe big pictureLivingstone’s negotiating skills helped bring the art-houseinto the mainstream when Cineworld bought City ScreenPLUS: FOCUS ON IT SERVICES. DC LEISURE MAKES A SPLASH. RENEWABLE ENERGY

IN THIS ISSUEFeatures04061013141618202223Regulars0309SECTOR: BUSINESS SERVICESMaking a splashLateral thinking for DC LeisureCOVER STORYHow the art-housejoined the mainstreamThe sale of City ScreenSECTOR FOCUSAhead in the cloudTrends in IT servicesCLIENT HEROSafe and soundPer Borgvall, CEO of GunneboSECTOR: DEFENCE & SECURITYMinefield saleHow Dynasafe bought MineTechSECTOR: CONSUMERGalloping aheadA complex German fashion dealSECTOR FOCUSThe future of renewableenergy in EuropeGreen energy conference reportSPECIAL SITUATIONSA platform for recoveryGetting companies back on trackSECTOR: FINANCIAL SERVICESBanking on changeiprism’s dividend recapDEBTWho is taking the credit?How to deal with debtNEWSThe latest from LivingstoneCOMMENTChanging attitudes amongmid-market private equity firmsCONSULTING EDITOR Celia MatherMANAGING EDITOR Rob HaynesART DIRECTOR Rob CuthbertsonSENIOR DESIGNER Mark PowerCREATIVE DIRECTOR Ben BarrettACCOUNT MANAGER Lucy Tatton-BrownSENIOR ACCOUNT DIRECTOR Tim TurnerPRODUCTION DIRECTOR John FaulknerMANAGING DIRECTOR Claire OldfieldCEO Martin MacConnol2 // WWW.LIVINGSTONEPARTNERS.COM // SPRING 2013CommentAfter the turmoil of 2011and 2012, 2013 has gotoff to a much strongerstart. Receding fears have led toincreased confidence: both theUS and the Chinese economy areexceeding expectations, the Eurocrisis seems to be ring-fenced(at least for now), companies aresitting on large cash balancesand optimism is returning.For example, in Germany,long regarded as key to Europe’s return to growth, the ZEW Indicatorof Economic Sentiment (one of the most highly regarded businessclimate indices in Germany) shows that economic expectations havestrengthened significantly, reaching their highest level for two years.The survey also points to expectations of further stock market growthand the gradual increase of long-term interest rates from later in 2013.Increased confidence reflects itself in increased M&A, with volumesand valuations likely to strengthen during 2013. It will take a little timefor reported M&A volumes to show an increase – transactions still takelonger than they did before the downturn, and so deal numbers aremost likely to show a real uptick“We’ve seenincreased corporatefocus on M&A as aroute for growth”from the second half of the year.The first few months of 2013 sawa number of very large transactionsannounced, including the buy-outof Dell by its founder Michael Delland private equity investor SilverLake, Liberty Global’s takeover of Virgin Media, and Warren Buffet’soffer for Heinz. In previous cycles, a bow wave of ‘mega’ deals hasgenerally seen a sustained increase in mid-market M&A activity.From the second half of last year, we’ve seen increased corporate focuson M&A as a route for growth, and pressure on private equity investorsto deploy funds. These support an improving valuation environment –whether for private owners, for PE houses thinking of selling portfoliocompanies, or for corporates considering non-core divestments.While many advisers have had no choice but to let go of many of theirexperienced deal-doers, we have been progressively strengthening ourown team globally and are immediately ready to help our clients achieveexciting outcomes in this more welcoming environment.Contact:Jochen Hense, Partner, Livingstone DüsseldorfT: + 49 211 300 495 22, E: hense@livingstonepartners.dePublished by Wardour, 5th Floor, Drury House,34-43 Russell Street, London WC2B 5HA, UKTel +44 (0)20 7010 0999 www.wardour.co.ukAll rights reserved. The views expressed bycontributors are their own.Livingstone Partners is an internationalcorporate finance advisory firm specialising incompany sales, acquisitions and private equitytransactions. Our teams in London, Chicago,Düsseldorf, Madrid and Beijing draw upon theintegrated infrastructure of a unique,independent business with a 37-year pedigreeof closing deals for clients around the world.If you have any questions or would likemore information on Livingstone, please contactAnn Wilson on +44 (0)20 7484 4727 or emailwilson@livingstonepartners.co.uk12.4%The percentage of M&Atransactions in 2012 thatinvolved private equity –down from 21% in 2006KGP LOGISTICSThreetimes acharmKGP Logistics’ December 2012acquisition of TriNet is the thirddeal Livingstone has helped KGPcomplete, working with managementsince 2009 to build a market leaderin the US communications industry.KGP is one of the largestsingle-source suppliers in theUS of logistics and supply chainservices, wireless, and wirelinecommunications equipmentfocused on the telecoms market.TriNet is a leading distributionand integrated logistics companyserving the telecoms, data and cabletelevision industries.In 2009, Livingstone advisedKGP on the acquisition of EMBARQLogistics, the supply chain,distribution and deploymentsubsidiary of EMBARQ Corporation(now known as CenturyLink), and inthe first half of 2012 it advised on theacquisition of certain assets of theprofessional services business ofTE Connectivity (successor toTyco Electronics).KGP President Trevor Putrahexplained: “Livingstone’s guidanceand deal expertise across threeacquisitions since 2009 hastransformed our business capabilityand enhanced the value KGP deliversto the industry.”Source: Thomson Reuters

NEWSDigestCOVER PHOTO: MARK HARRISON. INSIDE: PETER JAMES FIELD, GETTYNEW JOINERSWelcome to LondonTwo new Analysts with very different personal andprofessional backgrounds joined Livingstone’sLondon office towards the end of 2012.Kasia Siwosz (pictured, far right), who hails fromPoland, left home at a young age to compete as aprofessional tennis player in the US. Deciding that sheneeded to look beyond sport, she won a scholarship tothe University of California, Berkeley, US, where shemajored in economics. Upon graduating, she internedin a New York investment fund. Another internship,at investment bank Jeffries, brought her to London,where she began to look to establish her career.“I found a different angle – the one I was lookingfor – at Livingstone,” she said.Jack Wills (pictured, right) may not have hit the samesporting heights, but he comes to Livingstone with asolid financial services background. After graduatingfrom Oxford, he moved into consulting at LECG,carrying out large-scale company analysis. But he hadan urge to work in corporate finance and joined LincolnInternational in 2011. While there, he gained broadcorporate finance exposure and was involved in someM&A work. “That’s what led me to Livingstone,” hesaid. “I wasn’t getting enough hardcore M&A exposure,M&A OUTLOOKGood vibrationsThere is a growing sense that the M&A marketmay be reaching an inflexion point in 2013.Confidence is the key lubricant for turningthe heavy wheels of M&A, and this is nowreturning perceptibly to acquirers, investors,banks and business owners.James Lever, Partner at LivingstoneLondon, commented: “Confidence is a ficklething, but the mere sense that ‘it’ is not goingto get any worse is enough to push M&Afurther up board agendas. Similarly, potentialvendors looking ahead to the next 12 monthsare feeling more confident of delivering theirforecasts – a key factor in deciding whento sell. Corporate balance sheets are flushwith cash and, with interest rates forecast toremain low, investors are keen to see that cashgenerating returns. Private equity investorsare also under pressure to deploy capital andso I started to look forsomewhere that wouldgive me what I needed.”When interviewing foranalyst roles, Livingstonelooks for technicalability, but also strongpersonalities. “Makingdeals work is aboutempathising with thepeople on the other sideof the table,” said PhillipMcCreanor, Partner at LivingstoneLondon. “Jack asked challenging questions and didn’tget rattled. You knew he had the personality to succeedwhen difficult things are thrown at him.”McCreanor also drew confidence from Siwosz’sbackground. “I have always thought sport workswell with corporate finance,” he said. “You spend alot of time mixing with other people in a competitiveenvironment. She has also successfully lived aroundthe world, which is important in today’s globaleconomy, and brings a fierce sense of determinationto the job.”even the banks are lending, albeit to the largermid-market buy-outs.”An important indicator of improvedconfidence in the past has been a surge in‘mega deal’ activity (see Comment article,opposite). All the M&A booms in recentdecades have kicked off with a busy periodof large transactions, signalling the seachange in confidence which then cascadesdown to the mid-market.In the short-term, a weak pound andeuro are creating pricing opportunities forambitious North American, Latin Americanand Asia-Pac groups to acquire UK andEuropean assets. “Currency arbitrage hasbecome a commonplace driver of cross-borderM&A for more sophisticated acquirers,” Leverconcludes. “Assets are already attractivelypriced across Europe, and another 10% or 15%advantage due to weaker local currencies cancreate a compelling case for acquisition if thedeal can be concluded swiftly.”Online opinionBelow are some brief extracts fromrecent posts on our blog. For more, go towww.livingstonepartners.co.uk/commentThomas Holroyd discusses the best timeto tell staff about a deal:“Some deals are done so quickly thattelling staff before a public announcementbecomes a moot point. Other businesses,particularly start-ups, can foster such anopen culture that concealing a potentialdeal would be seen as deceitful. The mostimportant thing is to get staff buy-in bymanaging the communication well at thetime a deal looks most likely to happen.”Daniel Domberger passes on good adviceabout selling a company, gleaned at aLivingstone media:tech round-table lunch:“Know what you’re getting into: The processis demanding and can be something of aroller coaster – make sure you’re prepared.Avoid burnout: The stresses of atransaction can put you under significantpressure; make sure you have goodadvisers who can take some of the burdenoff your shoulders. Another attendeeextended this, recommending a nutritionistand personal trainer to help keep youon-track, mind and body.Prepare for losing control: Leave on dayone if you don’t want to see someone elsein control of your company once the dealis done, or don’t want to have a boss. Butbe upfront about this intention; there’s nopoint negotiating a deal with a purchaserwho expects you to remain, then trying toleave. If you’re staying, be prepared for theloss of independence.”Eleanor Wilkinson shares tips on makinga success of an international transaction:“While virtual data rooms can be great forsharing information, mid-market deals aretypically done by building relationships aswell as analysing data. Tip: be conscious oftime differences – there is a different toneat 8am vs 8pm. Ensure decision makersattend key meetings – if they can’t find timefor a face-to-face meeting, how are theygoing to part with multi-millions?”WWW.LIVINGSTONEPARTNERS.COM // SPRING 2013 // 3

