Smart City Export World Congress

Value Creation – Alternative will be attending the Brokerage Event at the Smart City Export World Congress in Barcelona, Spain on the 14-16 of November 2017.

We have already secured bi-lateral meetings with the following companies to help them secure funding and/or develop their business:

Company nameOrganisation informationCountry
G-Boats OyGhost Boat & Technology - the smartest electric boat bringing a new way to own, maintain and drive a boatFinland
Eptisa EngineeringOne of the leading engineering companies in Spain, specialised in the water, environment and transport infrastructure sectorsSpain
ComunidadFeliz.cl ComunidadFeliz.cl is a software as a service for the financial administration of buildings and condominiums. We provide a web platform to automatically organize expenses and notify how much each apartment has to pay to the community, and then they can pay the fees onlineChile
BANC Business Angels Network de CatalunyaBANC was the first Catalan and Spanish private Business Angels NetworkSpain
Evolution EuropeAn independent technology advisory firm expert in obtaining finance and giving tax benefits to innovative enterprisesEurope
Tata Projects Ltd.The smart city business unit focusses on increasing safety, livability and quality of life of all the residents of urban areasIndia
Atech electronics Atech is a contract manufacturer of electronic components. They develop and produce various components for the automotive and other industries for strategic suppliers to several Europe-based producersSlovenia
UrbaserThe world leader in providing environmental services, with a presence in 16 countries, turnover of 1.6 Billion € and more than 35.000 employeesWorldwide
Aliter Group Renovables SLEngineering and Construction services of PV plants of any sizeSpain
Energika SrlProvides engineering and consultancy services in the energy field, to manufacturing and service industriesItaly
Universidad Rey Juan CarlosRey Juan Carlos University is a public University located in Móstoles, Madrid, (Spain)Spain
24 Rent24 Rental Network develops transportation services and complementing information systemsFinland
Vip2zipVip2zip has realized a crypto-currency for eco-conscious citizensItaly
AMECThe Association of the Internationalized industrial companies, a business organization whose members, mainly medium-sized industrial enterprises, enjoy a high international and innovative vocationSpain
ICEX/Invest in SpainInvest in Spain is an executive division of ICEX Spain Trade and Investment, a public company chaired by the Secretary of State for Trade of the Ministry of Economy and CompetitivenessSpain

 

 

 

XXXI Foro Capital Pymes – 31st SME Capital Forum

On the 8th day of November 2017, VC-A attended the 31st SME Capital Forum.

The forum was organised by Foro Capital Pymes and showcased 8 companies looking for funding in the following industries:

Company descriptionAmount sought
Production, distribution and sales of high quality spectacles€500 000
Production and distribution of semiconductors MEMS€1 950 000
Fitness center franchisor€500 000 per center
Sport apparel retail outlets€500 000
Tier 2 automotive parts engineering company€1 600 000
Recruitment App€600 000
SaaS cloud solution to monitor and secure Internet traffic€600 000

¿Cómo conseguir financiación a pesar de un riesgo crediticio alto?

El riesgo crediticio

El riesgo crediticio es una medida que utilizan la mayoría de las instituciones financieras para decidir si otorgan o no un préstamo. Los cálculos que emplean suelen ser opacos y varían entre entidades en función de su “apetito” por el riesgo.

Ranking del riesgo crediticio

No nos vamos a interesar aquí por sus criterios de valoración sino en la forma de convencerles para que desbloqueen fondos.

Pero, antes de nada, deja que te pregunte:

  • ¿Tienes un proyecto viable, pero necesitas entre 5 millones y 100 millones de financiación (deuda) para llevarlo a cabo?
  • ¿Tu(s) prestamista(s) piensa(n) que el proyecto es bueno, pero te dice(n) que tu empresa y/o el proyecto no cumplen del todo con sus criterios de inversión?
  • ¿Has agotado ya las vías tradicionales de financiación: factoring, confirming, project finance e hipoteca de bienes particulares?

Si has agotado las vías tradiciones de financiación, entonces te puede interesar hablar con nosotros para que te presentemos a un Avalista.

Garantías de Avalistas para prestamistas

Si las garantías que puedes aportar no son suficientes para convencer a los prestamistas, entonces deberías plantearte contactar con nosotros para que te presentemos ofertas de Avalistas.

El gráfico siguiente describe de forma resumida el proceso:

Diagrama detallando como reducir el riesgo crediticio mediante colaterales de Avalistas

El principio es simple, consiste en llegar a un acuerdo con un Avalista que aporte las garantías que faltan para que el proyecto tenga un riesgo crediticio aceptable por los prestamistas.

