WORKING WITH BANKERS AND PRIVATE INVESTORS TO FUND YOUR BUYOUT.

1. BUY YOUR OWN COMPANY CONFERENCE
AFFLIGEM - 27 FEBRUARY 2014
WORKING WITH BANKERS AND PRIVATE INVESTORS TO FUND YOUR BUYOUT
KRIS GEYSELS
CFO ESTRO, FORMERLY PART OF BUY-OUT TEAM AVIAPARTNER AND ABX LOGISTICS
PHILIP WIETENDAELE
HEAD ACQUISITION & LEVERAGED FINANCE ING BELGIUM
ALEXANDER VEITHEN
PARTNER CORPORATE FINANCE BDO

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IT COULD BE A LONG RUN … A MARATHON
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STEP 1 : IDENTIFY YOUR FINANCIAL NEEDS
3 Funding amount linked to EBITDA/business plan and asset base Do not forget the “cost” of working capital (e.g. timing of the year) Count provisions and restructuring if any, certainly if you are buying into a loss making company Check if banks / co-investors have info (e.g. due diligence) or security requirements which might have a significant impact on transaction costs Make sure you have some headroom (if price is not yet final)
What goes traditionally wrong when determining the funding needs ?
100% shares
Transaction costs
Growth funding
Funds needed
€2.000k
€100k
€500k
€2.600k

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STEP 1 : IDENTIFY YOUR FINANCIAL NEEDS
Doing it by myself or in a team ? Which deal is at my size ?
Investor
small
small  medium
medium  very large
Risk for management
medium
relatively limited
€250k
€750k
unlimited
Deal size
high
Management funds

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STEP 1 : IDENTIFY YOUR FINANCIAL NEEDS
5 Most investors prefer larger management teams Management teams typically invest one year of salary but share substantially in upside (and downside) Put voting agreements in place Alternatives through option or phantom shares for very large teams If larger team, clear delegation of powers and responsabilities upfront Prepare for scenario when team breaks up
Which other elements are to be taken into account when funding it with other management team members ?
Success of private equity investment = quality of management

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STEP 2 : IDENTIFY THE RIGHT FUNDING SOURCE
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Equity
Debt
Management Equity
Mezzanine Finance
Vendor Assisted
Investors (FFF, VC, PE,…)
Senior Bank Debt
Vendor Loan
Earn out

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STEP 2 : IDENTIFY THE RIGHT FUNDING SOURCE – THE INVESTOR
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Why and which/how many private investor should I contact ? Start-ups with FF & F can be highly successful For PE (and VC) deals, size and sector are first criteria but not carved in stone. Small (say around €10m): Think2Act, Indufin, Vectis, Creafund,… Medium(say around €25m): E-capital, Korys, Kebek, Down2Earth, 3D- Participaties, BV Capital Partners,… Large (say around €50m) : NPM, GIMV, AvH, Cobepa, PMV, Waterland,… Very large (say as from €100m) : KKR, 3i, HIG, CVC,… Relational aspect and difference between PE and VC Majority or minority position Start by contacting 1, talk to people involved in a previous deal and be prepared for obvious questions

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STEP 2 : IDENTIFY THE RIGHT FUNDING SOURCE – THE BANK
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How can I assess ‘quick & dirty’ the amount that I could ask for financing from the bank ?
Which (department of the) banks should I contact ? Your homebank Local contact Specialized department Belfius-BNPPF-ING-KBC In general 2 to 3 banks max test (not all banks at the same time with the same input).
Dealsize
Ebitda/debt multiple
Asset value
Gearing
Small
+
+++
+
Medium
++
++
+++
Large
+++
+
+++
Indicative value range
2 to 3,5x EBITDA
% of value of the asset
25% to 40%
equity/(equity+debt)

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STEP 3 : CONVINCE & MAKE A LASTING IMPACT ON MY FIRST CONTACT – THE BANK
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How many presentation decks (business plans) do I need ? Tips & tricks 1 businessplan with sensitivity data Know the bottom up / details of the figures Make it enticing  not a picturebook Highlight the certainties + sensitive the risks Show that you want to work with the bank but show that there is competition (do not overdo any of the 2) Remember : although the bank has the goal to help business, the bank has limited upside so it needs to avoid uncontrollable downsides (to maintain a healthy credit portfolio)

