Case Study – Company B

Introduction

Below is a case study of a company Plena acquired, restructured, grew and later on sold to a strategic investor. The process outlined includes the steps, which generally prevail in a Plena transaction and therefore offers good guidance to how Plena Group operates

The company name, location and most financial information however, has not been detailed.

The problem

Company B was over leveraged and losing money due to constant operational failures. Its largest daughter company, Company B1, being substantially larger than Company B was however, doing reasonably well. Due to its convoluted ownership structure, the existing shareholders (a family who had held the company for generations) 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 sign of recovery and the macroeconomics were not positive for its market. Coupled with the indebtedness of company B and the weak shareholder structure, no strategic or financial investor could see any value in its current situation.

The challenge

The management of company B offered Plena the opportunity to purchase company B.

The first challenge for Plena was to repair its relationship with the family owners of company B, who, due to past disagreements, was not friendly towards Plena. The following additional questions/hurdles were then determined A) How can short term financing and liquidity be found/resolved? B) How can current risk due to the ownership structure be mitigated? C) How can Plena correct long term focus of the group’s operations?

The Plena solution:

To find solutions to these three problems, Plena formed a 3 party consortium consisting of Plena as clear majority, a recognized and trusted investor with strong track record plus and a reputable Swiss Bank. The consortium made the following decisions.

• Prior to acquisition Plena renegotiated all debts of company B. The existing banks agreed to write off a substantial portion of their outstanding debt based on the plan presented by Plena. This ensured that instead of being focused on coping with large debts, the company could concentrate on the operating business.
• Post acquisition, Plena 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 companies from the troubled mother company, Company B as well as securing the cash flow between the operations.
• Plena then moved the center of operation to a different country and made Company B1’s main office the head office of the whole group. This move shifted the focus of the group immediately to the main market of the group with the largest potential and where most of the cash flow was made.

Summary

The group was transformed from bankruptcy to a vibrant growth company with strong cash flow within 3-4 years mainly due to Company B1’s exceptional performance. Plena’s timing was also impeccable as the market for Company B turned more positive the year after acquisition and could therefore contribute significantly going forward.

Plena kept all its agreements with the banks and other financial institutions and repaid everything that was agreed on time.

Plena grew the operation over the next 10 years having annual revenue of ca. 500 M EUR with operating cash flow of some 50 M EUR/year before selling the operation to a large international strategic investor.