M&A and Strategic Update Industrial Services Consolidation and Internationalization to continue WIESBADEN, JULY 2013 With further cost pressure in the industry and increasing professionalism of the service providers the market will continuously mature and grow in the future. Market volume of 20bn in Germany and 100bn in Europe Wide spectrum of services offered and industries served Industrial Services market has significantly professionalized in the past decade Clients benefit from greater value for money Large multinational service providers have evolved Market consolidation and vivid M&A market expected to continue EquityGate has experience with dozens of transactions in this field Market Overview Although the Industrial Services market does not enjoy a high public awareness it is far from being a niche market. This is especially true in countries with a strong industrial basis such as Germany. According to the WVIS, the German society of Industrial Service providers, Industrial Services are primarily services provided to customers in the process and manufacturing industries. According to its assessment the German market accounts for 20bn, the European market even for 100bn. In Germany, Switzerland and Austria a total of 200,000 people work for Industrial Services companies. We expect that further growth in the market for outsourced Industrial Services will result in a win-win situation with clients benefitting from greater value for money and service providers earning attractive margins while taking decent operating risks. Oliver Lennertz (Director M&A & Equity Advisory) From a customer s point of view industrial Services represent a fair share of their plant s infrastructure costs. Since infrastructure costs account for up to 15% of total revenues in the chemical industry it is obvious that cost effective Industrial Services represent a clear competitive advantage for clients. Industrial Services companies cover a broad range of services. Such services can be categorized as follows: 1
Definition Sub-sector Industrial Services Sector Report Industrial Services is a major service sector in Europe covering a broad range of services and a broad set of industries. The maintenance sub-sector amounts to more than 50% of the industry s volume. Maintenance Inspection Repairs Optimization of plants Industrial Services Sector Segmentation Technical cleaning Technical cleaning of facilities In-house logistics Handling and monitoring incoming goods In-house supply of factors Management of raw and recycled materials Production support Provision of appliances and personnel Building up the organization Quality control Finishing services Industrial assembly Disassembly Relocation and assembly of individual machines Parts of operation and entire facilities (without newly constructing plants) More than half of the industry s volume falls into the maintenance category with the remainder distributed approximately evenly between the other categories. Service providers in Germany are typically mid-cap companies with revenues of up to 250m. They provide services to a broad set of industries as depicted below. In a nutshell Industrial Services represent a major service sector in Europe with a broad set of services provided and industries served. Focus Industries Automotive Construct. Prod. and Materials Chemical Industry Steel and Iron Electrical Energy Plastics and Rubber Machinery and Equipment Food and Beverages Pulp and Paper Pharmaceutical 2
The share of outsourced services has grown substantially, although it still represents only around 30-35% of the total market in Germany. Powerful multi service providers and focused single service providers share the market. Market Evolution During the last decade the Industrial Services market has gone through an impressive evolution. The share of outsourced services has grown substantially, although it still represents only around 30-35% of the total market in Germany. In the meantime many multinational players have evolved. In many cases the development was triggered by industrial operators deciding to focus on their core competences, i.e. R&D, manufacturing, marketing and distribution. After an initial step in which the Industrial Services activities were bundled into separate units, many industrial operators finally outsourced such activities. The key drivers behind such rationale were usually to generate cost savings and to gain flexibility in the future. With the market becoming more mature it also professionalized substantially. In Germany the WVIS not only introduced a certification system for Industrial Services providers that sets objective benchmarks but also introduced standard contracts that incorporate best practices between service providers and clients. Last but not least today know-how in Industrial Services is formally transferred via a wide set of advanced vocational trainings and Master studies. Outsourcing in practice As part of outsourcing the industrial client usually has to grant a framework contract over 3-5 years which defines both exclusivity and prices for the respective services. The challenge of the now third party service provider is typically to generate substantial costs savings over time and to acquire additional third party clients to increase the unit s workload. A further obstacle in this task represents the fact that typically wages and salaries of the respective units are substantially above market levels. Often buyers of outsourced units are multinational, powerful service providers. Among such buyers, one can basically distinguish between multi service and focused service providers. The multi service providers position themselves as full service providers and ideally take over the entire services of a respective plant. Major multi service providers are companies such as Bilfinger, Voith, Stork and Hertel. Often such companies offer services over the entire lifecycle of a plant, starting from its initial engineering until its final decommissioning. The focused service providers instead offer single services such as insulation or pipework engineering or alternatively a limited bundle of services such as insulation, scaffolding and painting. The German players Weber Group and Kaefer Group have moved in this direction. 3