  • La ventaja para el prestatario es que puede conseguir su financiación
  • La ventaja para el prestamista es que reduce su riego crediticio pignorando al Avalista
  • La ventaja para el Avalista es el de optimizar la rentabilidad de sus activos

¿Cuál es nuestra solución?

VC-A ha cerrado un acuerdo con una corporación en Estados Unidos para ofrecer garantías de crédito. Nuestro socio gestiona activos por un valor de más de mil millones de dólares.

Criterios de los prestatarios

Los prestatarios son empresas que deben cumplir con los criterios siguientes:

  • La entidad está operando desde hace al menos 2 años
  • Tiene al menos $10 millones invertidos en el negocio
  • Tiene dificultades para financiarse
  • Su modelo de negocio es transaccional
  • Necesita una garantía para un crédito entre €5 millones y €100 millones
  • La financiación hace crecer sustancialmente el valor de la empresa.
Sectores de predilección

Tenemos predilección por los sectores siguientes:

  • Energía
  • Telecomunicaciones
  • Producción
  • Medios
  • Agricultura
  • Naval
  • Leasing de equipamiento
  • Logística
  • Finanzas
  • Inmobiliario
  • Importaciones-exportaciones de commodities
Regiones preferentes

Preferimos mirar operaciones en las regiones siguientes:

  • España
  • Francia
  • Reino Unido
  • Estados Unidos
  • Europa occidental
  • Asía

Ejemplos de proyectos

1- Empresa en fase de recuperación (empresas “zombis”)

La empresa está operando normalmente, pero tiene una “mochila” de deuda heredada de la crisis que la banca ha refinanciado a largo plazo con un tipo de interés muy bajo.

Tiene identificado un nuevo proyecto potencialmente muy rentable pero no puede financiarlo a corto-medio plazo debido a su alto nivel de endeudamiento.

2-Empresa de compra-venta de comodidades

La empresa tiene la oportunidad de multiplicar su volumen de negocio, pero los prestamistas tradicionales no quieren financiarla porque consideran que su balance actual es demasiado pequeño en relación con el nuevo objetivo de ventas.

3-Empresas muy apalancada con créditos sindicados de la banca tradicional

La empresa está muy apalancada con la banca tradicional y a pesar de tener nuevos proyectos viables, no puede crecer porque los prestamistas no quieren una mayor exposición.

4- Inversiones en proyectos que vayan a impactar la valoración de empresa

Empresas que necesitan una inyección importante de capital para abrir un nuevo mercado.

e.g. la construcción de una nueva fábrica, de nuevas infraestructuras (energía, telecom…), la compra de nuevas unidades productivas que vayan a generar un flujo de caja adicional (barcos, aviones, hoteles…) etc.

 

También te puede interesar nuestro articulo sobre "Leveraged Recapitalization".

Africa Think Tank

Value Creation – Alternative will be attending the African Think Tank networking event at IESE Business school on the 21st of September.

We will meet high-level participants (mostly CEOs or Exco members) of both Kenya (from AMP in Strathmore Business school) and Nigeria (from  CEP in Lagos Business School). As well, and as special invitees, we will count with participants from South-East Asia (from in UAP Business School in the Philippines).

PMI Strategy: Preservation, Symbiosis, Holding, Absorption

PMI Strategy, the acronym for Post Merger Integration Strategy, is one of the most difficult conundrum for buyers of companies. Indeed, there is enough evidence in the literature showing that acquiring companies actually destroys value.

Then, why not challenge buyers on their real reasons for engaging in an acquisition process?

Note that I am not even talking here about “closing” acquisition deals, but about “engaging”, because the reality is that a vast majority of merger talks fail to materialize. “Engaging” is time-consuming, can ruin the buyer’s reputation, divert him from his day-to-day business priorities and cost him expensive advisory and legal fees.

Therefore, if most M&A negotiations are unsuccessful and post-merger integration is likely to destroy value, why should one still want to acquire a company?

Given the weight of the human factor in M&A, there is a myriad of emotional reasons that could motivate a buyer – pride, egocentrism, fear, greed, foolishness, love, megalomania … – and many others not emotional, but still anathema to business savvy such as bad judgment, deceit, government regulation, tax incentives, opportunism, market benchmarking, competitors watching etc…

But let’s leave aside all those dodgy reasons to focus on good strategic ones.

