Matching Financing with Corporate and Owner

Matching Financing with Corporate and Owner Objectives
Structured Finance Conference 2012
Roundtable Presentation, 14 November 2012
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Table of Content
I.
The company at a Glance
II.
Status Quo & Objectives
III. Key Challenges
IV. Implementation
V.
Key Take-Aways
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Table of Content
I.
The company at a Glance
II.
Status Quo & Objectives
III. Key Challenges
IV. Implementation
V.
Key Take-Aways
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Company at a Glance (1/2)
Company
 Independent manufacturer of crankshafts based in Thuringia
 Founded in 2002 by Dieter Feuer
 Shareholders: 75% Dieter Feuer
25% Bernd Gulden (CEO, Ex-INA Schaeffler)
Product & Market
Technological Approach
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 Crankshaft is one of the most complex parts of car / powertrain
 Applications are: cars, trucks, ships as well as agricultural
machinery and other industrial applications
 Production requires complex manufacturing lines and noticeable
investment (start-up > EUR 30mn) - need for well-trained staff
 Outsourcing trend as the majority of production is still “in-house”
at OEM’s
 FPT “invented” a plant architecture that allows highly flexible
production of crankshafts with very high level of automation
 Currently 5 factories (6 production lines) focused on different
types of crankshafts across the car, truck and industrial segments
 For 2012 FPT forecasts sales of 0.9mn crankshafts and revenues of
about EUR 83mn
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Company at a Glance (2/2)
Clients
Regions
Cars
Market Size
(FPT relevant)
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 Pieces:
81mn
 Outsourcing: 5%
 FPT Potential: 4mn pcs
Trucks
 Pieces:
5mn
 Outsourcing: 25%
 FPT Potential: 1.25mn
pcs
Industrial
 Pieces:
7mn
 Outsourcing: 50%
 FPT Potential: 6.5mn pcs
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Table of Content
I.
The company at a Glance
II.
Status Quo & Objectives
III. Key Challenges
IV. Implementation
V.
Key Take-Aways
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Status Quo 2010

Strong growth after quick recovery from financial crisis

Financing largely based on individual agreements – high debt service (25 financing partners)

Revolving loans drawn to limit - need to manage working capital

FYE 09 adjusted figures: Leverage > 6.5x and equity ratio 17%

Capacity expansion needed for increased order book and to reach economies of scale

Minority investor who is not keen to fully support growth strategy
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Views & Objectives
Owners
Company
 Buyout of minority investor – get
back 100% and strategic flexibility
 Realize both buyback and capacity
expansion
 No injection of common equity
Banks





 Need new production line
– ideally new plant
 Company “growing out of its
financing structure”
– needs sustainable solution
 FYE 09 financial profile not reflective
of true strength (strong outlook 2010,
timing and “one-off” effects)
Focus on FY 2009: Very high leverage and low equity ratio
Credit rating not great and FPT covered by “Intensive Care”
Complex financing structure due to numerous agreements
Only one “Hausbank”, which has quit high exposure
Strong current trading and outlook not fully visible to lenders
Each “strategic objective” (buyout and new plant) already individually a major
challenge – both in combination are almost impossible
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Table of Content
I.
The company at a Glance
II.
Status Quo & Objectives
III. Key Challenges
IV. Implementation
V.
Key Take-Aways
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Key Challenges
Broad set of challenges with high interdependencies – need for a quick solution
Financing
(General)
Company
Resources
Financing
(„Equity“)
Operating
Story
Process
Buyout
Growth
(New
Plant)
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Table of Content
I.
The company at a Glance
II.
Status Quo & Objectives
III. Key Challenges
IV. Implementation
V.
Key Take-Aways
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Process
Implementation – Step I (H2 2010 / Q1 2011)
I
“Hausbank”
-> Key challenges
Selected new banks
-> First informal talks
W/C „Bridge“
-> Agreement
II
Selected Mezzanine
Investors -> First talks
T/S for 100% buyout
& “growth option”
Detailed docs
-> Negotiation
III
Minority shareholder
-> First talks
Buyout Pricing & Terms
-> Agreement
Acquisition
-> Via newly set up holding
Result
Buyout
EUR A
Mezzanine
7 years
% Fixed + Flexible
% Equity Kicker
Succes
Factors
Detailed docs
-> Negotiation
EUR 10mn
6 years
Working Capital
Loan
of
Minority
Investor
via
F&G Holding
Working Capital
Financing
(incl Headroom)
+
Preparation for
envisaged next
Steps
 Focus on “Step I” with financing structure working irrespective of growth case and success
of further financing measures required for such case
 Focus on funding options that do not require audited reports and standard rating
- financing decisions based on detailed projections and due diligence
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Process
Implementation – Step II (Q2 & Q3 2011)
Audited AR 2010 &
Update Projections
I
II
III
Mandate Hausbank
& T/S Negotiation
Approach New Banks
-> For „Club Deal“
Approach Existing
Mezzanine Investor
Increase of Mezzanine
-> Based on pre-agreed option
Detailed docs
-> adjust
S/H Loans & debt-like
S/H capital -> Equity
Confirm Investment Grants &
Subsidies
Discuss optional loan guarantee
(federal & state)
Succes
Factors
Result
EUR 61mn Club Deal
6 years / 4 banks
Margin Grid, Covenants & Security Interest
Loan A:
EUR 16.5mn
Loan B (1+2):
EUR 28.5mn
Loan C:
EUR 16mn
Refinancing
of Existing
Loans
Production
Line
& Bridge-toSubsidies
Revolver
W/Capital
(+ Bridge
Refinancing)
EUR 28.5mn
Investment
(in existing Plant)
EUR A +B
Mezzanine
7 years




