Workshop on Sell-Side M&A


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Case study of a sale and leaseback advisory transaction in Poland

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Workshop on Sell-Side M&A

  1. 1. Workshop on Sell-Side M&A Higher School of Economics, Moscow 1 December 2012 Presented by Leighton Peter Prabhu, BCom MPhil CA CPA Managing Partner, Interstice Consulting LLPBoard Member, Canada-Eurasia-Russia Business Association (CERBA)Member, Global Strategy & Leadership Alumni Panel, McGill University
  2. 2. Session objectiveTo provide participants with “virtual” experience inM&A advisory through review of an actual sell-sidetransaction, and an opportunity to ask questions of an experienced transactor 2
  3. 3. Role of financial advisor• “Pilot” for the transaction • Coordinate communications • Develop the offering and market the transaction • Assist with negotiations • In general, bridge gaps between buyer and seller in the interests of closing the transaction under the most favourable terms to the seller 3
  4. 4. Typical conflicts• Price• Timing• Due diligence period• Due diligence access to materials• Buyer’s financial backing• Seller’s representations and warranties 4
  5. 5. Transaction overview Baltic Properties Trust has acquired a €168,000,000 commercial real estate portfolio from Telecom Poland S.A. August 2008 This announcement appears as a matter of record only. 5
  6. 6. Transaction background• Seller: Telecom Poland / Orange Polska• Former state-owned telecom monopoly• Publicly listed on the Warsaw Stock Exchange• 33 000 employees• Majority controlled by France Telecom• New campus project “Miasteczko” to house all Warsaw office-based employees• Sale of legacy buildings part of “Asset Base Optimization” strategy 6
  7. 7. Macro environment• Real estate considered a stable asset class• Poland - Eastern Europe ‘Lite’• Uninvested funds• Incentives to deploy• Shortage of quality, occupied properties in prime areas• 2008 - pre GFC 7
  8. 8. Process• Pre-mandate• Seller due diligence• Defining the transaction• Marketing the transaction• Bid evaluation, preliminary negotiations• Buyer due diligence• Final negotiations• Closing 8
  9. 9. Transaction team Advisors CFO Financial advisor Transaction Legal advisor committeeProject manager Industry advisor 9
  10. 10. Offering• Sale and leaseback of 3 key buildings, including TP’s head office• 2 extra parcels of land including in the portfolio• Bidders to propose sale price and lease rates 10
  11. 11. Marketing• Pre-marketing: market soundings• Selecting potential investors• Teaser & NDA• Procedure letter• CIM• Market research• Structured Q&A• Direct meetings 11
  12. 12. Risks to buyer• Valuation: “buyer’s curse” in auction situation• Capex: cost estimates of refurbishing buildings post TP occupancy• Lease period uncertainty: lessor’s option to terminate early or extend• Market risk: takeup of new space• Currency: PLN lease terms vs. EUR financing 12
  13. 13. Non-binding bids• 11 offers received• Valuations within a fairly narrow range• Bidding strategies: high price / high lease cost, low price / low lease cost• Some bidders excluded vacant land plots• 3 bidders selected for short list 13
  14. 14. Evaluating bids• Quantitative / objective • Financial terms • Markups to model agreements • Flexibility for timing of new office availability• Qualitative • Income statement impact • Conditionality • Financing • Other caveats • Bidder reputation and personal dynamics 14
  15. 15. ResultBPT closes largest ever Polish sale and lease backtransaction1 August 2008After over six months of intensive project studies and negotiations, on Wednesday this week - 30thof July, BPT entered into the final sale and lease back agreements with one of the largest Europeancommunications companies, Telekomunikacja Polska S.A. - part of the France Telecom Group. On thebasis of the sale agreements BPT Optima Fund acquired in total approximately 62,000 sq. m. in theBusiness Districts of Warsaw. The entire project consists of three top-located properties - twolandmark office towers included. The acquisition brought into the portfolio high quality andconveniently equipped A-class office space supplied by nearly 500 parking spaces and a privateheliport. All three properties benefit from an easy access to the surrounding facilities such as publictransportation within a walking distance, shopping centre, banks, public institutions, hotels,restaurants.The total investment, close to 168 million EUR, is expected to provide the investors with a solid yieldmuch exceeding 7%. 15
  16. 16. Key themes• Are parties close in terms of valuation? This underpins the viability of the deal.• Does the buyer understand the seller’s priorities and non- financial criteria?• Is overall market power on the side of buyers or sellers?• Differences between financial investors and corporates 16
  17. 17. Aftermath 17
  18. 18. Aftermath• Prime rental rates peaked at EUR32 sq.m• Current rates represent a 22% decline 18
  19. 19. AftermathBPT Optima sells the Twarda Tower in Warsaw, Poland to EuropaCapital3 September 2012In an agreement signed on 30 August 2012 the BPT Optima real estate investment fund has sold its single largest asset, theTwarda Tower in Warsaw, Poland, to London-based Europa Capital.The tower was originally acquired in July 2008 as part of a large sale-and-lease back transaction with Telekomunikacja Polska S.A. (TP SA) - thePolish telecom operator majority-owned by France Telecom. The original transaction included three office assets in the Polish capital. Although thetransaction price is not disclosed, with todays sale BPT Optima exits its single largest asset and with it also closes all liabilities associated with theoriginal transaction.The approx. 27,000 sq. m. large Twarda Tower is located at the very heart of the Warsaw central business district."With the sale of the Twarda Tower, BPT Optima achieves an important milestone in the current restructuring process of the fund," says FundManager, Antanas Anskaitis.The other tower in the original portfolio, the Moniuszki Tower, was sold in December 2011 while the last of the three buildings, Obrzezna, locatedin the Mokotow District of Warsaw, still remains with BPT Optima. The building houses the R&D organisation of TP SA, and this July the leaseagreement with this single tenant was prolonged until 2023. 19
  20. 20. Q&A 20