Pitch Best Mid-Market Deal 2019: Parcom Capital – 247TailorSteel

De beste deal van het jaar is meer dan het hoogste cijfertje in de krant en de kunst van het dealmaken is meer dan het opstellen van een contract. De Awards voor de beste deal zou dus niet alleen op de prijs van de deal gebaseerd moeten zijn, maar vooral op de – toegevoegde – waarde voor een bedrijf en de exit. 

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Name of the deal:          Parcom Capital acquires a 60% stake in 247TailorSteel.
Date announced:           5th of March 2019
Published value:            Between €100 million and €250 million. 
Buyer:                            Parcom Capital
Target:                            247TailorSteel
Seller:                             Carel van Sorgen
M&A Database:              Bekijk de details van deze deal.  

Involved firms and advisors sell side:
M&A:                              ING Bank – Rob van Veldhuizen, Arnoud Kuik, Rogier van Merkestein, Roel Jongejan, Syarif Hertog. 
FDD:                              PwC – Robert du Burck, Wilmer Kloosterziel, Michiel Semeijn, Rense Balk.
Tax:                                PwC – Bart Weijers, Merel Mookhoek, Arjan Vullings. 
Legal:                             De Brauw Blackstone Westbroek – Lennard Keijzer
CDD:                              PwC – Bastiaan Oomens. 

Involved firms and advisors buy side:
M&A:                               Nielen Schuman – Jan de Wilde, Mohit Sharma, Steven Stuijt, Rashiq Muhaimen. 
FDD:                               KPMG – Gijs van Reen, Bud van der Schrier, Emiel van Duuren, Hans van den Heuvel, Rajko Kozic, Michiel de Jong.
Tax:                                 Meijburg & Co Belastingadviseurs – Arnout Haeser, Ben Sitton.
Legal:                              Allen & Overy – Jasper de Jong, Aafke Landsmeer, Jaantje Kramer.  
                                        Stek – Ruben Tros. 
Debt:                               Nielen Schuman – Rafael Gomez Nunez, Ger van der Linden. 
CDD:                               KPMG

Pitch

Brief description deal / Deal outline:

247TailorSteel (“247TS”), founded in 2007 by entrepreneur Carel van Sorgen, is an independent Smart Manufacturing provider of high-quality laser cutting and bending of steel and aluminum sheets and tubes, servicing SME customers located mainly across the Netherlands and Germany. 247TS operates a state-of-the-art machine park for automated laser cutting, tube cutting and bending purposes, operating 24/7 in the Netherlands and 24/5 in Germany. The in-house developed SOPHIA software enables the Company to offer tailor-made quotes to customers instantly and fully automate the production process, based on artificial intelligence and highly sophisticated nesting software. The ability to offer a fully automated front-end solution is unique and disruptive within the ‘traditional’ metal processing industry and allows the company to significantly outgrow its competition whilst generating substantially higher margins. The company has grown since its inception in 2007 with an average annual growth rate of 35% and expects to generate turnover of €100m in 2019 (effectively more than tripling its size over the past four years), with EBITDA margins consistently well-above 20%.The process was launched as a narrow auction, whereby a limited number of parties with relevant expertise were selected to visit the company to meet with Mr. van Sorgen and get a tour around the Varsseveld facility. Mr. van Sorgen would be retaining a substantial minority equity stake and with the help of legal adviser De Brauw, key terms underlying the shareholders’ agreement were shared already during the first phase of the process. These principles should form the basis of an equity partnership, however Mr. van Sorgen was above all looking for a reliable and enthusiastic partner to go on an adventure with, equipped with the capabilities to expand the business internationally and with strong eye for company culture, entrepreneurial spirit and the wellbeing of its employees, acting as a good parent.In addition to the equity process, an extensive lender education process was executed with a wide variety of participating banks and direct lenders, whereby in addition to transaction financing emphasis was put on capex facilities to fund the expansion strategy as well as lease facilities to finance additional laser cutting and bending machinery, and AGVs (automated guided vehicles).During the process, the CEO of 247TS left the company and Mr. van Sorgen retained the position of (interim) CEO, with the aim to find a new CEO as soon as possible after the transaction, together with its new equity partner. Parcom demonstrated its belief in the disruptive and differentiating nature of the 247TS concept, recognized the company’s international growth potential, developed a strong relationship with Mr. van Sorgen and proved to be most creative in sweetening the deal with elements besides purchase price. As such, Parcom was ultimately selected as most suitable partner, and numerous tailor-made and creative solutions were found in the areas of structuring the transaction consideration (a whole new settlement concept was invented), financing structure including bank debt, capex facilities, lease facilities and a vendor loan, real estate carve-outs from the transaction scope (and agreements on funding and ownership of future real estate) and a number of key shareholder agreement and SPA topics. In addition, Mr. van Sorgen received confirmation that company culture, entrepreneurial spirit and employee well-being would be looked after with the utmost care. In his decision making, Mr. van Sorgen especially valued the relationship with the deal principles of Parcom and their entrepreneurial mindset. In addition, a highly attractive purchase price was negotiated at a valuation level significantly exceeding estimated levels circulating post-transaction.ING Corporate Finance acted as sole financial adviser to founder and shareholder Mr. van Sorgen, coordinating all aspects of the transaction (e.g. business plan preparation, equity story positioning, process coordination, buyer selection and interaction and tactical transaction advice). ING Corporate Finance has successfully coordinated a narrow auction process with a limited number of parties, selected in close cooperation with Mr. van Sorgen. The process was executed on strict timelines on the back of structured information provision to ensure maximum control over the process and a highly compelling valuation. Due diligence information provided to potential bidders included full scope Financial (incl. Tax), Operational and IT, and Commercial VDD reports, as well a Legal Fact Book, in addition to a customary data room, management presentation and site visits. Next to ING Corporate Finance’s advisory role, ING Structured Acquisition Finance and ING Lease played a vital role in providing acquisition financing and lease facilities to support the transaction.