SECTOR: BUSINESS SERVICESMaking a splashThe sale of DC Leisure – a unique business serving bothlocal authorities and members of the public – required somelateral thinking in a difficult market. Lawrie Holmes reportsPrivate equity owner Sovereign Capital firstconsidered the sale of the UK’s largestprivately owned local authority leisurecontractor, DC Leisure, in 2011, yet theprospect was not free of challenges.Concerns about its attractiveness to potentialbuyers were focused on DC Leisure’s unusualbusiness model, which serves two radicallydifferent clients. As a facilities manager itruns 101 leisure centres on behalf of 29 localauthorities under multi-year contracts. In thisrespect, potential buyers might be concernedabout the impact of government cuts on thecompany’s prospects. Yet the business also sellsservices to the public who use its facilities, raisingconcerns that weak consumer spending mayaffect future profits.Given its unique position – facilities managersconcentrate on serving business-to-businessclients only, while many operators of sports andfitness facilities are focused on serving consumersout of their own private facilities – LivingstonePartners had to give careful consideration as tohow the sale process should be approached.“It helped that we have been very active inthe leisure sector,” says Kristian Gavan, a Directorwithin the Business Services team at LivingstoneLondon, who also has several years of experienceadvising in the not-for-profit space. “The perceivedwisdom was that it was a market under pressure.”But there were also plenty of opportunitiesto consider, says Jeremy Furniss, Partner atLivingstone London. “Instead of being a targetfor cuts, the leisure centre space was being4 // WWW.LIVINGSTONEPARTNERS.COM // SPRING 2013

LAWRIE HOLMESPAUL BLUNDELLDEAL AT A GLANCECLIENT: DC LEISURESECTOR: BUSINESS SERVICESDEAL TYPE: COMPANY SALEBUYER: PLACES FOR PEOPLEsheltered because of its prominence as acommunity-focused social resource. There wasalso an increased pressure towards outsourcingin order to improve efficiency.”After several smaller competitors’ efforts tosell had come to nothing, the Livingstone teamunderstood that a more subtle approach wouldbe required. “We recognised that we would needto educate buyers through an informal, organicprocess about this market-leading business,”says Furniss.Sandra Dodd, Finance Director at DC Leisure,adds that Livingstone’s lateral thinking ensuredthat the business would eventually be acquiredby a new owner that is sympathetic to its corevalues. “They took a lot of time to understandthat we wanted a home for the business that hadsimilar values to us, and also to understand thebusiness and individuals involved.”DC Leisure CEO Steve Philpott adds: “WhereLivingstone really made a difference is the factthat they were able to bring to the party the bestunderstanding of the broad space, combiningleisure, housing and social enterprise. It was that,plus the capability to follow through on the detail,that persuaded us to choose them.”A QUESTION OF TRUSTSelling DC Leisure to a similar entity wasunlikely, as with an £88 million-per-yearturnover, there were no larger businesses in theUK that could take it over. Likewise, an overseasbuyer in the space was ruled out because therewere no comparable players in other countries,since DC Leisure’s outsourcing market modelis uniquely British.Management pointed to the recent commercialsuccess of leisure trusts, which had grown quicklyin the past 10 years by taking advantage of a VATsporting exemption due to their not-for-profitstatus. With Livingstone’s guidance, the ownersand management team of DC Leisure agreedthat selling the business to a social enterpriseorganisation would offer a unique solution bysecuring not-for-profit status. This would enablethe enlarged group to be more competitive whenbidding for contracts, while being recognised asreaching out to the heart of the community andpromoting improvements in quality of lifethrough physical activity. Many social enterprisesalso provide outsourced estate managementservices that could be utilised to generate someoperational cost savings.Among social enterprises, housing associations(or RSLs – registered social landlords) have beendiversifying since the 1990s, acquiring assetsincluding training companies, academy schoolsand catering companies. Acquiring an assetsuch as DC Leisure could offer RSLs the twinoutcomes of providing complementary servicesand programmes that meet community andneighbourhood needs, while generating cash tosupport their traditional mandate. The socialrewards from successful diversification arepotentially material, with landlords beingkey players in shaping and sustaining thecommunities and neighbourhoods they operatein and improving the quality of life for peopleliving there.ALL IN GOOD TIMESocial enterprise Places for People (PfP) – oneof the largest management, development andregeneration companies in the UK, with assetsof more than £3 billion – acquired DC Leisurein December 2012. PfP, which works in 205local authorities and owns or manages morethan 81,000 homes, many of them for low-incomefamilies and key workers, was keen to enhanceits ability to build new communities – not justhousing – and saw great attractions in being ableto manage and build leisure centres, which oftenlie at the heart of the local community.In PfP, the Livingstone team was able to identifya buyer that could benefit from the VAT sportingexemption and therefore offer an excitingplatform of growth for the business, says Dodd.“That’s really important when you want to ensurejob security for 5,500 staff.” She also praises theLivingstone team’s dedication. “They providedus with a lot of useful information and answeredall of our questions quickly without talkingdown to us,” she says.Completion of the deal followed an informalprocess that involved discussions with severalinterested parties and took a year to complete,having begun in late 2011. “It took longer thannormal because the process was undertakendiscreetly, and we needed to take time to explainthe benefits of a business like DC Leisure.Potential buyers needed to be encouraged ratherthan bullied, because in this market, it would havebeen too easy to pass over what really is a greatopportunity,” says Gavan.Despite little past experience of the leisuremarket, PfP’s management team grasped thebenefits of owning DC Leisure, including theopportunity to further strengthen ties with localauthorities through a community health agenda.“The management teams just clicked,” saysGavan. “Both sides understood it was a goodfinancial and cultural fit.”Contact:Jeremy Furniss, Partner,Livingstone LondonT: +44 (0)20 7484 4703,E: furniss@livingstonepartners.co.ukKristian Gavan, Director,Livingstone LondonT: +44 (0)20 7484 4747,E: gavan@livingstonepartners.co.ukWWW.LIVINGSTONEPARTNERS.COM // SPRING 2013 // 5

COVER STORYCELIA MATHERMARK HARRISONDEAL AT A GLANCECLIENT: CITY SCREEN LTDSECTOR: LEISURE & TRAVELDEAL TYPE: SALEBUYER: CINEWORLD PLC6 // WWW.LIVINGSTONEPARTNERS.COM // SPRING 2013

