1、TIC sector: a corporate finance perspective,CEOC General Assembly - 14 May 2012,Agenda,Notes: 1) TIC: Testing, Inspection, Certification,ABN AMRO at a glance,Robbert Claassen Managing Director, Corporate Finance Tel. +31 (20) 6282200Mob. +31 (6) 51478238E-mail ,Corporate Finance & Equity Capital Mar
2、kets,The Corporate Finance & Capital Markets division of ABN AMRO consists of 95 financial professionals with the majority of its execution power driven from the Amsterdam office,Product expertise,ABN AMRO CFCM is also present in France, Germany and the USA with dedicated Corporate Finance teams, an
3、d is currently extending its network and presence in other relevant markets,CFCM is supported by dedicated Sector Teams of Equity Capital Markets and ABN AMROs global network of Private Banking and Corporate Banking professionals who jointly offer access to major corporates and investors as well as
4、their key decision makers,Debt Solutions (acquisition & leveraged finance, export & project finance, loan syndications, debt capital markets, asset securitisation, structured finance, capital structuring & advisory) Corporate Finance & Capital Markets Private Equity,All other core products including
5、 trade, finance, treasury, cash management and insurance,New York,Amsterdam,Paris,Frankfurt,1,2,4,3,5,AUD 198,600,000Rights IssueOctober 2009 Australia,TIC sector deals,AUD 445,000,000Acquisition of AmdelMay 2008 Australia,USD 730,000,000Sale to InvestcorpApril 2011 UK,EUR 1,078,000,000Initial Publi
6、c OfferingOctober 2007 France,USD 552,000,000Project FinancingAugust 2007 Turkey,EUR 64,000,000Sale to ApplusFebruary 2005 Denmark,UndisclosedAcquisition finance BodycoteAugust 2008 UK,UndisclosedSale of Inspecta to 3iAugust 2007 Finland,AUD 41,000,000Takeover offer for CCIFebruary 2005 Denmark,Undi
7、sclosedSale of subsidiary to Bridgepoint January 2006 Finland,1,2,4,3,5,Continued growth expected in most TIC segments,Outlook,Growing revenues at 3-6x GDP Larger players target 7-10% organic revenue growthAnnual 100-200bps margin increase through: Back office off-shoring and rationalisation Use of
8、scalability More value added services Lean management,Marine,Consumer products,Construction,Commodities,Gov. services,Industry,IVS,Certification,3,7,26,5,4,15,10,4,2010E Market size (EUR bn),Market growth trends,07-11,12-15,1,2,4,3,5,12-15,Profitability,Segment outlook,Notes: period mentioned in mos
9、t recent strategic updates Source: Bureau Veritas, SGS, Intertek,1),2),3),TIC market benefits from strong fundamental growth drivers,Global increase QHSE demand,Increasing regulation,Trend to outsourcing,Full-Service concept,Meet international client demand,Consolidation potential,1,2,4,3,5,TIC sect
10、or attractiveness: cash generation and defensiveness,High and resilient cash flow generation,Low cyclicality,Substantial barriers to entry,Diversified and sticky client base,Scalable business model,1,2,4,3,5,Entry barriers: Brand Network Accreditations Reputation Capital requirements Expertise Large
11、st client 3% of revenues at BV and SGS e.g. 90-95% retention rate in classification and management certificationScalability predominately in lab testing and IT systems,EBITDA margins 18-27% of top 6 listed players Cash conversion ratios of top 3 players typically reach 80%None of the global top 3 ha
12、s reported organic revenue declines in any year since 2000, although some segments are cyclical,2,1,5,4,3,1,2,3,4,5,Source: Company info, ABN AMRO analysis, annual reports,Attractiveness acknowledged by stock market,1,2,4,3,5,5 year share price performance (indexed),1) TIC sector composite based on:
13、 SGS, BV, Intertek, SAI Global, Eurofins, Campbell Source: date as of May 11, 2012; Factset, Company info, ABN AMRO analysis,1),TIC Sector best performing segment in Business Services ,Share price performance (2005-2012 YTD),1,2,4,3,5,1) TIC sector companies included are: SGS, BV, Intertek, SAI Glob
14、al, Eurofins, Campbell Source: date as of May 11, 2012; Factset, Company info, ABN AMRO analysis,1),TIC Sector valuation multiples are the highest,EV/ Sales (2012E),EV/EBITDA (2012E),1,2,4,3,5,1) TIC sector companies included are: SGS, BV, Intertec, SAI Global, Eurofins and Applus Source: date as of
15、 May 11, 2012; Factset, Company info, ABN AMRO analysis,1),Some 15 active consolidators exist with strong M&A pipelines Pursuing M&A actively, with often dedicated M&A departments 50/50 organic/external growth typically for top 3 Small to medium sized targets mainly (90% EUR 30m revenues) Deal size
16、increases however (Moody, Inspectorate) M&A focus on commodity sectors and industrial sectors recently Also M&A focus exist on filling the gaps: i.e. add missing segments or (emerging) countries,The TIC market is still fragmented and is consolidating,1,Similar M&A strategy at key consolidators,Reven
17、ue 2011 (EUR m) largest players,1,1,1,Top 3 players represent less than 30% of global outsourced TIC market 2,1,2,4,3,5,Notes: 1) 2010 figures; 2) broker comments 3) estimate Source: Company info, Annual reports, ABN AMRO analysis,3,M&A activity coming back from slower 2009,Estimated number of trans
