Acquisition of an engineering business in the EC (Buy-side M&A)

Competence area: Investment

Industry/sector: energy / design engineering

Year of completion: 2005

Client: private investors, Russia

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Project background:

A group of private investors specializing in design engineering of the power generation and distribution facilities sought Investorium‘s assistance with the acquisition of a design engineering company in the EU-zone which, throughout its history, has specialized in designing facilities related to the generation and transmission of heat and electricity, including those facilities located in Russia. In fact, what fed the investors’ interest was that the acquired company owned an archive of the primary design documentation of the key thermal power plants in the North-Western region of Russia.

Scope of work:

Following the standard Buy-side M&A procedure, the Investorium project team conducted a comprehensive Due Diligence check of the business to be acquired and its assets with the view to assessing its up-to-date financial position and technical condition, as well as identifying potential risks involved in the forthcoming transaction. A distinctive feature of the project was the fact that the transaction was to be effected in the jurisdiction of the European Community in conformity with the EU laws. Therefore, a group of European lawyers was incorporated into the project team to ensure that the transaction documents were duly prepared, thus minimizing risk of affecting the transaction outside the investors’ home jurisdictions.

What presented a separate challenge for the project team was the fact that the transaction had to be leveraged by external financing. To this end, Investorium approached local banks about financing the transaction and secured an investment loan with the company-owned office building serving as a security (collateral) for the loan. Since the transaction was done in the interest of a group of investors from different countries, there was a need in an SPV company in a neutral jurisdiction which met the requirements of all the investors. Such an SPV was established in order to effect the transaction and jointly manage the acquired company afterwards.

Deliverables:

As a result, the acquisition was successfully carried out on a financial leverage (investment loan secured by the real estate of the acquired company), with all the legal issues related to the transaction in a foreign jurisdiction effectively handled. This project is notable for the number of additional issues arising in the process of the international (cross-border) transaction. Understanding the country-specific investment risks and, most importantly, knowing how to manage such risks are critical for any cross-border M&A deal.