HOW THE ART-HOUSEJOINED THE MAINSTREAMThe sale of art-house cinema chain City Screen to the giant Cineworldshows the importance of an acquirer being sensitive to its target’s cultureAn art-house cinema operator and anationwide multiplex chain seem unlikelybedfellows. However, the December2012 sale of City Screen (which trades asPicturehouse) to Cineworld Plc for £47.3 millionis proving to be a very comfortable alliance.City Screen is the UK’s leading art-housecinema operator, and it targets a differentcustomer set to Cineworld’s youthful, blockbusterlovingcrowds. Its core audience is older, morediscerning and more interested in art-house andforeign language programming. The chain wasfounded in 1989 and, with backing from investorsArts Alliance and Albion Ventures, its foundersbuilt up a highly successful portfolio of sitesincluding the Cambridge Picturehouse, theGreenwich Picturehouse and The Ritzy inBrixton. Its newest opening, which coincidedwith the announcement of the acquisition, is TheDuke’s at the Komedia cabaret venue in Brighton.For Cineworld, which employs 4,000 peopleand runs 80 cinemas across the UK, theacquisition of City Screen enhances its positionin the valuable and high-growth premiumsegment of the cinema market, while addinga complementary portfolio of sites to itsexisting footprint.While Cineworld is the UK’s leader in big cityand out-of-town multiplex sites, Picturehouse hasperfected its ‘miniplex’ offering – small, high-endand architecturally interesting sites in ‘Londonvillages’ and university towns. Most importantlyfor City Screen’s management, the deal gives theart-house group the financial clout to extend itsportfolio of sites while preserving its unique andmuch-loved character.STRATEGY AND INTEGRITYWhile the strategic rationale for a deal was clear,getting the cultural fit right was always going tobe a key challenge. Christopher Jones, Directorat Livingstone London, who led the deal, hadworked with City Screen’s founders, Lyn Golebyand Tony Jones, for a number of years. He andSimon Cope-Thompson, Partner at LivingstoneLondon, knew it was essential for City Screen’sfounders that any potential purchaser had tocommit to respecting and preserving the integrityof the Picturehouse brand.“We have worked with Lyn and herLUCKY 7 – ANOTHER LEISURE DEALNick Harding, CEO of Marwyn Gaming andparent company Marwyn Management PartnersPlc, sought the advice and support of Livingstonein the sale of Marwyn Gaming to Merkur CasinoUK for £76 million in late 2012. This was theseventh deal Harding has worked on withLivingstone and demonstrates, he says, the firm’sability to think creatively to find solutions.“Having worked on deals with Livingstonesince 1996, we have built up a close workingrelationship. The team work harder thanany other M&A adviser I know. Simon Cope-Thompson is diligent, patient and understandsthe deal from an operator’s perspective. Havinghim onside is like having your own wingman.”Harding founded Marwyn Gaming (previouslyknown as Praesepe) in 2007. He has extensiveexperience in the sector and was previously CEOof Talarius, the UK market leader in adult gamingcentres, which was sold to Australian gamblinggroup Tattersall’s and Macquarie Bank in 2007.He took Praesepe from a standing start toa total of 173 operating sites in just five years.Acquired by Marwyn Management Partnersin 2011, Marwyn Gaming comprises 159 adultgaming centres, nine bingo clubs, five familyentertainment centres and an internet business,management team since 2008, when City Screenappointed Livingstone as a strategic adviser,”explains Christopher Jones. “Over the pastfour years, we have provided strategic guidanceand assisted the Company with its financingstructure. The relationship is based on trust andunderstanding, rather than a singleBeacon Bingo Online.The sale of Marwyn Gaming to Merkur wasoff-market and, given the direct relationshipbetween the principals, much of Livingstone’srole was carried out behind the scenes. AsCope-Thompson explains: “We were very heavilyinvolved in the strategy of the deal. We hadadvised on Marwyn Gaming’s acquisition of theLondon-based Agora gaming business in late 2011and, given our previous dealings with Nick andMarwyn, this meant that we could jump right intothe deal with great insight. It enabled us to guidethe management team through the entire process.”Merkur Casino is part of the GauselmannGroup, based in Westphalia in Germany. Hardingsays the Gauselmann story (Paul Gauselmannlaunched his business in 1957 and grew it to aninternationally acclaimed €1.7 billion enterprise)is one of the most inspiring in gaming.Following the deal, Harding will serve asCEO of Merkur Casino UK. He adds: “Thefinancial confidence the acquisition has givenMarwyn Gaming will allow us to implementthe progressive initiatives, which, I believe, willtransform the sectors we operate in. Gauselmannwill provide us with the financial backing and thesecurity to take the business forward.”WWW.LIVINGSTONEPARTNERS.COM // SPRING 2013 // 7

COVER STORYtransaction. We understood the importance ofprotecting City Screen’s DNA in any transaction.”Goleby explains: “We would not have gone pastfirst base on the deal if I had not quickly becomecomfortable that Cineworld valued the peoplein the business it was buying and intended topreserve its values and brand,” she says. The fit issufficiently complementary that she remains asManaging Director of City Screen and the businessis operating as an independent unit of Cineworld.“The long period that Christopher and Simonspent observing our board meetings and workingwith us informally, without a transaction in play,was very important,” she continues. “They hadANY POTENTIALPURCHASERHAD TO COMMIT TORESPECTING THEINTEGRITY OFTHE BRANDa strong understanding of the dynamics of theboard and how to deliver against differentstakeholder requirements, not to mention adetailed understanding of the managementaccounts gained over a period of years, ratherthan a few days or weeks.”READY FOR ACTIONThe long-term relationship meant thatLivingstone was ready when Cineworld made anunsolicited approach to acquire City Screen in thesummer of 2012. While the initial valuation wastoo low, Livingstone saw the potential fit andhelped Cineworld understand that the businessmerited a substantial strategic premium.Once an improved value had been agreed,Christopher Jones had the challenge of keepingall the stakeholders in the deal motivated andon side. “Negotiating the optimum deal with thebuyer was a prerequisite, but we also needed tounwind City Screen’s complex capital structureand negotiate a deal that all the stakeholders werecomfortable with,” he explains. “Once we agreed adeal with the purchaser, and then agreed a deal toapportion proceeds between the stakeholders, itactually proceeded relatively smoothly.”Goleby recalls: “I spoke considerably more toChristopher than to my husband over the courseof the deal. Christopher was always on the end ofthe telephone – for the easy and difficult tasksalike. Once the time came to get to grips with theincredibly complex financial structures that comeout of a 20-year-old, VC-funded company with amass of JVs and subsidiaries, then the spreadsheetscame thick and fast from Livingstone.“But I came to know that Christopher would betalking to all the parties either daily, or certainlyas often as they could usefully be kept in the loop,and had total control of the process. When he tookhis paternity days on Fridays, I had a vision of himupdating us all with a nappy or a buggy in onehand and a mobile phone in the other!”Livingstone led the negotiations to agree headsof terms, following which it ran a tight process tocomplete the transaction within eight weeks. Thedeal completed on the terms originally agreed,representing a very attractive multiple ofapproximately 10x EBITDA.STRONG RETURN ON INVESTMENTIn addition to a considerable return for CityScreen’s founders, the deal gave their long-termfinancial backers a very strong return oninvestment. Henry Stanford, Partner at AlbionVentures, says: “Lyn has been a joy to work withand we have been very happy to play our part inbuilding up the City Screen group. Livingstone dida good job in aligning the shareholder interestsfor the deal and keeping negotiations on track.”Oliver Shapleski, Arts Alliance’s Head ofBusiness and Legal Affairs, adds: “The Livingstoneteam was a solid and trusted sounding board forthe Company for more than four years, but reallyshowed their exceptional value when the Companybegan exit discussions with Cineworld.“We felt the entire team expertly navigatednegotiations, both between the Companyshareholders and with Cineworld. Having knownall of the parties involved for many years,Livingstone was acutely aware of the dynamicsneeded to ensure a successful transaction. Fora bid lacking competitive tension, Livingstoneexcelled at keeping momentum behind the dealand securing full value for shareholders.”“This is a fantastic result for Lyn, her team andtheir investors,” says Cope-Thompson. “Cineworldis the natural home for City Screen, and being partof the larger group will enable it to capitalise on itsexciting growth opportunities.”Goleby adds: “We’re taking time to understandeach other and to explore the possible areas whereintegration will help the respective offers. We’repreparing new projects for construction, will bebuilding at least two new sites this year and havehad the okay for all our key investment projects.Exciting times!”Contact:Simon Cope-Thompson, Partner,Livingstone LondonT: +44 (0)20 7484 4706,E: sct@livingstonepartners.co.ukChristopher Jones, Director,Livingstone LondonT: +44 (0)20 7484 4724,E: jones@livingstonepartners.co.uk8 // WWW.LIVINGSTONEPARTNERS.COM // SPRING 2013

