Case Study – Construction Materials
This case study outlines the steps taken in the acquisition, restructuring, expansion and sale of a construction material company.While the company name, location and most financial information have not been included; this case study gives a good indication as to how Plena Group operates during a transaction.
Company B was over leveraged and losing money due to constant operational failures. However, it’s largest daughter company, Company B1 was substantially larger than Company B and performing reasonably well. Due to the complex ownership structure, the existing shareholders could not take advantage of the cash flow coming from Company B1 and were consequently forced to sell.
Company B’s operation did not show any sign of recovery and the macroeconomics were not positive for its market. Coupled with the indebtedness and the weak shareholder structure, it was difficult for a strategic or financial investor to see the value of the company in its current situation.
We were given the opportunity to purchase Company B. We asked the following questions:
a) How can short-term financing and liquidity be found/resolved?
b) How can current risks due to the complex ownership structure be mitigated?
c) How can we correct the long-term focus of the group’s operations?
To find a way forward, we formed a three party consortium comprising Plena Group; a recognised and trusted investor with a strong track record; and a reputable Swiss Bank.
Together we took the following action:
a) We renegotiated all debts of Company B prior to acquisition. The existing creditors agreed to write off a substantial portion of the outstanding debt based on the plan we presented, and this ensured the company could concentrate on operating the business, rather than having to deal with large debts.
b) Post acquisition, we transferred the shares of all international daughter companies, including Company B1, to a new holding company. This secured the viability and independence of the daughter company from the troubled Company B, as well as securing the cash flow between the operations.
c) We then moved the centre of operations to a different country, and made the main office of Company B1 the head office for the whole group. This move immediately shifted the focus of the group to the main market with the largest potential, and where most of the cash flow was made.
Within a three to four year period, we transformed Company B1’s operations from the verge of bankruptcy to a growth company with a strong cash flow. The conditions in the market for Company B also improved the year after acquisition, this contributed significantly to the company’s success.
We kept all the agreements with the banks and other financial institutions, and we repaid everything at the agreed time. We continued to grow the operation over the next 10 years, with an annual revenue of €500m and an operating cash flow of €50m/year. We then sold the operation to a large international strategic investor.