JP Director's Report

Projects - Opportunities - Information

Dear Madam or Sir,

M&A activity is picking up with investors increasingly prepared once more to undertake deals both in the domestic sphere and internationally. Companies which have weathered the crisis and which have sufficient financial reserves in particular are taking the opportunity to expand and gain market share via acquisitions of rivals. On the selling side, however, there are also attractive prices, especially for stable medium-sized companies.

For medium-sized companies the time is right for international partnerships. In an era of globalisation strategic international partnerships are becoming ever more important. Diethelm Büttner examines such cross-border alliances in his article "Where is the M&A journey taking us?". Diethelm K. Büttner has come on board as a partner to strengthen the JP Team. The new senior advisor boasts many years of experience as a top manager in the IT industry. Mr Büttner has an impressive and lengthy track record as a consultant to leading banks, service providers and industrial companies.

The JP consultancy team has also been bolstered by the appointment of Dr. Magdalena Piekos. She is responsible for coordinating the consultancy activities of JP Mergers & Finance AG in Poland, where the market is also showing signs of life. Hans-Dariusz M. Budzen provides an update on the current situation of the Polish M&A market (CEO. Augeo Ventures) in his article "M&A in Poland - 2009 flash and outlook 2010".

JP Mergers & Finance AG is also in talks with the Indian consultancy firm Dynamic Orbits, New Delhi regarding future collaboration. The Indian market is booming and is of huge interest to European investors in particular. JP Mergers & Finance AG has been nurturing close business links with Indian clients for the past 19 years.

Overall the global economy is starting to pick up again and many companies have weathered the crisis with minimal damage. However, some countries and industries are not yet out of the woods. This shows, however, that it is more important than ever to get into position early – i.e. now - so that the next crisis can be treated as an opportunity!
 

Best Regards

Heinz Jäger
- CEO -

Where is the M&A journey taking us?
Are traditional takeover concepts still appropriate for Eastern Europe or Asia?
by Diethelm K. Büttner, Senior Advisor of JP Mergers & Finance AG

Momentum is gathering, but it isn’t being generated by the West, as is usually the case, but by Asia – with some countries delivering double-digit growth. China, India and the tiger economies were all affected by the turbulence on the financial markets but have comfortably weathered the storm. Accordingly, in 2009 Asian companies acquired more companies outside the region than European or US companies did in Asia for the first time ever. M&A activity is moving from the Asian markets to us.

In the “big is beautiful” era hosts of M&A teams supplied consultancy services during a takeover, providing a multitude of opinions. Specialists were sent who know and understand the objectives of the buyer. As a rule they are also expected to head the new subsidiary and to adapt the workforce, processes and systems to those of the buyer. There has traditionally been little deviation from this approach.

In Eastern Europe and Asia, however, an alternative approach is increasingly being observed: M&A as a partnership – instead of a “western“ takeover. If it is possible to accommodate the objectives of the buyer throughout the organisation without destroying the core team of the acquired company and instead incorporate their expertise into the overall structure, then the conditions for a rewarding partnership are in place. In turn, this requires an adaptation of business models that takes into account the needs of the Asians and Eastern Europeans. This is a key starting point for successful tie-ups in the sphere of medium-sized enterprises.

Achieving growth targets through organic growth in your own country is not always the quickest approach and, increasingly, is also not realistically possible. We Germans have long been second best in the world at exporting (we used to be world champions) thanks to our growth strategies. So we have long been successful in achieving international growth.

Driven by globalisation, measures to stimulate inorganic growth are now becoming increasingly important both domestically and in international markets. This means a sharp increase in global M&A activity but with different rules: Clients of consulting companies have become more cautious and critical due to the loss of trust engendered by the financial crisis. Successful acquisitions are no longer ”worked off“ by the large teams of consultants mentioned earlier. Instead, M&A teams today must work quickly, efficiently and innovatively – and last but not least be able to restore shattered confidence.