SINCE THE FINANCIAL CRISIS, THE UK’S MID-MARKETPRIVATE EQUITY COMMUNITY HAS CHANGED ITS STANCEIN RELATION TO MANAGING PORTFOLIO COMPANIES ANDMAKING NEW INVESTMENTS, SAYS KIMBERLY ROMAINECOMMENTIMAGE: GETTYAnew economic backdrop has emerged sincethe onset of the financial crisis. Slowgrowth, increased regulation and bankcaution have collectively made life tough forSMEs trying to build businesses, as well as theprivate equity firms they partner.As a result of this, the volume of private equitydeals has plummeted since 2008, losing nearlytwo-thirds of its value for two consecutive years:European buy-outs plunged from €217 billion in2007 to just €80 billion in 2008 and €30 billionin 2009, according to unquote” data. Thesituation has been more stable since 2010, withvalues hovering around the €70 billion markeach year.While the figures clearly suggest a drop-offin large deals, the mid-market has also beenaffected, with sponsors now focusing more thanever on finding the right businesses to back.While few private equity houses will readilyadmit to backing anything other than top-notchtargets, the truth is that pressure to deploycapital, as well as very liquid leverage markets,meant some businesses ill-equipped for buy-outsgot funding in the heady days of 2005 to 2008.Many of these companies now situncomfortably within sponsors’ portfolios,sometimes sucking resource away from morepromising businesses better poised for growth.Additionally, such ‘zombie’ businesses areencumbering some banks’ balance sheets andadd to lenders’ reticence to lend further.This ‘burnt fingers’ legacy means that onlythe most robust businesses with strong growthprospects are being considered for investmentnowadays. It also means fund-raising processesare taking longer.First, the name of the adviser marketing theinvestment opportunity is more important thanin the past, since investors are relying on advisersto properly prepare businesses for funding. Thisflight to quality means that, despite rhetoricabout reduced-leverage company valuations,deals transacting nowadays are going for fullprices, around the 7 to 7.5x mark.Second, funding must be considered in moreimaginative ways. It used to be that banksprovided senior debt, private equity firmsprovided the equity and mezzanine lenders filledany gap left in between. Now, with the lattertwo more difficult to come by, it is increasinglycommon for a sponsor to underwrite the entiredeal value in order to win it, with a view torefinancing later.Sometimes the bank is lined up simultaneouslyand formally brought on board just weeks later,as was the case with RJD Partners’ £25 million2008 buy-out of Ipes. In this case, RJDunderwrote the deal with managementreinvestment and brought Lloyds TSB CorporateMarkets on board less than two months laterwith a £10 million package.“The name of the adviser marketingthe investment opportunity is moreimportant than in the past”This ‘bridging’ was reported to be the first ofits kind and has grown in prominence since.There is evidence recently of bridges spanninglonger periods of time. Most recently, InflexionPrivate Equity waited a full year beforerefinancing Natural Products Worldwide, a2012 buy-out, with debt from Clydesdale. Inthis instance, a new management team wasintroduced after the initial deal and given timeto get the business on the right footing beforetaking on external debt.Debt is no longer simply a local matter, either– US lenders are increasingly looking to Europefor targets to back. Whereas previously, a US‘angle’ was necessary to attract the banksor funds, this has relaxed and more uppermid-market UK businesses are finding theyare on the radars of Stateside lenders.Finally, as there is always an eye on exit withprivate equity, there is a constant focus on howto build a business that will appeal to a corporateacquirer in due course. With sclerotic growth setto continue in European and US markets, buyerslook for emerging markets exposure to capitaliseon, so sponsors will seek out opportunities to buyand build platforms beyond Europe. Where theydon’t have their own offices, they may look totheir advisers for assistance.Altogether, the bulk of changes have been areversion to the basic ‘hands-on value-add’ thatprivate equity has long prided itself on.Kimberly Romaine is Editor-in-Chief at Europeanprivate equity research specialists unquote”WWW.LIVINGSTONEPARTNERS.COM // SPRING 2013 // 9

SECTOR FOCUS: IT SERVICESAhead inthe cloudLivingstone recently hosted its latest in a series of industryround-table lunches focused on the IT services sector, atwhich leading industry figures gathered to discuss trends inthe market and the optimal ways to build and capture value.Two recent deals – the MBO of AVM and the sale of Worldstone– illustrate some of the topics discussed at these eventsIn the private room of The Delaunay restaurant in London,a group of seasoned entrepreneurs, senior executivesfrom multinational groups and investors gathered withLivingstone’s Tech team to discuss the latest trends in theIT services industry.The themes they discussed are highlighted by two recenttransactions on which Livingstone advised; the sale of AVM,backed by Octopus Private Equity, to a secondary buy-out backedby Alcuin Capital, and the sale of privately-owned Worldstoneto Jersey Telecom (JT).REMOTE POSSIBILITIESThere was consensus around the discussion table that cloudbasedservice provision is, and will remain, a major driver ofgrowth, opening up new opportunities as more services can behosted and managed remotely.AVM’s nascent cloud offering was a good example, allowingremote management of AV infrastructure for clients with globalactivities, enabling them to replace big-ticket capital expenditurewith modest ongoing operating costs. At the time of the deal, itwas a small part of AVM’s overall business, and therefore not theprimary value driver. However, it was seen to offer excitingstrategic upside, increasing overall interest in the opportunity.But AVM was a buy-out; if the transaction had been a strategicsale, value might have been captured through an earn-out linked tofuture cloud revenues. For some owners and buyers, earn-outs canwork to deliver extra value or bridge a gap. In other transactions,they can be an impediment to integrating the two companiesquickly. In the case of Worldstone, as they completed their diligenceon the company, JT became increasingly comfortable with thesolidity of the business and excited about the potential synergiesintegration would unlock. Livingstone eventually agreed a‘clean’ deal for the owners, rather than linking value to acontingent earn-out.SHOW ME THE SYNERGYThis highlights the importance of synergy potential in aconsolidating market like IT services and this was key to JT’sinterest in Worldstone. Simon Cope-Thompson, Partner atLivingstone London, who led the transaction, explains: “We couldsee a range of synergies, which would benefit the customers ofboth companies, and had the potential to drive increasedrevenues as well.”Deals in the spotlightAVM is the UK’s leading provider of visual communicationssolutions and operates at the forefront of the unifiedcommunications market. Established in 1990, it providesvideo conferencing and AV services, including supportingcomplex IP-based video networks,and managing andmaintaining telepresence suites.Worldstone is a managed services provider specialising invoice, data, networking, contact centre and collaborationsolutions. Founded in 1995 by CEO Suresh Punjabi,Worldstone works with an expanding global customerbase from its offices in the City of London.10 // WWW.LIVINGSTONEPARTNERS.COM // SPRING 2013

Contact:Simon Cope-Thompson, Partner, Livingstone LondonT: +44 (0)20 7484 4706, E: sct@livingstonepartners.co.ukTom Phipps, Director, Livingstone LondonT: +44 (0)20 7484 4717, E: phipps@livingstonepartners.co.ukWWW.LIVINGSTONEPARTNERS.COM // SPRING 2013 // 11

SECTOR FOCUS: IT SERVICESThe acquisition opened up implementation, management andsupport facilities for JT’s customers in the UK, Europe, the USand Asia. Worldstone’s offices in the City of London offered JT anattractive strategic presence in a key location, and its data andnetworking expertise should see JT up-sell and cross-sell its moretraditional clients.Acquisition synergies were also key to Alcuin’s investmentin AVM, although in a different way. AVM’s growth had beenaccelerated by a number of bolt-on deals, and acquisitions werea key part of the ongoing investment story. AVM had alreadylined up a deal with UK rival Impact Marcom, to be completedsoon after the buy-out with the investment Alcuin could provide.The deal done, the combined business is now the clear leader inthe UK market by scale, reach and capability, and is of sufficientsize to appeal to a growing number of acquirers keen to use it asa point of entry into Europe.BIG DATA, BIG DATA CENTREAnother topic the round-table attendees discussed at lengthwas the strategic decision for IT services providers to own oroutsource data centres, especially given their expense and capitalcommitment. Some clients want to see a service provider controlits own physical assets, while others are more focused on overallnetwork security. Along with security, disaster recovery andbusiness continuity are becoming more important as clientstransfer data off their own sites.EXITING TO GROWOn the softer side, the gatherings discussed at length how manyentrepreneurs are not looking at a transaction to retire, but tobring in a new business partner to take their business to the nextlevel or help bankroll their next venture.BY THE END, THEQUESTION ON MANYLIPS WAS: WHEN DOESA BUSINESS BECOMETOO BIG TO SELL?The sale of AVM allowed its Chairman and its investor,Octopus, to exit completely, but CEO Edward Cook is staying withthe company to drive its growth. Alcuin is backing his vision, andfor him, ‘life after the deal’ means integrating Impact andpursuing further expansion. “This transaction gives us the addedfirepower to take AVM to the next level,” he says. His new partnersat Alcuin agree: Partner Adrian Lurie says: “We are delighted tobe investing alongside Ed and his team to support the continuingsuccess of AVM.”Although the sale of Worldstone was an exit for founder SureshPunjabi, who left when the deal was done, he isn’t retiring either.Still relatively young, he and his co-founder are exploring ways toinvest in other exciting non-competing businesses in the broadertech and telecoms space.“This is an exciting move for Worldstone, from both an employeeand customer perspective,” he explains. “JT and Worldstone are aperfect fit, and now it has a fantastic platform to continue to dowhat it is best at – but on a much larger scale. For me, it’s anopportunity to look at other things. It’s a beginning, not an end.”Discussed ’round the tableIn addition to exploring the trends behind and opportunities created by the cloud, and the strategic role of data centres,attendees also discussed:Private equity investment and exit: Although some privateequity (PE) houses have historically had their fingers burnt inthe sector, a number have current investments in successfulplatforms and are actively looking for bolt-on acquisitions.Several other PE houses are still looking for the right platformfor them to enter the sector. The majority of attendees feltthat the high levels of PE interest remain justified, and thatinvestment would continue, both in buy-and-build platformsand in bolt-on acquisitions, as the fragmented nature of themarket offers ample acquisition opportunities.The question then becomes exit – as acute for PE houses as itis for entrepreneurs. For owner managers, sales to PE housesand their platforms still offer attractive options, while for thePE platforms themselves, the most likely routes are sale to anoverseas trade buyer or secondary MBO.Building shareholder value: A broader debate on valuecreation ensued, and it became clear that ownership of strategicIP, a differentiated and well-positioned service offering, andscale, remain key value drivers. These help generate strategicinterest and premium valuations from acquirers. There is muchless appetite for acquiring generic ‘me too’ players as anythingother than bolt-ons for scale, and this means they are not ableto command the same valuation levels as their moredifferentiated peers.Opportunity: Attendees were unanimous on the scale of theopportunity within the IT services sector; by the end of thediscussion, the question on many lips was: when does abusiness become too big to sell? A high-quality problemto have, and testimony to the strength of the sector.12 // WWW.LIVINGSTONEPARTNERS.COM // SPRING 2013