Deal rationale:
Mr. van Sorgen was 67 years old when initiating the process with ING Corporate Finance, had no succession available within his family and had become less involved in the day-to-day operations of the Company. He considered this to be the appropriate time to on-board a partner, who would be allowed to acquire a majority stake in 247TS if there would be a good fit on personal level and the equity partner would offer substantial added value to the business by providing the capital, know-how and execution capabilities to significantly accelerate international expansion, in order to unlock the full potential of the business. Mr. van Sorgen’s dream is to fully leverage his disruptive competitive advantage (sophisticated SOPHIA software in combination with a state-of-the-art machine park) and one day have more than 100 manufacturing facilities operating in a highly automated manner on a 24/7 basis throughout Europe. The business plan accounted for the opening of one new manufacturing facility per year, and with the help of a new and enthusiastic equity partner, possessing the relevant capabilities and know-how, multiple facilities can be opened per year in the medium-term to make this dream come true.

What is the impact of this deal for the company?
Parcom will play a vital role in further developing the business and accelerating the international expansion strategy of 247TS over the coming years. The deal will allow the company to benefit from the funding capabilities as well as the network, expertise and know-how of Parcom to open new manufacturing facilities to further expand internationally. Key workstreams that need to be expanded include HR (more people will need to be hired), a roll-out team responsible for finding and developing new locations and the sales force. In addition, Parcom will help the business professionalize further by improving certain processes and (financial) reporting, such as monthly management accounts and (standardised) KPI tracking dashboards. Finally, Parcom assisted in finding a new CEO and has been able to secure Supervisory Board members bringing important industry experience.

What is the impact of this deal for the direct stakeholders?
The succession issue of Mr. van Sorgen has been solved and continuity of the business is secured. Parcom will maintain company identity, culture and wellbeing of employees as a good parent, which was an important topic during the process. The company continues to look to hire many more employees to facilitate its rapid growth. A new CEO has been found and Supervisory Board members have been installed. The shareholder base is more diversified and several internal processes will become more professional. The SME client base will not notice any changes and will continue to be a key priority.

What is the impact of this deal on the society?
The client base of 247TS consists of SME companies (typically <50 FTEs) who get their products easier, faster and at a lower cost than with competitors as a result of the uniquely highly automated processes (proprietary SOPHIA software). These SME companies are often ousted by large steel companies as they are seen as not attractive due to the low volumes of their orders. At 247TS, especially these customers are king and can place orders of €10 if they wish. As the business will accelerate its presence outside the Netherlands with new manufacturing facilities, more SME companies will be served. In addition, the anticipated growth will result in a substantial numer of new hires which is good for local employment (machine operators, truck drivers, sales teams, overhead staff etc.).

Why does this deal deserve a nomination?
The deal involved a hidden gem in the Dutch manufacturing industry, offering a disruptive solution to SME customers by using in-house developed AI software in the traditional metal processing sector, resulting in >40% sales growth in recent years at industry-leading EBITDA margins, whilst providing customers products easier, faster and at a lower price. The buyer is a well-known Dutch PE house who beliefs in the concept and its potential, and was selected as partner by the selling founder on the merits of the entrepreneurial spirit and 'click' with the deal team, rather than simply the highest price. 

A well managed process, including an extensive debt financing track, which ultimately resulted in a highly attractive valuation nevertheless. Creative structuring of the transaction with a new developed settlement model, a vendor loan, modifications to the transaction scope including (future) real estate carve-outs and negotiations on various SPA and SHA items.

Comments Panel of Judges:
Een opvolgingsvraagstuk dat een uiterst complexe deal met veel borgingen opleverde voor beide partijen en dat ook nog eens op financieel gebied knap is gestructureerd; de jury bekeek de zaak van 247TailorSteel met grote aandacht. De verkoop van de eigenzinnige en innovatieve staal

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