Conference Magazine - GoingPublic.de - Deutsches Eigenkapitalforum

Corporate Financing
Acquisition finance for German medium-sized
businesses
LBO finance market offers opportunities for corporates
as well as PE companies
The current state of the German and European economy is
driven by the expectation of a new upcoming crisis or – if
not a crisis – more difficult economic market conditions
with reduced growth expectations. However, even in this
challenging environment, an interesting situation for acquisitions
and the financing of such has emerged and provides
opportunities for corporate buyers or private equity
investors to grow and possibly gain market shares.
M&A / LBO market environment
The market environment for M&A and LBO transactions –
for German medium-sized (“Mittelstand”) corporates 1 – as
well as the financing of such deals is currently driven by
1. moderate prices (enterprise values / multiples) of potential
target companies;
2. larger corporates and multinational companies refocusing
on their core businesses and disposing of noncore
activities;
3. divestments of underperforming assets to be better
prepared in case of a “crisis”; and
4. “forced sellers” with a cash requirement offering
profitable businesses at reasonable multiples.
Although the current market environment seems to provide
ample opportunities, the number of M&A transactions and
volumes is currently at a very low level, creating an opportunity
for market leaders with the foresight to benefit from this
situation.
The right buyers are able to and understand how to navigate
the leveraged finance market for leverages of between
3.5 and 4 times EBITDA, refinancing the remaining equity
value of a target company out of free cash and equity.
In the market for small- and medium-sized transactions, the
number of available financiers and, hence, competition and
liquidity, may be limited.
Overall, the market for LBO transactions for “Mittelstand”
corporates is divided into three segments, as is illustrated
by fig. 1, and each of them have different dynamics and
requirements.
Page 12 Deutsches Eigenkapitalforum 2012
Kai Frömert, Director,
FCF Fox Corporate Finance GmbH
Arno Fuchs, CEO,
FCF Fox Corporate Finance GmbH
Figure 1: Market for LBO transactions for “Mittelstand” corporates
Deal size EBITDA target Competitive environment
Large > EUR 50 million All major German banks,
international commercial
banks
Mediumsized
EUR 10-50 million German commercial banks,
state banks
(“Landesbanken”), selected
international banks
Small < EUR 10 million Landesbanken, selected
savings banks
(“Sparkassen”) and cooperative
banks (“VR-
Banken”), few German
commercial banks
Source: FCF Fox Corporate Finance GmbH
Nevertheless, despite less competition for smaller trans actions
(< EUR 50 million EBITDA), their pricing has aligned with
that of larger deals during the last 12 to 18 months. Considering
syndication and default risks, banks now tend to price
each transaction individually instead of using a “market standard”
LBO financing interest rate as has been observed in the
past. Most transactions are still priced in a similar range, as
leverage factors also tend to be in a narrow range between
1) This article does not refer to the market for large-cap / multinational companies
/ conglomerates