Detailed docs
-> Negotiation
% Fixed + Flexible
% Equity Kicker
EUR 16.5mn
Reorganisation of
Financing structure
EUR 16mn
Sustainable W/C
Financing
Investment subsidies & grants as equity substitute
Support of new mezzanine investor (further equity substitute) and Hausbank
2-step approach reduced uncertainty regarding buyout and financing structure
Strong operational performance since initial talks confirmed by audited AR
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Summary
By Q3 2011, all of FPT’s Objectives set in 2010 were achieved
FPT
Objectives
2010
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Buyout of
Minority
Investor

New
Production
Line

Sustainable
Financing
Structure

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Summary ??
By Q3 2011, all of FPT’s Objectives set in 2010 were achieved
FPT
Objectives
2010
Buyout of
Minority
Investor

New
Production
Line

Sustainable
Financing
Structure

But then…
 FPT’s business kept growing
 By the end of Q1 2012, FPT had generated orders requiring a further production line
 At the beginning of Q2, one of FPT’s key clients approached FPT with an additional big order, which
all alone would require yet another production line
 Capacity increase for big additional order would need to occur quickly with only equipment for one
production line pre-ordered
 FPT approaches a competitor to find out whether he would sell his crankshaft business (especially
one production line) to FPT. Feedback was positive….
FPT
Objectives
2012
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Plant IV
& Financing
Plant V
& Financing
Asset Deal
with
Competitor
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Process
Implementation – Step III (Q2 & Q3 2012)
I
Audited AR 2011 &
Update Projections
II
Negotiate Acquisition
-> Pricing & Terms
III
2nd Mezzanine
-> Existing structure
Mandate Hausbank
& T/S Negotiation
Result
EUR 82.5mn Club Deal
Increase with existing banks and
remaining key terms
Loan D (1+2):
EUR 10.6mn
Succes
Factors
Production
Line V
& Bridge-toSubsidies
Loan E (1+2):
EUR 10.9mn
Production
Line VI (new)
& Bridge-toSubsidies
Approach Bank „Club“
-> Increase „Club Deal“
Financing of Acquisition
-> Equipment Finance Loans
Real Estate Financing
-> via Holding
EUR A+B
Equipment
Finance Loans
Detailed docs
-> Negotiation
Closing of Acquisition &
Acquisition Financing
Subsidies & Grants
-> Negotiate / Confirm
Key Client Support
-> Firm Committment
EUR C
Mezzanine
7 years
Acquisition
Finance
Production
Line VI (used)
% Fixed + Flexible
% Equity Kicker
EUR 21.5mn
Investment
in New Equipment
Acquisition
of Assets from
Competitor
Support
of Ratios and
Liquidity
 Process with mix of existing partners based on existing structures
 Support from all key stakeholders – Club Deal banks, mezzanine, owners via holding, and
last but not least key client (validation of cash flow projections)
 Overall structure ensures no major covenant adjustments required for new measures
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Table of Content
I.
The company at a Glance
II.
Status Quo & Objectives
III. Key Challenges
IV. Implementation
V.
Key Take-Aways
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Key Take-Aways

Strong operating business is basis to achieve challenging objectives

Banks and other financing partners are prepared to support even difficult cases
– but you need to help them understand and believe in your story and projections

High transparency about current and projected business is crucial to “sell” outlook

Sometimes, you need to look beyond standard product and process to meet objectives
– a tailor-made solution may include the combination of multiple elements

If no common equity is available, equity substitutes can make financing structure work
– Mezzanine, subsidies, improvement of existing S/H capital, alignment of interest

Existing financing partners are key to win new ones

The sequence of measures and structure of overall process can be crucial
– focus on optimal way to reduce uncertainties quickly for the key stakeholders

In a complex process with multiple scenarios, flexibility is key

A complex corporate finance project is likely to require more than the usual resources of a midmarket company – external expertise can help
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THANK YOU!
For further questions please either

Visit us here on the Structured Finance:
ARGONAS Corporate Finance Advisors: Weinbrenner Saal / Stand 17

Or contact us:
FEUER powertrain GmbH & Co KG
Bernd Gulden
03631 – 470 402
[email protected]
www.feuer-pt.de
ARGONAS Corporate Finance Advisors
Christian Berkhoff
030 – 9227 1339
[email protected]
www.argonas.de
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