In my opinion, before “engaging” in an acquisition process, rational buyers should first define a PMI Strategy and have a clear answer to the following question:

If I close the deal, what am I going to do with the target?

Philippe Haspeslagh and David B. Jemison have come up with a simple PMI Strategy framework that could be the starting point of any prospective buyer’s reflexion.

The framework is a 2X2 matrix that helps choose between 4 PMI Strategies:

  1. Holding strategy
  2. Preservation strategy
  3. Absorption strategy
  4. Symbiosis strategy
PMI Strategy Framework

Philippe Haspeslagh and David B. Jemison’s PMI Strategy Framework

Read More

Private Equity in a Changing World – key takeaways from XVIII ASCRI congress 2017

Private Equity in a changing world

For those who did not have a chance to attend the XVIII ASCRI Congress about Private Equity in a changing world, I have summarised in this post my personal intakes.

Risk Capital is rebranded Growth Capital

The Association rebranded itself “Asociación Española de Capital Crecimiento e Inversiones” to avoid mentioning the word “risk”. Although that may sound anecdotal, in my opinion, it is the reflection of the following three trends:

Trend nº1 – Spanish Private Equity is Risk Averse

PE investments in Spain have historically been heavily biased towards real estate given the (foolish?) belief that brick-and-mortar assets never devaluate. As a corollary, with the real estate crisis, “dry powder” went down from €6B in 2008 to €1.6B in 2013. As the market is recovering, “dry powder” is growing again and hit €4B in 2016.

Trend nº2 – Spanish COMPAnies landscape has changed

I would daresay that 2016 was a tipping point in the Spanish economy. Most of the distressed companies have now disappeared. They either went bankrupt or were absorbed by healthier organisations. Consequently, many distressed funds are changing their investment strategy from “turnaround” to “buy-and-build” and, given that 65% of Spanish GDP is made of a heavily fragmented landscape of small and medium sized companies, there are plenty of opportunities to grow through (micro?) acquisitions.

Trend nº3 – MONEY IS FLOODING FOR VENTURE CAPITAL

400 European funds raised €74.5B in 2017, a figure close to 2018’s one but still below the record high of €112B  in 2006. Since the year 2000, the sector has invested close to €40.9B in more than 7 880 companies in Spain. International funds accounted for around 72% of the €3.6B inverted in 2016, however, Spain is still lagging behind the leading countries – France and the United Kingdom – if investments are ranked as a percentage of the country GDP.

Panel of Private Equity Players

Panel of Private Equity Players

Spanish Government is betting on Venture Capital

Like other European governments, the Spanish government believes to have found with “Startups” a way to retaliate against the endemic youth unemployment rate. There were 469 investments in “Startups” in 2016, of which 229 came from international VC.

The main reasons why Spain is an attractive place for “Startups” are:

REASON nº1 – Spanish LIFE STYLE

The Spanish quality of life – good food, good climate, friendly people, festive environment – is very attractive to young people. Barcelona’s beaches are definitely a plus for those who want to live by the sea.

REASON nº2 – GOOD ECOSYSTEM OF INFRASTRUCTURES AND SERVICES

It is relatively easy for “Startups” to hire highly qualified employees from top universities at a fraction of the labour cost in the UK, France or Germany. Barcelona and Madrid have both international airports, are well connected by high-speed bullet trains and a dense network or motorways. Barcelona is also a major sea port.

REASON nº3 – early stage money is available

There are many different sources of government funding for early stage “Startups” given that Spain is made of 17 autonomous communities and that each one fights for talent. Madrid and Barcelona are positioning themselves as relevant hubs in the European market and are to be taken seriously.

The flip side of the Spanish VC landscape is that later stage money is scarce.

Too many times,  “Startups” become entangled with local issues such as regional languages, policies, misplaced patriotism and somehow, too small and too fragmented an addressable market.

Panel of Venture Capitalists

Panel of Venture Capitalists

Some of the looming threats

ThREAT Nº1 – Spanish production is still over capacity.

The figure of 20% of excess production capacity has been thrown during the debate. My understanding is that this figure cannot be homogeneous throughout all sectors but it may explain why inflation is still at historical record low and why wages are not going up.

ThREAT Nº2 – Spanish ASSETS are becoming too expensive

Many VC/PE complained about the raising prices of their potential targets. Some even mentioned that the Spanish PE market was in a speculative bubble fueled by underperforming neighbour economies (Greece, Italy) and international market uncertainties (Brexit, the election of Mr Trump).