Safe and soundAs CEO of security products and solutionsprovider Gunnebo, Per Borgvall is steeringthe company towards growth in newmarkets. He spoke to James de Mellowabout the company’s strategy and howacquisitions are vital to its successCLIENT HEROWHAT IS YOUR STRATEGY AT GUNNEBO?I joined Gunnebo as CEO in March 2009 and, sincethen, my strategy has been to transform the companyfrom a European security products and solutionsprovider into a global one. Four years ago, Gunnebo only had asmall presence in a number of its markets and, essentially, we aretrying to move the point of gravity toward being a global business,with a focus on the growth economies of the world.Within that process, we need to support our growth – and thespeed of expansion – with acquisitions. Our acquisition strategyalso supports improvements in Gunnebo’s value chain, by addingbusinesses that give us access to new markets.HOW DID YOUR RELATIONSHIP WITH LIVINGSTONE BEGIN?I first encountered Livingstone during my time with IMI, a Britishindustrial group, when I was Divisional President of IndoorClimate from 1997-2004. But my relationship with them reallystarted when I moved to being CEO of Fagerhult, a Swedishcompany in the lighting and fixture industry. Again, with a strategyof increasing globalisation, the UK was a key market into whichI was keen to acquire, so I contacted Livingstone, and they helpedwith the successful acquisition of Whitecroft Lighting in 2005.Then, in August 2012, with support from Livingstone, Gunnebosuccessfully acquired Hamilton Safe.MORTEN BRAKESTADWHICH MARKETS ARE IMPORTANT TO GUNNEBO AND WHERE AREYOU LOOKING TO EXPAND NEXT?The US market is especially important to Gunnebo and the banksare a major customer group there, so our acquisition of HamiltonSafe was very strategic. Gunnebo had been looking for four years todo something in the States and already enjoyed a good relationshipwith Hamilton Safe. Wrapping up the deal was something weneeded Livingstone’s help with, though. For me, turning toLivingstone was the obvious step.This acquisition has added 10% to Gunnebo’s top line, makingthe company the second largest in the physical security sector in theStates. Hamilton Safe is a quality business, with good cash flowsand profits that are above the average for its peers.Acquiring more businesses in the US is on my wishlist andhas been for the past two years. When it comes to timing andacquisition, if you don’t have that pipeline of potential offers thenyou may miss opportunities. We are also looking to move furtherinto markets in India, Indonesia and Australia. If we can, we arealso happy to make acquisitions in the UK and Germany.My philosophy is that the relationship with Livingstone issomething that works, and I believe that it is something thatwill continue in the future.WWW.LIVINGSTONEPARTNERS.COM // SPRING 2013 // 13

Minefield saleThe sale of a mine disposalbusiness completes a seriesof transactions in whichLivingstone’s long-standingrelationship with its seniormanagement proved critical,reports James GavinDEAL AT A GLANCECLIENT: MINETECH INTERNATIONALSECTOR: DEFENCE & SECURITYDEAL TYPE: SALEBUYER: DYNASAFE AREA CLEARANCE GROUPFew people voluntarilywalk into a minefield,so how do you find anacquirer for a companythat specialises in mineclearance? This was thechallenge presented to theteam at Livingstone by thesale of MineTech International.MineTech provides landmine clearanceand explosive ordnance disposal services forgovernments, non-governmental organisationsand private-sector businesses within the oiland gas sector across 90 countries, includingIraq, Kuwait and Afghanistan.MineTech was a subsidiary ofFrontierMEDEX, a specialist provider ofremote site medical, health, safety and mineclearance services, formed from the merger ofExploration Logistics (Exlogs) and MEDEX.Livingstone used its cross-border skills andexperience of complex deals to sell MineTechto Dynasafe Area Clearance Group GmbH,backed by German private equity housePerusa Partners.SALE AWAYLivingstone was originally appointed by theExlogs management team to find an investorto support its aspirations for growth.“We started working with them back in2009,” explains Alex John, Director atLivingstone London. “A couple of foundingdirectors had stepped back from thebusiness and wanted to cash out, so we lookedfor a private equity firm to provide fundsto buy them out. The company was alsointerested in making an acquisition andit was growing quite rapidly, so it neededfurther funding to support that. We wentthrough quite a lengthy process and endedup doing a deal with MML Capital.”Exlogs CEO Timothy Mitchell says: “A lotof work needed to be done to pull together acomprehensive set of historic financials and,particularly, a robust set of projections. Wedidn’t have the internal resources capableof doing that so Livingstone really steppedin with sleeves rolled up to help us pulltogether a business model, which we didin December 2009.”A number of investors expressed stronginterest, but MML Capital emerged as an earlyleader and proved committed and tenacious.“We worked on the deal solidly from spring toDecember 2010, going through a lengthyprocess of due diligence before the dealcompleted,” says Mitchell.When the Exlogs deal was closed, Mitchelland the Livingstone team moved swiftly on tothe next transaction: the merger with MEDEXGlobal Solutions. Completed in March 2011,this merger saw the enlarged organisationrenamed the FrontierMEDEX Group.Complexity was the theme all along andLivingstone’s strong relationships andtechnical expertise were key. “There was awildly complex structure, with a minorityholding by MML, six or seven different debtinstruments and three or four different equityinstruments to balance out everybody’sinterests,” says Mitchell.With the group performing strongly, MML’sthoughts turned to its exit, when Livingstone’sadvice would again prove essential. Althoughthere was a great deal of interest in acquiring14 // WWW.LIVINGSTONEPARTNERS.COM // SPRING 2013

SECTOR: DEFENCE & SECURITYLIVINGSTONE USED ITS CROSS-BORDERSKILLS AND EXPERIENCE OF DOINGCOMPLEX DEALS TO SELL MINETECHTO DYNASAFEDANContact:Alex John, Director, Livingstone LondonT: +44 (0)20 7484 4712E: john@livingstonepartners.co.ukPhillip McCreanor, Partner,Livingstone LondonT: +44 (0)20 7484 4725E: mccreanor@livingstonepartners.co.ukFrontierMEDEX, few of these acquirers werekeen to move into mine clearance, and it wasclear that having the two activities undercommon ownership would make an exit moredifficult. It was also clear that reorganising thebusiness and separating them into separateentities would generate greater levels of interestand greater value overall.THE LAST PIECEIn October 2011, a US health insurance companyacquired FrontierMEDEX, leaving MineTech asthe last remaining piece of the group. Livingstoneran a discreet and tightly managed process, whichculminated in the sale to Dynasafe.Livingstone’s relationship-building was criticalevery step of the way.“I’ve dealt with dozens of corporate financehouses over the years, but what struck me aboutLivingstone and MML was that they have aproper partnership mentality,” says Mitchell. “TheLivingstone team took time to understand meand the founders personally, in order to knowwhat would work. And they did some goodmatchmaking by connecting us to MML.”Phillip McCreanor, Partner at LivingstoneLondon, notes with pride the degree of hardwork it took to get the asset over the line. “In theenvironment we are in, no deal is easy, but thisone probably took longer than most. However,our ability to source buyers in different parts ofthe world and find different solutions for clients,whether for stellar assets or at the morechallenging end of the curve, came to the fore.We also take pride that an investment thesisput to MML at the start has come spectacularlygood for one of our key PE relationships.”MML Director Luke Jones backs this point,characterising the sale of the mine clearancebusiness as the culmination of a journey for thetwo firms. “Livingstone introduced us to the deal,we got in and did what we said we would do, andthen it put together the final piece of the jigsaw inhelping to dispose of MineTech,” says Jones.Livingstone’s global reach, experience inworking with overseas buyers, and the sheertenacity demonstrated by the advisory teamwere critical to the success, Jones explains.“They worked hard with us to get the bestdeal,” he adds.The end result is a mine clearance businessthat sits neatly in the portfolio of a specialistfirm that will use it strategically, and some happyinvestors who have seen through a complexseries of deals, ending up with an impressivereturn on their investment.WWW.LIVINGSTONEPARTNERS.COM // SPRING 2013 // 15

