Leveraging the continent

In the first nine months of this year the French and German offices of RBS’ leveraged finance team have underwritten over e935 million debt in 24 deals. Three of these deals are described below in some detail.

Pollyconcept Group

In July this year, the Paris office of The Royal Bank of Scotland Leveraged Finance lead arranged the senior debt financing of the management buyout of the Pollyconcept Group, a division of the Dutch listed group Hagemeyer NV. Hagemeyer was selling Pollyconcept in order to focus on its core activity: distributing professional and IT products and services. The financing package was completed by equity provided by BC European Capital Funds and the management of the Pollyconcept Group and a Mezzanine tranche provided by Caisse des Depots du Placement de Quebec and The Royal Bank of Scotland Leveraged Finance. ABN AMRO joined the transaction as joint senior debt arranger. The total value of the deal, including undrawn working capital lines, was approximately e300 million.

Pollyconcept was created in 1973 by Dutch trading firm Borsumi, originally as a distributor of Japanese cigarette lighters through wholesalers to gift shops and tobacco stores. Today, the Pollyconcept Group comprises approximately 40 companies and is the European market leader in the development and distribution of promotional and lifestyle products. It sells a wide variety of branded and unbranded products to a fragmented base of distributors, serving a large number of corporations across Europe. Employing almost 950 staff, the group had an annual turnover of around e350 million and an EBIT of e30 million.

BC Partners intends to continue to support an ambitious development strategy, both internally as well as through acquisitions and strategic partnerships, with a view to a listing in the medium-term. The group’s existing experienced management remains in place headed by the chief executive officer, Philippe Varnier supported by Yann Leca as chief financial officer.

Among Pollyconcept’s core competencies are trend awareness and opportunity identification of novelty premium concepts. It transforms basic convenience goods into unique, customisable and desirable products with a high perceived value via an in-house product development team. Brands owned by Pollyconcept include Spirit of St Louis, Marksman, Best in Town and licenses include M&M’s, Coca Cola and Crayola.

Pollyconcept’s competitive advantages are its pan-European distribution system, its ability to fulfil customers orders within 48 hours, its wide assortment of high quality products in stock, and its sourcing infrastructure in Asia.

This transaction was characterised by its international angle, no surprise with a group with such extensive world-wide operations, since, although 90 per cent of sales are in Europe, 80 per cent of products are sourced in Asia and particularly from China where the group has been present for over a decade. Michel Chabanel, Head of RBS Leveraged Finance in France commented: “The legal structure reflected the geographical make-up of the group with the creation of two holdings, one French and one Dutch and the security package encompassing assets in a number of countries. This structure has been carefully designed to match cash flow generation with the debt service in the various countries of operation.”

Chemson Group

In June this year, funds advised by Switzerland’s Leman Capital sarl acquired Austria’s Chemson Group from Germany’s Chemetall GmbH, Frankfurt (Metallgesellschaft Group) a 100 per cent owned subsidiary of Dynamit Nobel.

The Royal Bank of Scotland’s Frankfurt office arranged the senior term loan and working capital facilities and also advised on interest rate hedging and currency rate hedging. The Royal Bank also acted as security and facility agent and partly syndicated the debt facilities to local banks.

Chemson is a specialised chemicals company and was deemed as non-core as a result of Metallgesellschafts ongoing restructuring. Chemsons core business is the production and marketing of stabilisers for PVC products such as pipes, cables, fittings, and window profiles. Furthermore Chemson produces lead-oxides mainly needed in the glass, battery, and ceramic industries.

As one of the strongest market players world-wide, Chemson benefits from its longstanding customer relationships and the strong technical and material understanding about the customer specific PVC manufacturing processes. The high customer oriented products are developed with special formulas for each customer, which results in high customer loyalty and a very stable customer base.

Production is mainly based in Austria (Arnoldstein) and in the main subsidiaries located in the UK (Newcastle) and Brazil (Rio Claro). Total sales for the year-ended 30 September 1999 were DM221 million, more than half of which was achieved in Western Europe. In the financial year 2000 sales have been further increased.

Chemson`s focus will be maintaining its strong market position in Western Europe and increasing sales by expansion outside Europe. In the US (Philadelphia) in August 2000 Chemson acquired the remaining 80 per cent of the shares of Chemical Group Inc., further geographical expansion is intended through a joint venture in Asia. The group currently has 420 employees.

Michael Foecking, Head of The Royal Bank of Scotland’s Leveraged Finance German team commented that the completed deal is one example of, “a more permanent trend towards financial structures with higher complexity and a more international background.” He added: “I think we can expect an increasing number of cross-border deals, particularly in European markets, including Germany, where there is clear potential to increase the depth and volume of such deals.”

Laho Equipement

RBS Leveraged Finance Paris was contacted by Industri Kapital (a leading Nordic-based equity house) to support the second management buyout of Laho Equipement, one of the French market leaders specialising in rental, sale and servicing of construction equipment.

Laho Equipement was created in 1991 when the Pinault Group decided to merge different French regional subsidiaries in order to create Pinault Equipement, including a North American subsidiary Prime Equipment. Prime Equipment was sold in 1994 to BridgePoint Capital and other French investors.

Laho Equipement is the second largest in France in both the rental and sale of construction and public works equipment. The company has a national coverage via a network of 75 branches throughout France enabling clients to rent equipment from different locations, particularly important in the case of large public works that are geographically spread out. Favoured by construction and public works industry leaders, Laho Equipement supplies the widest range of products on the market. As well as offering the major brands of construction equipment, the company offers its customers tools and consumables, both for rental and purchase. Laho Equipement employs 700 staff and is forecast to realise a turnover in excess of FF900 million in the year 2000.

The Industri Kapital 2000 Fund has completed its first acquisition in France. The management team, led by Serge Ansaldo (chief executive officer) and Bruno Bottier (chief financial officer), remains in place and re-invested in the transaction.

RBS Director Tyrone Cooney commented: “RBS views this MBO positively in light of strong market position, extensive network, respected management and positive market environment”. RBS Associate Director Jean-Yves Korenian added: “Competing against two French Banks, RBS has proven to be responsive and innovative in order to arrange and underwrite a FF410 million total debt package. The structure of the financing shows a moderate leverage and includes senior and mezzanine debt as well as a capex facility providing finance for growth.”