Pitch Best Small Cap Deal 2021: Standard Investment - Sparck Technologies 

De genomineerde deals maken dit jaar kans op de M&A Award voor Best Small Cap Deal 2021.

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Name of the deal  Standard Investment acquires Sparck Technologies 
Date 30 July 2021
Published value € 5 – 50 million
Buyer(s) Standard Investment 
Target Sparck Technologies (formerly Quadient Technologies BV)  
Seller  Quadient SA  

Involved firms and advisors   

Involved firms and advisors buy side:  
Lexence (Legal Advisory Corporate M&A) Parker Hudson (Legal Advisory Corporate M&A), Hill Dickinson (Legal Advisory Corporate M&A), Bignon Lebray (Legal Advisory Corporate M&A), Stek (Legal Advisory Corporate M&A), Atlas Fiscalisten (Tax Advisory), Accuracy (Financial Due Diligence), Standard Investment (private equity management) 

Involved firms and advisors target:  
AKD (Legal Advisory Corporate M&A), PwC (Tax Advisory)  

Involved firms and advisors sell side:  
KPMG (M&A advisory), AKD (Legal Advisory Corporate M&A), Deloitte (Tax Advisory)  


Brief description deal / Deal outline  
Standard Investment acquired Sparck Technologies from Quadient SA in July 2021. Sparck Technologies develops, manufacturersand sells fit-to-size packaging machines to e-commerce companies. The machines packs packages fit-to-size which saves labour, material and logistics costs for e-commerce companies and reduces the impact of e-commerce businesses on the environment. The transaction is a corporate carve-out and a transition case. The corporate carve-out includes a.o. a rebranding and ERP carve-out. Further, the company needs to transition from producing legacy machines to Quadient to producing the fit-to-size machines for blue chip customers globally. Standard Investment will support management in realising both the carve-out and the transition (more info later).  

Why should this deal win the Award for Best Deal 2021?  
Unique Dutch high-tech division under French ownership becomes a stand-alone business under Dutch ownership. Sparck Technologies is a highly innovative, high-tech machine building company that has developed a unique technological solution for e-commerce companies. The machines they develop, manufacture and sell packs packages fit-to-size, i.e. the systems scan e-commerce products that are placed on a conveyer belt and then precisely cuts and folds the cardboard around the product(s) to create a box that is as small as possible and fits exactly. The system can process up to 18 packages per minute and is therefore a lot faster than manual labour, which significantly increases productivity and capacity. Moreover, this gives e-commerce companies a solution to the problem of omnipresent labour shortages. Only one other company worldwide has managed to develop a similar solution, despite many large packaging companies trying the same, which makes the company a technology leader in this very young fit-to-size packaging machines market with high technological barriers to entry.    

Also, the company’s solution significantly improves sustainability in the e-commerce segment. Every e-commerce consumer has experience with receiving small products in large boxes, typically with lots of (plastic) void fill material. This issue also received quite some media attention this year. Sparck Technologies eliminates this issue completely with their unique technology, which leads to significant benefits for the environment.   
Post-closing company transition that needed to be prepared pre-closing:  
•    Besides the high-tech packaging machines, the Drachten location also produces envelope filling machines for seller Quadient. At the transaction date, Drachten’s production capacity was still split (c. 50/50) between the packaging machines and envelope filling machines.   

•    In order to move towards a 100% focus on the packaging machines, the company needs to phase-out the envelope filling machine production in such a way that production capacity will gradually be freed up for additional packaging machine production(which volumes are growing rapidly). Standard Investment needed to negotiate a commercial agreement with Quadient on the phasing-out of the envelope filling machines, including certain volume guarantees and sufficient flexibility. Other related services for the envelope filling machines (R&D, spare parts, etc.) also needed to be agreed upon for a transitional period.  

•    This shift towards 100% packaging machine productions also means that all personnel (production, R&D, services and back office) working on the old envelope filling machines need to be retrained to work on similar activities related to the new packaging machines.  

•    In parallel, the organization needs to be carefully transitioned from being solely an internal production location of Quadient that supplies the internal sales organization, to a stand-alone business that sells to external customers. This means the company needs to develop its own marketing, sales and after-services organization.   

•    As the transition has implications for the future of the organization and its people, the Dutch and French works council had tobe closely informed of all the steps in the transition plan. Standard Investment had weekly meetings with the Dutch works council and constructed a plan with them and Sparck management to ensure that an adequate transition plan covering all employees would be in place.  

•    A rebranding of the company was required from “Packaging by Quadient” to “Sparck Technologies”.   

•    Moreover, as part of the phase-out of the envelope filling machines, Sparck will support transferring these production activities to other Quadient locations. The company will provide several services to get this done, including training, translation and transfer of IP and management of a temporary logistic hub.  