18、actions in the global TIC market,Bureau Veritas and SGS most active in M&A historically, both with large global networks, covering most segments (“verticals”) No industry transforming acquisitions (yet) between players in top 15 Deal size increases Since financial crisis, strategic buyers are more a
19、ctive, compared to 2005-2009 period, where PE players dominated the TIC M&A market,1,2,4,3,5,EUR 130m,EUR 193m,EUR 265m,EUR 74m,EUR 542m,EUR 522m,RTD,Soluziona,Increasing deal size of transactions,Largest deal,EUR 250-300m,EUR 1480m,Macquarie,Itevelesa,EUR 500m,Highlights,M&A expected to continue, a
20、s clear benefits exist,Clear economies of scale and synergy potential,Benefits ofa global network, especially in inspection services,Addition of fast growing new niches to the portfolio of services,2,1,3,“For an industry that carries clear economies of scale, TIC remains remarkably fragmented. But w
21、ith some cyclical deceleration and an increasingly ripe ownership structure, deal activity looks set to accelerate, we believe.” Broker research,The group had already made four acquisitions for a total consideration closed to 30m so far in 2010. Given the current economic climate, we would expect In
22、tertek to slow its external growth strategy in order to benefit from potentially lower prices in the months ahead” HSBC on Intertek,“Bureau Veritas has been a prolific acquirer of small and medium-size TIC businesses and appears well-placed to continue this. We see opportunities for growth across it
23、s current businesses, especially in currently smaller-scale areas such as commodities testing” RBS on Bureau Veritas,“TIC sector expertise, knowledge and skills can be leveraged across different geographical regions. Newly acquired services / skills can be redeployed across the network international
24、” Intertek,1,2,4,3,5,Market watchers expect continuation of M&A,M&A drivers in TIC are threefold,Clear economies of scale and synergy potential,“We believe that size is an advantage in the testing and verification business as economies of scale can lead to better utilisation of networks. Furthermore
25、, global companies like to work with the company offering the largest and densest laboratory/office network internationally” Source: Pictet on SGS,Within “verticals” labtesting segments: Efficiency and scalability exist predominantly in the laboratory intensive testing business, so often within the
26、same vertical market (e.g. Environmental, Clinical, Food labs) as utilisation rates are relevant Less efficiency gains possible in more people intensive inspection segments, although local dominance relevant in e.g. non-destructive testingSynergies between “verticals”: IT systems and IT platform uni
27、fication Network optimisation: TIC sector expertise, knowledge and skills can be leveraged across different geographical regions Extract the potential inter-disciplinary synergies of a diversified services portfolio Cost and overhead rationalisation,We believe that margins around 13% are achievable
28、based on economies of scale “Acquisitions in all other divisions could lead to synergies and lead to higher margins after integration” Source: Julius Baer on SGS,1,2,4,3,5,1,Strong global network: proximity to clients and projects,“TV Sd acquired Technical Inspection unit of Dow Olefinverbund. The t
29、akeover strengthens the position of TV SD in Germany and opens new perspectives for driving internationalization.” Source: TV Sd press release,“The group is now actively considering larger acquisitions. Something that would give the group greater reach globally and in an area where we are currently
30、not the leading player” Source: CEO Intertek interview, MergerMarket,SGS is pleased to announce the acquisition of Correl Rail Limited, Birmingham, UK. “This acquisition enlarges the SGS Industrial Services offering. Through its unbeatable network, SGS will further develop these activities in Europe
31、 and abroad“ Chris Kirk, CEO of SGS; June 2011,“Bureau Veritas has built a network of mineral testing services following completion of 4 acquisitions over the past 18 months. This enables the company to provide laboratory testing services to its clients wherever they are. Source: Bureau Veritas pres
32、s release,International network an increasing barrier to entry Although often local business, network is key Offering a large and dense global network is vital (e.g. Automotive suppliers) in more segments Geographical leverage, one-stop shopping also e.g. In management certification Large contract e
33、xecution (e.g. Shell Pernis), limited number of TIC players are preferred suppliersOther barriers to entry: Extensive expertise needed Reputations/ integrity/ brands Significant investments in accreditations HR management skills Access to highly skilled, experienced and specialized staff Harmonizati