If the necessary M&A rules and instruments are in place, employing small core teams with two members reporting to an M&A manager is an effective approach because it is project-oriented.

This approach appears better suited to the strategic and tactical demands of medium-sized customers than the “big is beautiful“ mentality prevalent until now.
 

M&A in Poland
2009 flash and outlook for 2010
by Hans-Dariusz M. Budzen, CEO of Augeo Ventures

The Polish market in mergers and acquisitions was still growing in 2009, despite the global slow-down. The beginning of 2010 brought even better expectations!

The main factor that influenced the global M&A market in 2009 was limited accessibility of financing and its cost. As banks reduced the availability of credit, investors, both trade and financial, became uneasy about increasing equity portion of the investment and, thus, limiting the benefits of financial leverage. But, accordingly, the multiples of 10-12x EBITDA, still common in 2007, dropped to the level of 6x or lower. This somewhat balanced the relative deficiency of debt financing. Nevertheless, Poland’s market remains very active, driven by consolidation, privatization of state owned companies (more than 400 companies are to be sold in the coming 2 years) and foreign investment. Further, more and more Polish companies that look abroad for acquisition opportunities; to the East, the Balkans (especially, Poland’s-based PE funds and domestic food-processing businesses),and, last but not least, the West. With more rational price expectations by the sellers, and, thus, dropping valuations, the market regained its equilibrium, with sellers’ and buyers’ expectations becoming more aligned.

The largest M&A transactions in 2009 were: the sale of the remaining stake in Kompania Piwowarska by a Polish industrialist to SAB Miller, sale of PCC Logistics to Deutsche Bahn in a strategic move to conquer the Polish rail cargo market and the sale of Getin Bank, a Polish commercial bank, to Noble Bank.

Ranking of the largest M&A transactions in Poland in 2009
 

Rank	Target	Target Industry	Buyer	Seller	Stake (%)	Value (EUR m)
1	Kompania Piwowarska	Beer brewer	SABMiller	Kulczyk Holding	28,1	952
2	PCC Logistics	Rail transportation	Deutsche Bahn	PCC	100	430
3	Getin Bank	Commercial Banking	Noble Bank	Getting Holding	100	393
4	Górnośląski Zakład Energetyczny &  Vattenfall Distribution	Energy Distribution	Vattenfall	Polish Treasury	25,1	332
5	Mazeikiu Nafta	Oil Refining	PKN Orlen	Lithuanian Treasury	10,0	245
6	HTL-Strefa	Medical Equipment	EQT Partners	Shareholders (public co.)	97,3	216
7	Russian Alcohol Group	Vodka manufacturer	CEDC	Lion Capital	18,0	148
8	Pol-Aqua	Construction	Dragados	Shareholders (public co.)	66,0	122
9	British Sugar Overseas	Food processing	Pfeifer and Langen	Associated British Foods	100,0	118
10	Petrobaltic	Oil extraction	Lotos	Polish Treasury	30,3	89

Source: PwC

Overall, most M&A activity took place in construction, oil & energy, food processing, alcoholic beverages and healthcare industries. In construction, the inflow of EU funding for infrastructure projects is making road, rail and environmental construction companies a hot commodity. The acquisition of Pol-Aqua, a listed Polish construction company, by Dragados of Spain, may serve as an example. Food and healthcare related sectors remained relatively unaffected by the crisis and the larger players drive consolidation of the industry. As for Polish companies that more and more venture abroad, they benefit from the relatively stable situation of the Polish economy and with sound cash flows from their home base, they increasingly expand abroad.

As advisors, we are often asked, if it now is the time to act, if one is considering Mergers and Acquisitions. We usually say that it is high time, as valuations are still reasonable and financing is becoming more widely available to those who are well prepared to make profitable deals. The year 2010 is expected to be a very good year for M&A in Poland. It started with a successful bid for WSiP, a Polish publishing house, by Advent International and several further transactions are rumored in the press. Potential investors tend to be feeling that waiting for further decrease in valuations might prove to be futile and counterproductive.

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