1. Pre-closing carve-out preparations in different countries:  
•    While the majority of the business is located in Drachten, the scope of the transaction also included employees and assets located in other countries:  

•   Sales and services organizations in the US, the UK, France, Germany and Belgiumo    Spare parts stock in the US and the UKo    Patents registered in France  

•    Furthermore, a small part of the Drachten assets and liabilities were out of the transaction scope.  

•    This resulted in several pre-transaction steps, including a legal demerger in the Netherlands (leaving out-of-scope assets and liabilities behind), asset transfers in the US, the UK and France, and the transfer of certain foreign employees to the newly incorporated Dutch legal entity. For all these steps, documents needed to be negotiated between Quadient and Standard Investment.  

•    As an illustration of the complexity: we were first contacted by KPMG France in September 2020, submitted our final offer in December 2020, signed an LOI in March 2021, and closed the deal in the final days of July 2021. The Standard Investment deal team worked nearly full-time on this transaction during these 10-11 months.    

2. Highly complex cross-border deal process with a French listed corporate as Seller during Covid lockdowns:  
•    Seller Quadient is listed at the CAC40 in Paris and was therefore subject to very strict compliance regulations.  

•    All transaction documents, transition steps, carve-out agreements and other agreements needed to be aligned with the various department of the Quadient organization. The Standard Investment team have had virtual meetings with over 50 Quadient employees across the globe to agree on all relevant transaction matters. Given all cultural and timezone differences, patience was key during the whole process.  

3. Successful first months after closing:  

•    Despite the complexity, the first months after the carve-out transaction have been smooth, the cooperation with Quadient is satisfying, the first transition and carve-out steps have been taken successfully and the business is evolving in line with the ambitious growth plans.  

Deal rationale:  
•    The fit-to-size packaging market is growing fast and Sparck is well-positioned to capture a substantial part of this growth asone of the two players offering a commercially viable machine;   

•    The market potential is huge. Sparck is already serving a large variety of customers from different geographies, sizes and industries. Both in B2C and B2B e-commerce markets demand is increasing rapidly, driven by the increase in e-commerce, automation, labor shortage and an increased focus on sustainability;   

•    The opportunity represented a true hands-on Standard Investment case due to the fact that the company needed to be carved out from its parent and assisted with the transition from producing both the envelope filling machines and packaging machines to only producing packaging machine, including own sales, marketing and services activities;   

•    The company was managed as a corporate and will benefit from the more pragmatic and entrepreneurial approach that Standard Investment brings. Also on topics such as make-or-buy, working capital and pricing, Standard Investment sees interesting improvement opportunities;   

•    Attractive timing of the acquisition as the company just made its turn into a profitable business during Q2-2021 with a strong order book for the remainder of 2021 and impressive sales pipeline for the years after.   

•    The solid track-record of Standard Investment with carve-out transactions from other corporates was an important driver for Quadient to select Standard Investment as the buyer and trusted Standard Investment to be the right partner to support in transferring the envelope filling machine production to other locations.    

What is the impact of this deal for the company?  

After completion of the carve-out, Sparck Technologies will be a stand-alone company with full focus from its new owner Standard Investment. The company will transition from a producer of envelope filling machines (a market in decline) to a producer and distributor of e-commerce packaging machines (a market growing rapidly)  

What is the impact of this deal for the direct stakeholders?  
This transaction is a win-win for all stakeholders. Virtually all stakeholders will benefit from the transition towards a stand-alone business in a highly attractive market, while Seller Quadient realizes its announced goal to reduce its production footprint and divest non-core activities.  

What is the impact of this deal on society?  
This transaction results in a company that is being supported by its new shareholder Standard Investment to swiftly transition to a company fully focused on selling and producing machines that will significantly improve sustainability in the global e-commerce segment. Under the ownership of Standard Investment the company can accelerate its growth ambitions, leading toe-commerce companies worldwide improving their operations for the better of the world.  

What was most complex about this deal?  
Arranging financing for the acquisition was time-consuming due to the complex transaction structure (including pro-forma carve-out financials), the transition case and the carve-out. Moreover, the packaging machines were a relatively new product that were only reaching break-even results months before the transaction had to be finalized. Standard Investment needed to explain all complexities carefully to the financiers, in order to convince them all deal complexities were dealt with adequately. In Dexteritas we found a financier that believed in the potential of the business, the carve-out plan and the transition plan as presented by Standard Investment.  

As evident as the business case now seems, Standard Investment had to perform thorough commercial diligence to believe that Sparck was indeed a technological leader and future winner in this segment, which was confirmed after hours of expert calls and multiple customer visits. Furthermore, Standard Investment managed to get comfortable on the quality of the company and its management by having many sessions with management in Drachten for several months. This also laid a solid foundation for a good cooperation with management and delivered plenty of input when building the business case and shaping the transaction documents.  

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