SECTOR: CONSUMERGalloping aheadFinding the right buyer for equestrian clothing and accessorieswholesaler Hypo Wholesale was only part of the brief forLivingstone, who also had to oversee a carve-out from theDutch company’s holding groupWhen Livingstone Partners was appointedto assess strategic options for Dutchequestrian wholesaler Hypo Groep atthe beginning of 2012, founder SteefDuijndam was considering a number of options.Having developed some of Europe’s strongestbrands in the equestrian equipment and fashionsectors, he was keen to diversify risk by sellingsome or all of the businesses, but had not yetdecided what tack to take.A year later, Livingstone had not only advisedon the sale of a majority stake of the wholesalebusiness, but also project-managed a complexcarve-out from Duijndam’s holding company.Duijndam, who comes from a family that ownssome of Holland’s leading stables, launched hisequestrian products retail business, Hypo Groep,in 1985, and built it steadily through both organicgrowth and bolt-on acquisitions. Most recently,the group had taken over the activities ofNederinum Holland/Imperial Riding, one ofthe oldest Dutch wholesalers of hardware forequestrian sport. The group’s wholesale division,which sells equestrian fashion products andaccessories to 2,000 equestrian retailers andinternet and mail order companies throughoutEurope, also had the potential to expand intomainstream fashion markets.With this in mind, Duijndam had reached apoint at which he had to decide on the best wayfor the Hypo Group of Companies to pursue thisopportunity and the others open to it. He askedLivingstone to consider the strategic options thatwere open to the group, and then to find aninvestor with the right level of professionalinsight – as well as the financial backing – to turnHypo Wholesale from a niche entrepreneurialbusiness into a branded fashion company.16 // WWW.LIVINGSTONEPARTNERS.COM // SPRING 2013

LAWRIE HOLMESDEAL AT A GLANCECLIENT: HYPO WHOLESALE B.V.SECTOR: CONSUMERDEAL TYPE: SALE, BUY-IN BUY-OUTBUYER: MBO TEAM/VENDIS CAPITALA GOOD FEELINGJan Willem de Lange, Managing Director of HypoWholesale, had only recently been appointed todrive the growth of the company. He says thatChristian Grandin, Partner, and Johannes Faber,Senior Consultant at Livingstone Düsseldorf,grasped the brief at their first meeting. He hopedthey would be able to attract investor interest inGermany, where the group’s products, includingGerman brand euro-star, had flourished. “Theyimmediately gave us a good feeling that they couldwork well with Steef and I, two very differentpeople, in defining our goals,” says de Lange.Livingstone developed a carefully researchedlist of potential buyers and investors that was thenwhittled down to a short list of five. “They guidedus well with developing the right documentsand gave good counsel on how to prepare formeetings,” says de Lange. “They also advised uswell on our own due diligence – ensuring that allthe right information was in place, which wasthen compiled for a data room we created. Theythen acted as a gatekeeper for us.”After establishing that an owner andmanagement buy-out of the business backed bya new majority investor would be the preferredoutcome, the challenge was to find a financialpartner with the right pedigree to support thewider strategy, according to Grandin.“We needed to find a partner who would knowhow to support a business that had been growingwith certain brands at a rate of more than 50%a year for several years, and who could helpmanagement to identify and pursue targetedgrowth into new regional markets and segments,”he says. “Based on the successful positioning ofthe brands around the polo sporting lifestyle, thechosen investor would also help the business toestablish its main fashion brand in the generalfashion retail market.”Vendis Capital, a Belgian private equity fundfocused exclusively on the consumer sector inEurope, emerged as the preferred bidder, andacquired a majority stake in the business at theend of 2012. Founded in 2009 by the formermanagement team of Mitiska, an investmentcompany specialising in the retail sector, the fundhas a capital base of more than €100 million.“We had spoken to several private equity firmsin Germany, France and of course the Beneluxregion, but with the takeover by Vendis, itultimately turned out to be a local story,” saysGrandin. “The advantage to Vendis was that theyunderstood the business opportunity clearly, andthere were no language barriers to deal with.”Duijndam adds: “Vendis Capital can supportthe growth of our company, and I have alreadyseen the additional consumer sector expertisethey are bringing to the table. Vendis is giving meand my team the flexibility to continue to lead thecompany’s independent development from ashareholder’s position.”A COMPLEX CARVE-OUTAlthough the sale was agreed, the other majoraspect of the brief – managing the carve-out of thewholesale business from the rest of the group –was only just starting. The Livingstone teamproject-managed a team of specialist advisers inthis complex process. “It wasn’t a straightforwardtransaction,” explains Grandin. “There was plentyof separation of people and IT structures in whatis a very lean organisation.”de Lange fully appreciates the efforts thatLivingstone went to in order to deliver therestructuring. “We gave the team the raw dataand they helped us undertake some parts of theproject. Using the right lawyers and accountants,they created a real team around us, working withour own accountants. If we didn’t understandsomething, they fully supported us.”Although the sale has completed, theLivingstone team will continue to work withde Lange and his team in the months ahead.“We expect them to still support us post-deal,including work on ensuring the managementearn-out is successful,” de Lange concludes.Contact:Christian Grandin, Partner,Livingstone DüsseldorfT: + 49 211 300 495 21,E: grandin@livingstonepartners.deJohannes Faber, Senior Consultant,Livingstone DüsseldorfT: + 49 211 300 495 33,E: faber@livingstonepartners.deWWW.LIVINGSTONEPARTNERS.COM // SPRING 2013 // 17

SECTOR FOCUS: GREEN ENERGYThe future of renewableenergy in EuropeDespite recent financial turmoil, Europe’s commitment to a greener futureremains undiminished. But the transition from public subsidy to privateinvestment still requires a stable policy frameworkIn 2011, global investment in renewablepower and fuels increased by 17% to a record$257 billion, representing a sixfold increaseon 2004 levels. However, 2012 also sawblack clouds gather over the sector, with growingfinancial, economic and legal tensions emergingbetween EU policymakers, sovereign governments,renewable investors and both the newer ‘green’and more traditional fossil-fuel based operators.These changes create opportunities as well aschallenges and, to explore these, LivingstonePartners hosted one of the year’s best-attendedand most insightful conferences on the future ofthe renewable energy sector in Europe, incollaboration with communications agency KreabGavin Anderson and Cuatrecasas, a leadingSpanish law firm and expert in the sector.Speakers included the Director of New andRenewable Energy Sources at the EuropeanCommission, Marie Donnelly; the SpanishMinister of Energy, Don José Manuel Soria; theSpanish Secretary of State for the Environment,Don Federico Ramos de Armas; representatives ofthe World Bank; and chairmen and directorsfrom all of the EU’s major renewable associationsand leading global companies, including GeneralElectric, Enel, Acciona, FRV and Iberdrola.Above: José Manuel Soria, Spanish Minister for Industry, Energy and TourismTHE CHALLENGES AHEADThe conference considered several keychallenges facing the sector. It was widelyaccepted that two of the most critical issuesto be addressed in developing a sustainablepan-European renewable sector are: theintermittency of supply of each renewablesource, making effective combinations key; andthe physical distance between the location ofenergy generation and consumption.Member states need to work together so thatrenewables can be generated wherever they can18 // WWW.LIVINGSTONEPARTNERS.COM // SPRING 2013

RENEWABLE ENERGY REMAINSA GLOBAL INDUSTRY WITHEXCELLENT RETURNS ON CAPITALbe produced cheapest and then supplied acrossa Europe-wide grid. Only a single market forrenewables will allow the green energy switchto work and the cost of supply to becomecompetitive. But who should pay for supportingthe continued investment required to achieve theregion’s, rather than individual countries’, statedobjectives, and how should the benefits be shared?The conference also considered the importanceof financing these projects, and the roles ofgovernment tariff and subsidy support. In theshort term, a major challenge facing countrieswith a successful renewables sector is that greaterlevels of renewable energy output have made thegenerous levels of subsidy initially designed tospur investment unsustainable. The SpanishGovernment has recently committed to trying toeliminate the ‘electricity tariff deficit’, and JoséManuel Soria was quite explicit in his conferencespeech that “the cost of producing renewableenergy needs to be reduced.” Yet many whoinvested on the basis of promised tariffs thathave subsequently been eroded have soughtlegal redress through the courts.This highlights the difficulty of consistency: itis impossible to attract project finance withoutpredictable cash flows, and changing legislationthreatens this. If the sector is to continue to attractthird-party investment, rather than rely on WorldBank or government aid, it is critical to establishstable, reliable legislation. Without private capital,the burden on member states to supportcontinued investment will be unsustainable.NEW TECHNOLOGIES: AN IMPORTANT ROLEEncouraging and positive analysis came fromboth the EC and the World Bank. Donnellyinsisted on the commitment of the EU to deliveron its renewable energy targets for 2020 andexpressed her belief that the region was on trackAbove, left to right: Neil Collen, Partner, Livingstone Madrid; Luis Pérez de Ayala, Partner, CuatrecasasGonçalves Pereira; José Manuel Soria, Spanish Minister for Industry, Energy and Tourism; Eugenio MartínezBravo, Managing Partner, Iberia, of Kreab Gavin Andersonto achieve or exceed its goals. She reiterated thatpan-European grid integration and optimisationis vital, and that technological innovation ishelping to drive this.The conference shared a common view ofa fast-moving, fast-growing industry, withimmense potential in the medium term, andwith significant technological breakthroughsanticipated in the near term. However, it is clearthat the success story of the last decade is beingjeopardised by an immediate lack of finance –both public and private – an unstable legislativeframework across many countries and theirreconcilable economic interests of thoseentrenched in traditional energy and thosepromoting the green future.“Renewable energy remains a global industrywith excellent returns on capital and a scale ofproduct innovation that continues to attractindustrial and private equity investors. But theindustry is still so young that opportunities existto achieve key positions in a range of technologiesand the creation of specific projects that willprove both highly profitable and beneficial to thelong-term future of the planet,” comments NeilCollen, Partner at Livingstone Madrid.Kristian Gavan, Director at LivingstoneLondon, adds: “Investors need to be supported,not only through fiscal incentives but, moreimportantly, by governments offering policystability and a clear vision for the Europeanrenewables industry through 2020 and beyond.”Above: Marie Donnelly, Director for New and RenewableEnergy Sources at the European CommissionContact:Neil Collen, Partner, Livingstone MadridT: +34 963 524 504,E: collen@livingstonepartners.esKristian Gavan, Director,Livingstone LondonT: +44 (0)20 7484 4747,E: gavan@livingstonepartners.co.ukWWW.LIVINGSTONEPARTNERS.COM // SPRING 2013 // 19

