Pitch Best Large-Cap Corporate Deal M&A Awards Belgium 2019: Daikin – AHT Cooling systems

Name of the deal:        Daikin acquires AHT Cooling systems.        
Date closed:                 22nd of February 2019
Published value:          €881 million.     
Buyer:                           Daikin Industries Ltd. through its subsidiary Daikin Europe
Target:                          AHT Cooling systems   
Seller:                           Bridgepoint Advisers
M&A Database:           https://mena.nl/deal/11653

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Involved firms and advisors sell side:
M&A:          J.P. Morgan 
Legal:         Freshfields
FDD:           PwC
Dataroom:  Ansarada

Involved firms and advisors target:
M&A:          J.P. Morgan 
Legal:         Freshfields
FDD:           PwC
Dataroom:  Ansarada

Involved firms and advisors buy side:
M&A:          Goldman Sachs, Mizuho Financial Group
Legal:         Binder Grösswang Rechtsanwaelte, Fieldfisher
FDD:           Deloitte
Tax:             Deloitte

Pitch

Brief description deal / Deal outline:
Daikin Industries Ltd. acquired AHT Cooling systems, a leading company in the commercial refrigeration market in Europe through its subsidiary Daikin Europe N.V., from Bridgepoint, the Private Equity shareholder of AHT Group. The deal was initiated and executed by the corporate development team of Daikin Europe, located in Brussels, led by Bart Van Hauwermeiren.• Headquartered in Austria, with a presence in over 100 countries, AHT Cooling systems, manufactures and sells refrigerating and freezing showcases specifically suited for food retailers. Leading the "plug-in" type showcases segment, AHT Cooling systems leads the market by the active launch of new products corresponding to evolving store layouts. Furthermore, utilizing its technological capabilities and business resources, AHT Cooling systems serves large accounts including major food retail chains worldwide. The Group employs more than 1,800 people and operates four production branches in Austria, China, Brazil and the USA, twelve sales and service branches and its own business unit for R&D and innovation, FY17 revenue amounted to €481m.• Daikin Europe N.V. carefully examined different strategic options to expand the commercial refrigeration business and was since beginning of 2018 engaged in an intense dialogue with Bridgepoint Advisers Ltd. Based on a common understanding about the future expansion AHT Cooling systems could enjoy under a potential ownership of Daikin, both parties agreed to enter into exclusive negotiations over the summer of 2018. Assisted by their advisory team, Daikin Europe N.V. executed due diligence Sept-Nov’18 leading to the signing of the SPA on 22 November 2018.

Deal rationale:
In its strategic management plan "Fusion 20", Daikin has established priority measures to expand its commercial refrigeration business, and capitalize on environmental regulations relating to energy savings and refrigerants. In Europe, the company has begun sales of highly-efficient refrigeration and freezing systems for supermarkets and convenience stores since 2000. Moreover, in 2016, Daikin has acquired Italian commercial refrigeration manufacturer, Zanotti, extending its business to industrial refrigeration equipment for food processing and warehouse storage in addition to refrigeration equipment used in shipping such as marine containers and overland trucks and vans. On the other hand, Daikin saw the opportunity for a strategic reinforcement by extending its position at the consumer-facing end of the cold chain, namely the refrigeration showcases segment.
The refrigeration equipment market is estimated to have a global scale of c.€34bn expected to grow c.5% annually. Commercial refrigeration, which includes supermarkets and discount stores, is estimated to account for 50%. The refrigerated display cases specifically are strategic to the expansion of the commercial refrigeration business because they are a key product for supermarket chains, which are major customers for this business. Market expansion is expected in Europe, with an increase of small and mid-size supermarkets and convenience stores and e-commerce companies entering the food retail market. A global increase in food demand and an expansion of food supply chains worldwide will also lead to the increased importance of cold chains, which are essential for preservation of food freshness. The acquisition adds display cases, the end point of the cold chain, to Daikin’s product line-up. Daikin is now a one-stop provider of a wide range of refrigerating and air-conditioning products.
The expansion into the Cold Chain market offers Daikin Europe N.V. the opportunity to create a complementary new business segment with a very large potential and global reach, and a different growth pattern than the AC business.

What is the impact of this deal for the company?
With this acquisition, Daikin is adding AHT showcases to its own wide range of products, services, and solutions based on its air conditioning and refrigeration equipment. This will enable the company to become a one-stop provider offering complete coordination of air conditioning and refrigeration products.
This acquisition is also expected to solidify Daikin's business foundation in Europe (where energy saving regulations are strict and environmental awareness is high) and promote full-scale expansion of its refrigeration business in the United States as well as Asia, a region of remarkable growth in both population and economic prosperity.
In addition to refrigeration equipment, synergy with air-conditioning equipment can be expected. Daikin will be able to offer total energy solutions for the entire store space. Capitalizing on its energy-saving and environmental technologies, Daikin can be a provider of optimum energy-saving systems combining air-conditioning and stable refrigeration systems to keep food fresh.

What is the impact of this deal for the direct stakeholders?
Daikin intends to build on AHT's strong business foundation and operations. In the future, Daikin plans to further reinforce its sales and after sales service structure to become a one-stop provider of refrigerators, freezers, and air conditioning equipment to major food retailers.
AHT and Daikin are complementary to each other in sales, production and development. For Daikin, AHT is an attractive partner with whom they can increase their presence in the commercial refrigeration market.

What is the impact of this deal on the society?
The refrigerator and freezer business is a highly social issue as it contributes to one of the crucial world challenges of food preservation and food waste reduction, especially faced in developing countries. The refrigeration business presents great opportunities for Daikin to utilize the advanced technologies it has cultivated including energy saving, inverters, and refrigerant control. Because the refrigeration business shares a close affinity with the company's main business of air conditioning, expectations run high for Daikin to achieve synergies with current operations. Daikin intends to offer new value with service solutions focused on energy and the environment as it works to make its own unique contribution to resolving global issues.

Why does this deal deserve a nomination?
This transaction represents the largest acquisition of Daikin in Europe and one of the major transactions of FY19 involving a Belgium based company. With the acquisition, Daikin will be geared up to combine global food waste reduction with happy shoppers and retailers. Complexities of the deal§ Presence of AHT in various continents­ Until now, Daikin Europe N.V. was only active in EMEA-region but as a result of the AHT acquisition, among others, an important foothold in US is created.­ Managing factories from different maturity levels on 4 continents.­ In order to manage the PMI process, Daikin created 12 work teams, consisting of Daikin Europe N.V., AHT and Daikin Industries colleagues, in order to give maximum support to the operational business team and accelerate execution of planned synergies.§ Creating the one stop solution towards the Food Retailer requires intense coordination between Daikin A/C and the Refrigeration division both on headquarter as well as on local country level.§ Infusing Daikin’s technology into future product portfolio of AHT involves close cooperation between AHT R&D team, Daikin’s European development center and the mother R&D center in Japan. Transition path in managing priority setting from a Private Equity owned company into Daikin’s Long Term strategic business growth plan.

Comments Panel of judges
With the sale to Daikin Industries, AHT gives itself the space to play a prominent role on the European market through the Belgian subsidiary of Daikin. From the buyer's perspective, the acquisition is a logical way to expand the product portfolio in a growing area. The Panel of Judges believes that major synergy benefits can be achieved through this acquisition, but states that challenging integration is still awaiting. On the short term these challenges lie in the area of cost control and in the longer term in the area of research and development.