34、on of regulation benefits larger players Price pressure in segments drives efficiency,1,2,4,3,5,2,Adding technology, accreditations, expertise, segments,“Trough this acquisition DEKRA, leading testing organization in Europe, is significantly expanding its position in the area of product testing and
35、certification. For instance, DEKRA is acquiring an internationally recognized testing brand: KEMA-KEUR. KEMA Quality holds a big variety of accreditations that cover all relevant standards” CEO DEKRA, August 2009,Fill the gaps (some 12-15 TIC segments exist) Newly acquired technology/expertise can b
36、e redeployed across the (international) network Adjacent services and markets Understanding processes; e.g. efficient design of laboratories can be applied to several testing segments Balanced portfolio - reduce exposure to specific different markets / cycles increasing resilience Some look for nich
37、e segments with fragmented, local competition,1,2,4,3,5,3,Some detailed examples of recent transactions,More level playing field between strategics and PE? PE deals up to EUR 250m typically financed by local banks via club deals; PE still important player in bidding for platform acquisitions with cl
38、ear buy and build potential,1,2,4,3,5,How to value a TIC company ?,Typically used by financial buyers,Typically used by strategic buyers,Comparable Transactions Analysis (CTA),Comparable Company Analysis (CCA),Discounted Cash Flow Analysis (DCF),Leveraged Buy-Out Analysis (LBO),Value Drivers,EBITDA
39、growth NWC/Capex need ROIC vs WACC Competitive advantage period,EBITDA growth (organic / acquisitive) Financing Entry / exit multiples,Historical transactions Focus on sales / EBITDA multiples Often control premium or synergies included,PER or PEG ratio Sales / EBIT(DA) focus No control premium or s
40、ynergies in multiples FY0/FY1/FY2,Valuation based on IRR calculations assuming a certain (LBO) debt package available,Valuation based on the main multiples of recent and relevant comparable transactions,Valuation based on the main trading multiples of comparable (listed) companies, e.g. SGS, BV, Sai
41、 Global,Valuation based on the discounted free cash flows of the company over the period generating abnromal returns,Description,1,2,4,3,5,2,1,3,4,DCF: given long term growth and stable, high returns,1,2,4,3,5,Intertek,Bureau Veritas,SGS,Levered Equity Beta (ABN AMRO analysis),0.65,0.61,0.75,Levered
42、 Equity Beta (Bloomberg),0.88,0.45,0.79,Levered cost of equity,6.7%,6.9%,4.8%,Unlevered cost of equity (in peers currency),6.0%,6.3%,4.5%,Peer company,1,Source: Company info, Annual reports, ABN AMRO analysis,Predicting free cash flows,Measuring the opportunity cost of capital,Forecasts needed for r
43、evenue growth and profitability margins Measure free cash flows after necessary investments, e.g. lab-equipment, inspection instruments, premises, net working capital, technology Understand period of competitiveness specific TIC segment (using e.g. Porter analysis),Listed TIC players multiples are b
44、ack to historic averages,EV/Sales 2012E,EV/ EBITDA 2012E,1,2,4,3,5,2,Valuation multiples highly dependent on transaction size,Smaller targets,(Mar 11),(May 08),(Nov 10),(Sep 08),(Jun 10),(May 10),(Dec 07),(Jul 07),(Jun 07),(Dec 06),Deal size EUR 1-50m EV/EBITDA 5-8x,Large size transactions,Target Fi
45、rm,EV/ EBITDA,EV/EBITDA 8.6x 13.5x,1,2,4,3,5,3,Fewer LBO/ MBO deals in TIC, available debt levels down,PE sponsors substantial TIC sector experience,Debt Multiple,Target Firm,1,2,4,3,5,4,Different transaction options exist,Trade Sale,Bilateral Limited auction Full Auction,IPO,Sizeable deals (Interte
46、k, BV) Brings visibility, access equity capital markets; Floating of Applus 13-14 ?,Joint Venture/ Alliance / Merger,Complementing geography or subsectors Equal size; “verein”, “stiftung”,(Secondary) LBO/ MBO;,Popular sector for financial sponsors due to specific value drivers More limited benefit f
47、rom leverage,1,2,4,3,5,Examples,Transaction options,More experienced in M&A processes, as buying and selling companies is their businessUnlikely to waste time in the process, in general no motive to prolong process e.g. to gain access to commercially sensitive informationIf already invested in the s
48、ector may be able to act as a strategic buyerMay put a new management team in place that can help with various management issuesHave capital to invest recent lack of opportunities mean that increasingly PE investors have funds available,Private equity vs. strategic buyers: some considerations,Tend t
49、o be able to pay a higher acquisition price because of revenue or cost-based synergiesCan move more quickly in due diligence because they have industry expertise May be able to pay cash or equity and have little need or risk of raising debt,Pros,Have multiple considerations when buying a company, whereas financial buyers are purely focused on return on investments (IRR and money multiple)May have a more complex internal governance review processesMay lack experience in M&A, this could delay execution process,