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STEP 3 : CONVINCE & MAKE A LASTING IMPACT ON MY FIRST CONTACT – THE INVESTOR
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How to approach the private investor (what I don’t know him) ? Know your PE and his track record Know your market and competitors Know other deals being done in last 10 years and what happened Reasons for choosing your management team Additional staff you want to hire or people in your board of directors How long you see their involvement. Exit ? Business plan and cash needs Feedback from your meetings with bank Is priority to create value ? (Family business, small minority stakes,..)

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STEP 4 : BUILDING UP TRUST AND ENTERING INTO NEGOTIATION WITH THE BANK
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How to build up trust ? What should I negotiate on (and what not) ?
1.Make sure your bank has a good understanding and is willing to support
2.If you have no housebank or the risk is significant : make sure you have more than 1 bank supporting you (credit decision !)
3.Negotiate conditions (margins, securities, fees, repayment schedules, …). Try to find the win-win
4.Choose wisely
cheap is not always the best choice
“club deal”

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STEP 4 : BUILDING UP TRUST AND ENTERING INTO NEGOTIATION WITH THE BANK
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How to build up trust ? What should I negotiate on (and what not) ?
Other tips: Try to understand who will take the final decision and what the process and timing is  how can you make the person sitting opposite be your biggest promoter Competition is good, but… know that you also need support in a downturn (!) Personal guarantee ? Sometimes needed, sometimes best avoided. In any case evaluate the downside risk

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STEP 4 : BUILDING UP TRUST AND ENTERING INTO NEGOTIATION WITH THE INVESTOR
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How to build up trust ? How to approach the discussion around valuation ? Have a story to tell and reflect on down- and upsides Negotiate your stake if you can invest along but understand and accept the risk/reward relation Valuation is crucial in all stages of a transaction. Refrain from quoting prices too early. Valuation is an art, not a science ! Ask advice to your bank, your financial adviser or investment banker

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What can I negotiate to protect management’s shareholdings & decision power ? What about his exit plans (and mines) ? Negotiate but don’t overnegotiate - you are partners and in case of growth or exit, you will benefit Negotiate your ratchets and timing (e.g. working capital improvement, acquisitions, disposals, EBITDA levels) Negotiate management’s autonomy with decision rules, but accept that PE’s will be involved in key decisions, strategic or not Negotiate on the future composition board of directors Exit will be part of the entry discussion. Tag and Drag along conditions
STEP 4 : BUILDING UP TRUST AND ENTERING INTO NEGOTIATION WITH THE INVESTOR

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STEP 5 : DONE DEAL AND BACK TO BUSINESS : WHAT IF …
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What if business is running below expectations ? Time is crucial ! Fast decision making makes a difference The presence of PE and/or banks is no guarantee for success – debt and capital rescheduling is the easy part. Corporate restructuring, simplification and putting a professional organization are the biggest hurdles! Continue to manage all aspects of business !

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STEP 5 : DONE DEAL AND BACK TO BUSINESS : WHAT IF …
16 Your first buffer is the headroom in the structure Talk to the bank soon (having a good relationship will pay off)
 “stretch” ? “new money” ? Extra security ? Partial sale ? … Relationship management  restructuring  workout A banker as observer to the board ? Only for large deals A pitpull banker is of more help than a sleeping dog It will increase understanding and commitment Strong banks attract strong investors and vice versa None of the restructurings would have been successful without bank support, but bank support is not sufficient to be successful
What if business is running below expectations ?
The role of the bank

17. Talk to people with experience
Chose your partners  suppliers
It is a small world and people want to share their stories with you
ALEXANDER VEITHEN Partner BDO Corporate Finance
PHILIP WIETENDAELE Head of Acquisition & Leveraged Finance ING
KRIS GEYSELS CFO Estro
Thank you