Contact:Joe Greenwood, Managing Director, Livingstone ChicagoT: +1 312 670 5913, E: greenwood@livingstonepartners.comBill Troup, Managing Director, Debt Advisory,Livingstone LondonT: +44 (0)20 7484 4722, E: troup@livingstonepartners.co.ukDr. André Schröer, Director, Livingstone DüsseldorfT: +49 211 300 495 40, E: schroeer@livingstonepartners.deWALTER NEWTON

A platform for recoverySPECIAL SITUATIONSHow Livingstone’s Special Situations team can help good companies with too muchdebt return to stability and protect value for all stakeholdersIt may seem like common sense that a company trapped undertoo much debt, unable to service its interest obligations andbreaching bank covenants, shouldn’t be able to survive. However,many of these companies are fundamentally sound businesses;they have just been overwhelmed by the debt and cost structuresput in place before the credit crisis.If lenders pull the plug on such a business, they may jeopardisea full recovery, shareholders’ equity value will be wiped out, andmanagement and staff will lose their jobs. The business coulddisappear altogether, causing irreparable damage to suppliers andcustomers. It’s hard to see how anyone gains from such a situation,but time is often short and lenders may regard liquidation as the pathof least resistance. They need to be shown that there are alternatives.THERE IS A BETTER WAYBy persuading the banks that there is better way, Livingstone’sSpecial Situations team can frequently save a company frominsolvency, give management the opportunity to continue workingwith the company, potentially help current shareholders retain equityvalue, and maximise recovery for the bank. The outcomes can involverefinancing with new lenders, an outright sale to a strategic acquirer,or bringing in new equity providers to restore the business to growth.The recent sale of American SportWorks (ASW) is a good exampleof the latter. Established in 1959, ASW manufactures and distributesoff-road utility vehicles and go-karts for a variety of US retailers.ASW’s business had declined steadily over recent years amidthe broader macroeconomic crisis and reduction in discretionaryconsumer spending. The business was also saddled with high debtlevels from a previous buy-out at the height of the M&A market.The business was struggling to keep up its debt service and hadlittle or no liquidity to fund growth.The team turned to Joe Greenwood, Managing Director atLivingstone Chicago, who quickly assessed the company’s strategicalternatives. It was readily apparent that a sale of the business wasthe only way to maximise value for all stakeholders, and Livingstoneidentified a universe of potential partners for the company, includingfinancial investors with an appetite for distressed businesses,consumer-focused private equity houses and strategic acquirers.Ambassador Enterprises, a Fort Wayne, Indiana-based familyoffice that has experience acquiring distressed assets, expressed astrong interest in working towards a solution with the company andwas willing to move rapidly to get ahead of the broader process.While moving quickly is important, competition is also key todriving better terms for stakeholders. Livingstone created a ‘dualpath’ by expediting the due diligence with Ambassador, while at thesame time continuing to market the business to other potentialbuyers. Livingstone successfully negotiated and closed the sale ofASW to Ambassador Enterprises in November 2012.The benefits of this were clear: the staff and employees retainedtheir jobs; ASW’s senior lender was paid off in full; the subordinatedlender received cash consideration; and the company’s vendors andsuppliers will still have a market to sell the product. And the companyitself has a new, supportive partner, as Greenwood explains: “Thispartnership will enable ASW to stimulate its market expansion andmaintain its leadership position in the UTV and go-kart market.”STRATEGIC STEPSSometimes, a strategic acquirer rather than a financial investor isthe most appropriate way to liberate a company from a bad balancesheet. Trade buyers have embedded industry knowledge and don’tneed to do as much diligence, and have other operational resourcesto draw upon to help return underperforming businesses to growth.Integration synergies can lower the cost base, making an existinglevel of trading more sustainable.Acquiring a company that has got into trouble can also be acost-effective way for a company to move into a new geography.The acquisition of Intensiv-Filter Group by HimenviroEnvironmental Technologies of India demonstrates this well.Established in 1922, Intensiv-Filter is an international plantmanufacturer headquartered in Velbert-Langenberg in NorthRhine-Westphalia, Germany, which designs, develops, manufacturesand installs dust filters for industrial applications. It is a pioneer inenergy-efficient, environmentally friendly dust filtration solutions,and has an international customer base of blue-chip companies.While it had historically generated sales of about €50 milliona year, Intensiv-Filter had struggled to compete with lower-costinternational offerings and had tipped into administration. Theadministrator appointed Livingstone to run a carefully structuredsale process, while maintaining the support of the company’screditors and Workers’ Council.In a very short timeframe, Livingstone Düsseldorf engaged with70 potential strategic acquirers and competitors around the world.The time pressure and the complexity of Intensiv-Filter’s businessmodel made the process challenging, but Himenviro drew on itsunderstanding of the sector to create a plan to return the company togrowth. Manoj Garg, CEO of Himenviro, explains: “We’re convincedthat we will be able to reposition Intensiv-Filter, with its outstandingreputation in the industry, and put it on a sound footing again.”FAST AND FAVOURABLEDr. André Schröer, Director at Livingstone Düsseldorf, comments:“We are very pleased to have found a strong partner for Intensiv-Filter in just eight weeks, and that we were able to help one of theworld’s oldest filter manufacturers at this decisive step. With the saleto Himenviro Environmental Technologies, we saved about 60work-places in Velbert-Langenberg and have found an investorwho will lead the company back towards a successful path again.”As these transactions show, Livingstone’s experienced SpecialSituations team can help move a good business beyond its shorttermtrading difficulties and put it back on a path to stability.WWW.LIVINGSTONEPARTNERS.COM // SPRING 2013 // 21