ThREAT Nº3 – Towards a new financial crisis?

If you combine threat nº1 and nº2, reflect on the cyclicality of economic crisis and the fact that Spain came out of recession later than its counterparts, you may come to the conclusion that the Spanish economy is at the door of a new recession.

This would be a social disaster because albeit the global economy is doing well, recovery has not reached all the segments of the population, the unemployment rate is still very high and another recession would hit the weakest first.

See other events

Leveraged recapitalization

One of our VC-A Members raised recently €270 million to provide debt solutions to the mid-market in Europe. Although his alternative source of funding claims to be more flexible that most lenders and is offering leveraged recapitalization, I suspect that he is looking for interests rates in the 7-8% range, which is currently much higher than what traditional ECB-backed banks are offering.

For example, CaixaBank in Spain is currently offering to healthy companies, debt at 2%-3% annual interest rates. Companies in special situations or new projects still struggle to raise funding and could be interested but our VC-A member wants to focus on companies with EBITDA in excess of €5 million.

Then, why would a sound company accept debt at 2-3 times the price of the market?

One possible  reason is Leveraged Recapitalization.

What is Leveraged Recapitalization?

Leveraged Recapitalization is a corporate strategy in which a company takes on significant additional debt with the intention of paying a large cash dividend to shareholders and/or repurchasing its own stock shares. A leveraged recapitalization strategy typically involves the sale of equity and the borrowing or refinancing of debt.

Dividend Recapitalisation

Dividend Recapitalization

Why leverage a company to recapitalize it?

I will discuss here 3 reasons why shareholders may want to execute a leveraged recapitalization:

  1. To repel sharks
  2. To re-invest the proceed of the dividends into another business
  3. To enjoy life now rather than in the future

1- Shark repellent strategy

By leveraging the company, it becomes less an attractive target for potential hostile take-overs. It is comparable to a poison pill to repel unwanted and/or unsolicited buyers.

2- Re-investment

This strategy may suit  Venture Capitalists (VC) or Private Equity (PE)’s objective, which is to maximise the profile of their companies portfolio.

If a VC/PE believes that the return on investment (ROI) from another asset will offset the additional cost of debt servicing, it may make sense to weaken one balance sheet in favour of the consolidated picture.

3- Enjoy life

Imagine that you own part or the totality of a healthy company and want some cash to fulfil your short term desires – or your partner’s desires 🙂 – but don’t want to sell your equity. One solution is a dividend recapitalization.

Why look for alternative sources of funding?

If you have decided yourself for a leveraged recap, you may now ask yourself, why paying an extra cost of debt servicing instead of getting a loan from a traditional bank?

The answer is simple:

 your traditionnal banker is upset with your anti-takeover strategy,  finds your re-investment strategy suspicious and is definitively against your enjoying life (his own life is miserable).

Conclusion, once you have been turned down by your banker, if you still want to refinance your debt, give me a call…

 

Other recent Thought Leadership articles by Mr. Christophe Schwoertzig:

Strategy Definition versus Strategic Planning
Banks’ digitalisation will affect us

 

 

Brexit: the British have not regrets….

From continental Europe, some people may think that the British are repentant for voting in favour of the Brexit.

Hum…! They are not.

British people's opnion on Brexit, after the Vote

According to the poll, the percentage of people thinking that leaving the EU is the right decision remains constant over time.

… but believe it or not, the Brexit is going to hurt

According to the Deutsch Bank, close to 45% of the UK exports go to the European Union, 3 times more than to the USA, whereas only slightly more than 5% of EU exports end up in the UK.

Relative importance of markets to UK exporters

I am not an economy pundit but in M&A, when a corporate wants to spin-off a business unit, as a rule of thumb, the % of functions and assets that overlap should account for less than 20% of the overall business to divert for the transaction to be successful.

If more than 40% overlap, the divestment is bound to fail, resulting most probably in the bankruptcy of the spin-off and in huge losses from the parent company.

Fortunately for the UK and for the European Community, the dynamics of countries are different from corporates, otherwise, many more countries would have already gone bankrupt.

Gobierno corporativo en la empresa familiar

On the 25th of May 2017, Dr. Josep Tàpies, Professor of Strategic Planning and owner of the IESE Family Owned Companies Chair gives a talk about corporate governance for private entities.

XVIII Congreso ASCRI


Join us at the XVIII ASCRI Congress in Barcelona on the 25th of May 2017.

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