INTERNATIONAL BAR ASSOCIATION 2009 ANNUAL CONFERENCE MADRID 4-9 OCTOBER

Transcription

1 INTERNATIONAL BAR ASSOCIATION 2009 ANNUAL CONFERENCE MADRID 4-9 OCTOBER Closely held & growing business enterprises Panel Session Mike Molesworth CEO Ros Roca Environment, Equipment Division

2 IBA 2009 Panel session 7th October Business Perspective Ros Roca Group 75% Mgmt 3% Ros Roca Environment Deya Capital 22% Equipment Division CEO Mike Molesworth Ros Roca Envirotech Municipal Vehicles European Market Leader 2009 Profile 340m 1500 people Manufacturing Spain & UK Dist. & Final Assembly France, Germany, Portugal 25% Share in Brazilian Manufacturer License Agreements in India, South Africa & China Dealers in Many Countries Waste Treatment -Composting -Biogas Production Pneumatic Waste Handling 2009 Profile 70m 150 people

3 Current International Projects 1. Starting negotiation to create 50/50 JV in Asia (India & China) 2. Obtaining a majority stake in Brazilian business within 12 months 3. Jointly negotiating with Brazilian partner to create manufacturing and distribution business in Mexico & USA 4. Completion of acquisition of German business 5. Renegotiating banking agreements

4 Business trends Key points: Globalisation vs. protectionism Opportunities Valuation Due diligence Returns/risk

5 Globalisation vs. Protectionism Is this a problem? Is it short or long term? Why would protectionism be considered good? If it is a problem, how can businesses manage the problem? Access to markets Availability of good businesses to acquire Ability to reduce costs & integrate across borders Strategy Clear focus on the long term Recognise the short term constraints

6 Opportunities There are trends that are reducing actual opportunities: Valuation, i.e. it is not the time to sell a good business Funding Lack of visibility of future market trends & therefore returns Management, even in good businesses, are very focussed on short term measures Factors are also increasing potential opportunities Lower valuations on businesses that are available Sectors that were already consolidating potentially accelerating Concentration on core businesses & need for cash An opportunity for good businesses to expand at lower cost

7 Valuation What drives valuation: Economic model? EVA, DCF Market multiples? EBITDA or Net Earnings Strategic value? CEO s ego? Investor pressure? Availability of equity funding? Availability of debt funding? The price that is acceptable to the vendor? Synergy potential? What should drive valuation? 60% OF ACQUISITIONS ARE VALUE DESTROYING

8 Due Diligence What is Due Diligence for? Verifying that the business is what the client is expecting. There are no onerous obligations. There are no material restrictions on the business. The business is being run in the ordinary course Informing the development of the post acquisition integration plan Verifying the assumptions made in the process of justification What can Due Diligence be for? Developing negotiating strategies Finding reasons to exit a binding agreement

9 Returns/Risk Normal business/economic rationale is that the higher the risk, then the higher return that is required. Before the recent boom period, returns expected were relative i.e. banks were low risk for deposit, so investment returns expected were related to a risk premium over interest. The growth of Private Equity tended to drive a fixed target return mentality. Although this was high, in the highly leveraged environment with a vision of an ever growing economy, PE was at an advantage compared with trade buyers. Management in non-pe businesses looked ordinary in terms of returns and growth.

10 Returns/Risk what now? The risks are potentially higher, but the short term returns are lower Private Equity buyers are disadvantaged unless they change their business model, or they re-emerge as the 1980 s style asset strippers Shareholder expectations on returns are more realistic Less volatile, unsexy business are becoming fashionable areas to invest Private entrepreneurs with high net worth are now investing in real businesses

11 Business trends - conclusions Globalisation is here to stay, but in the short term, protectionism may limit some transactions, or delay potential returns. In the short term opportunities have reduced, but these could start to re-emerge rapidly. Strong clients will be well placed to take advantage. Valuation not the lawyers business, but a relevant consideration in looking at risk & due diligence. Due Diligence critical as always, but needs clear objectives. Returns/risk our perspective on risk & return will have to change significantly post the credit crisis.