SECTOR: FINANCIAL SERVICESBanking on changeThe recent dividend recap of insurance software business iprism is the thirdtransaction founder Gary Burke has completed with the Livingstone Partners team,and highlights the value of a trusted relationship with a corporate finance adviserLaunched in 2006 by former insurancebroker Gary Burke, iprism is an insuranceintermediary that provides new policies andrenewals to brokers, on behalf of leadinginsurers such as Axa and Aviva. It hasrevolutionised the speed and efficiency of bothprice testing and purchasing. Its proprietaryonline platform generates comparative quotesand policy documentation, which can be chosenand bought in minutes.Burke had worked with Eleanor Wilkinson,Director at Livingstone London, on the sale of hisprevious business, Home & Legacy, a high-networthhousehold insurance intermediary that wasacquired by Allianz in 2006 for close to £60 million.“Eleanor was the first person I turned to once iprismhad reached a point where it could benefit from anew investor,” says Burke. “I’m very glad I did; theLivingstone team added value throughout.”During 2010, Livingstone introduced Burketo a number of potential investors keen to backTHIS SHOWSHOW IMPORTANTIT IS FOR AN ADVISERTO GET CLOSETO ITS CLIENTSiprism. Magenta Partners, which invests in highgrowthentrepreneurial e-commerce businesses,quickly emerged as the preferred partner. iprismwent from break-even at the point of Magenta’sinvestment to achieving over £2 million EBITDAin 2011 and more than £4 million in 2012.This rapid growth in profitability meant thatiprism had become potentially more attractiveto lending banks and that, by raising bank debt,it could repay Burke and Magenta’s loan notesissued as part of the 2010 transaction. But Burkeknew that banks were still nervous about‘dividend recaps’ – deals that see new bank debtbeing used to repay existing investors – and againsought Livingstone’s help, as he explains.“Despite the fact that iprism is a great successstory, the current financial environment means itisn’t easy to get cash out of a company. Livingstonedid a fantastic job in putting the presentationtogether, and identifying and dealing with anexcellent short list of potential banking partners.”Knowing the business so well enabledLivingstone to field questions from potentiallenders and reduce the burden of the transactionon Burke and the iprism management team.The deal, says Wilkinson, had its challenges.“Despite the fact that iprism has numerousqualities attractive to lenders, the company’shistory is still relatively short. Some banks mightnot be comfortable with just a couple of years ofprofitable trading and would prefer a longer trackrecord. However, all the other aspects of theiprism business model outweighed this.”In order to find the right banking partner foriprism, Wilkinson and Bill Troup, ManagingDirector of Debt Advisory at Livingstone London,created and managed a competitive process.“A number of banks and alternative lenderswere approached,” says Troup, “but Royal Bankof Scotland’s FIG team (RBS) was the mostappropriate for the deal, because it understandsthe insurance sector and its potential. iprism’sprofitability, strong cash generation and visibilityof earnings deliver the perfect characteristics tosupport leveraged debt. This was an excellentopportunity to return cash early to Magenta,and the best option financially.”Burke says RBS has proved to be an excellentpartner, as the bank really understands whatiprism is about. “It is a great match, and thetechnical knowledge and banking experience BillTroup provided enabled us to perfect the debtstructure to suit both parties. Getting the right fitcan be difficult, but Bill and his team worked veryhard to ensure that all parties were happy.”Reflecting on this third deal together, Wilkinsonsays that Burke and his team are a pleasure towork with. “Gary has great vision; he can predictwhere the market is going and builds his businessaccordingly. I’m confident that we have structureda deal that will benefit all and enable iprism tocontinue its market-changing development.”Burke adds: “Identifying such a good matchfor iprism and RBS shows just how importantit is for an adviser to get close to its clients.Livingstone kept a tight rein on the process andthe deal has been an outstanding success.”Contact:CELIA MATHERDEAL AT A GLANCECLIENT: IPRISM UNDERWRITING AGENCY LTDSECTOR: FINANCIAL SERVICESDEAL TYPE: CAPITAL-RAISINGBUYER: ROYAL BANK OF SCOTLANDBill Troup, Managing Director,Debt Advisory, Livingstone LondonT: +44 (0)20 7484 4722,E: troup@livingstonepartners.co.ukEleanor Wilkinson, Director,Livingstone LondonT: +44 (0)20 7484 4742,E: wilkinson@livingstonepartners.co.ukIMAGES: GETTY, ISTOCKPHOTO22 // WWW.LIVINGSTONEPARTNERS.COM // SPRING 2013

DEBTWho is taking the credit?The banks have been criticised for not supporting the SME sector, and last year’sBreedon Report estimated the gap between future borrowing requirements anddebt capacity to be £190 billion. What does this mean for borrowers?Since the collapse of Lehman Brothers, banks have wrestledwith instability in the eurozone, sovereign debt issues andthe weak economy. They have also come under regulatorypressure to strengthen their balance sheets by increasingtheir capital ratios. Banks now need to hold more capital againsttheir loans, with the exact amount depending on the loans’performance and perceived risks. Sectors or loans perceived ashigher risk are more capital-intensive and drive down the banks’returns. To protect their returns and their capital, the banks aretrying to reduce their exposure to these areas.HOW HAS THIS AFFECTED THE BANKS’ BEHAVIOUR?Poor market conditions and depressed asset prices have limitedbanks’ abilities to exit or reduce higher-risk loans. Instead,borrowers were given two- or three-year extensions (‘amend andextend’) and an opportunity to benefit from an anticipated recoveryin market conditions. As these loans come around for repaymentagain, and the economic outlook remains poor, there may be lessappetite to extend. But for the borrowers in the ‘wrong’ sector,repaying or refinancing may not be easy; another bank might beno more enthusiastic to take on the account.As an alternative exit, the bank might sell the loan at a discountto a specialist debt provider. This leaves a borrower building a newrelationship with a party it hasn’t chosen and whose motives maynot be clear.A borrower that can’t refinance can ultimately be forced to sell thecompany in order to repay the bank. This may come as a shock tothe shareholders, particularly if the business is trading well and isservicing its debt, and the timing of the sale may not be optimalfrom a shareholder-value perspective. (See page 20 for more onthese ‘special situations’.)WHAT THIS MEANS FOR BORROWERSFor SMEs, cost of debt is not the issue – availability is. Thosefortunate borrowers judged ‘higher quality’ are still able toDealing with Debt ConferenceThursday 18 April 2013The Soho Hotel, 4 Richmond Mews, London W1D 3DHLivingstone Partners and international law firm Pinsent Masonsare hosting this conference, which will bring together leadingnames and sector experts from the debt, private equity and SMEmarkets to discuss the key trends and forecasts for 2013. Thisevent is for PE sponsors, owner managers, CEOs and FDs whoare responsible for raising or refinancing senior and mezzaninedebt or for managing relationships with credit providers.For further information, contact:Rosemarie LamannoT: +44 (0)20 7484 4700, E: lamanno@livingstonepartners.co.ukraise or refinance debt, but have to be ready for increased scrutiny oftheir business by the lender, lower loan-to-value ratios, lowermultiples of EBITDA, higher fees and margins, shorter maturitiesand longer timescales to complete a (re)financing.WHAT SHOULD BORROWERS DO?Prepare early and prepare well. Don’t assume refinancing or newdebt raising will be straightforward, even if the business is servicingits debt and the relationship with existing lenders appears strong.Existing borrowers need to articulate their plans clearly and startdiscussions with existing and potential new lenders well ahead ofmaturity. Borrowers should also explore alternative lenders. Thereare new lenders coming forward and gaining prominence withmezzanine debt and unitranche facilities. Asset-based lending,which carries a lower capital commitment, is increasingly popularand can help fill a funding gap. With credit still scarce, you needto maximise your options – and chances of success.IMAGE: GETTYWWW.LIVINGSTONEPARTNERS.COM // SPRING 2013 // 23

We’ve achieved results for these clientsWhat can we do for you?HORSE CENTER HOLLAND B.V.TASTE FESTIVALS LTDCM SKYELAKESHORE RECYCLINGSYSTEMS LLCMBO TEAM/VENDIS CAPITALSale of a market-leadingwholesaler of branded clothingand accessories for the equestriansport and lifestyle sector toVendis Capital inFebruary 2013.IMG WORLDWIDESale of the world’s leadingrestaurant-led food festival brandin January 2013.LJ CAPITALSale of a leading provider ofcorporate trust and fiduciaryservices in January 2013.TENSILE CAPITAL MANAGEMENT/COMMERCIAL BANKMerger and recapitalisation of twoUS environmental servicesproviders in December 2012.Livingstone initiated thetransaction, advised the vendorsand led the negotiations.Livingstone initiated thetransaction, advised the vendorsand led the negotiations.Livingstone initiated thetransaction, advised the vendorsand led the negotiations.Livingstone initiated thetransaction, advised the mergerparties, and assistedin the negotiations.WEBEX INC.TRINET COMMUNICATIONS, INC.DCL (HOLDINGS) LTDCITY SCREEN LTDBERTRAM CAPITALKGP LOGISTICSPLACES FOR PEOPLE GROUP LTDCINEWORLD PLCSale of a leading manufacturer ofspecialist equipment for webprocessing in December 2012.Acquisition of a leading integratedlogistics provider to the UStelecoms sector in December 2012.Sale of the UK’s leading privatesector operator of local authorityleisure centres to Places for Peoplein December 2012.Sale of the UK’s leadingindependent cinema operatorin December 2012.Livingstone initiated thetransaction, advised Webex andWynnchurch, and led thenegotiations.Livingstone advised the acquirer,KGP Logistics, and assisted inthe negotiations.Livingstone initiated thetransaction, advised managementand Sovereign Capital, andled the negotiations.Livingstone initiated thetransaction, advised the vendorsand led the negotiations.IPRISM UNDERWRITINGAGENCY LTDMINETECH INTERNATIONAL LTDAMERICAN SPORTWORKS LLCMARWYN GAMING LTDTHE ROYAL BANK OF SCOTLANDDebt raise for the UK’s leadingprovider of comparative SMEbusiness insurance inDecember 2012.DYNASAFE AREA CLEARANCEGROUP GmbHSale of one of the world’s leadingland mine clearance providers toDynasafe, backed by PerusaPartners, in December 2012.AMBASSADOR ENTERPRISESSale of a manufacturer anddistributor of off-road utilityvehicles and go-karts inNovember 2012.MERKUR CASINO UK LTDSale of one of the UK’s leading highstreet gaming operators to MerkurCasino UK, part of GauselmannGroup, in October 2012.Livingstone initiated thetransaction, advised the businessand led the negotiations.Livingstone initiated thetransaction, advised the vendorsand led the negotiations.Livingstone initiated thetransaction, advised AmericanSportWorks and assisted inthe negotiations.Livingstone advised the Board ofMarwyn Management Partners plc.www.livingstonepartners.com