A vivid M&A market with many mid-cap transactions. Multinational groups expanding their geographical presence or service portfolio are typical buyers. Transactions The Industrial Services market is characterized by a constant stream of acquisitions, most of them falling into the mid-cap category. Typical buyers are multinational groups expanding their geographical presence or service portfolio. As depicted below companies such as Voith, Bilfinger and Cape were frequent acquirers over the last years. In terms of public attention the divesture of ThyssenKrupp s services activities, i.e. ThyssenKrupp Services, ThyssenKrupp Xervon and ThyssenKrupp Industrieservice (already in 2009 to WISAG) were prominent transactions in the market. Date Buyer Target Target Country Revenue Enterprise Value 22.01.13 Voith Industrial Services 23.08.12 Buchen Industrieservice (Remondis) ThyssenKrupp Services ThyssenKrupp Xervon United Kingdom n.a. n.a. Germany n.a. n.a. 12.07.12 Bilfinger Westcon United States 150 n.a. 31.03.12 Voith Industrial Services Terne Norway n.a. n.a. 13.03.12 Cape Hong Kong Fuji Technology Hong Kong n.a. 9 29.02.12 Bilfinger Tebodin Netherlands 225 145 18.01.12 Voith Industrial Services Mongstad Elektro - Olje & Gass Norway 7 n.a. 15.12.11 Bilfinger Are Oy Finland 25 n.a. 23.11.11 Bilfinger Neo Structo India 35 40 09.09.11 Bilfinger Alpha GmbH Germany 17 n.a. 01.08.11 Cape York Linings International United Kingdom 17 8 16.05.11 Stork Technical Services RBG United Kingdom 342 76 14.04.11 Cape Shoreguard Australia n.a. 1 04.04.11 Apply Leirvik Aluminium Offshore Singapore n.a. 121 05.01.11 Bilfinger AT Group United Kingdom 25 n.a. Source: Mergermarket, Capital IQ, Company Websites Outlook As a result of outsourcing and market consolidation in the recent past today more than 25% of the German Industrial Service providers generate more than 2bn in annual revenues. With further cost pressure on the client s side and further increasing professionalism of the service providers the outsourced market will continue to mature and grow. This development will lead to a win-win situation, with clients benefiting from greater value for money and service providers earning attractive margins while taking decent operating risks. 4
Case Study Bilfinger About the author: Oliver Lennertz, Director at EquityGate, focuses on advising clients in M&A and Equity raising processes. Before joining EquityGate he spent more than 9 years at Bilfinger Group. During this time he led more than 20 major transactions totaling more than 1bn and gained profound operational experiences as Head of Controlling in Bilfinger s Austrian subsidiary. Transformation process of Bilfinger from a pure Construction Company into a multinational Engineering and Services Company Bilfinger SE (previously named Bilfinger Berger AG) has shifted from a pure construction company into a multinational engineering and services company Such shift is the result of a series of acquisitions since 2002 in the fields of facility-, industrial- and power services amounting to more than 2bn (Enterprise Value) and several divestures in which the company sold a substantial part of its construction activities Today Bilfinger offers its customers a wide spectrum of services - Manufacture and Assembly - Management and Operation - Maintenance, Conversion and Expansion - Financing - Design and Construction Through its acquisitions Bilfinger has not only substantially lowered its inherent business risk and its exposure to single markets and industries but also increased its margins Oliver Lennertz led more than 20 international transactions for Bilfinger Group from 2006-2011 with a total value of more than 1bn. The vast majority of these acquisitions were in the sphere of Industrial Services. Most prominently he led the acquisitons of MCE, M+W Zander, Tepsco and Hydro Production Partner. About EquityGate: EquityGate looks back on a track record of numerous deals in the Industrial Services sector being either M&A or capital raising mandates. Important clients of EquityGate were Infraserv, Currenta (subsidiary of Bayer and Lanxess) and Tecon. Through the continuous and focused acquisitions Bilfinger managed it to substantially lower its inherent business risk and its exposure to single markets and industries. At the same time the group could substantially increase its profitability and thereby generate value for its shareholders. Oliver Lennertz, Director, M&A & Equity Advisory 5
Selected Industrial Services Deals of EquityGate a joint venture of Corporate Finance Advisor in relation to potential carve-out / sale of Has sold its division Infraserv Höchst Technik to Has been acquired by Intended acquisition of a leading provider of inspection, testing, certification and technical consultancy services in Northern Europe EquityGate has acted as sell-side advisor EquityGate has acted as advisor to the shareholders EquityGate acted as buy-side advisor to TÜV-Nord Financial Advisor to UK based SLP's management to complete an MBO Strategic and financial review for its growth strategy Bilfinger Berger acquired MCE Bilfinger Berger acquired Hydro Production Partners and Produkjonstjenester Financing was provided by a subsidiary of EquityGate acted as Financial Advisor to Infraserv Incl. partner / director transactions About EquityGate Advisors EquityGate Advisors is a leading financial advisory boutique in the German-speaking countries and the CEE-region. We provide advice on complex financing transactions (investment and acquisition financings), financial restructurings as well as mergers and acquisitions. EquityGate was awarded multiple times for its outstanding advisory services by professional institutes and industry experts. For example: "Corporate Finance Boutique Firm Germany of the year 2013 and 2012 by Finance Monthly Magazine, European Boutique Investment Bank of the Year and European Financing Restructuring Advisor of the year at the M&A Advisor International Awards, and Equity Financing Deal of the Year Europe at the Global M&A Advisor Awards. Furthermore, in 2009 it was named as one of the Top 10 Debt Advisors by FI- NANCE magazine. EquityGate is partner of Mergers Alliance, a world-wide group of award-winning corporate finance specialists with 250 professionals, offering global sector know-how, instant access to leading strategic and financial investors, uniform execution standards and top-notch resources in Asia, Europe and America. Over the past 12 months, our group has collectively completed over 130 deals in 30 countries worldwide with an aggregated value of over $10 billion. www.equitygate.com Oliver Lennertz Director Director M&A & Equity Advisory Phone: + 49 611 205 48 285 Email: lennertz@equitygate.de EquityGate Advisors GmbH Mainzer Straße 19 65185 Wiesbaden Phone: + 49 611 205 48 10 Fax: + 49 611 205 48 20 www.equitygate.com 6