„My company is for sale”

Tamás KovácsBudapest

Contents

• Market environment, external conditions• Expected market changes and their main drivers• The most sought-after plastics processing company types• Why would someone want to sell their company?• Who wants to buy plastics processing companies in Eastern Europe, and why?

– Acquisition vs greenfield investment

• How should you sell your company? • How do you define the realistic market value of your company?• The company sale process

The global plastics industry, by segment

Sheet Extrusion

Sheet Extrusion

Sheet Extrusion

Sheet Extrusion

Sheet Extrusion

Sheet ExtrusionCompounding

Compounding

Compounding

Compounding

Compounding

CompoundingProfile Extrusion

Profile Extrusion

Profile Extrusion

Profile Extrusion

Profile Extrusion

Profile ExtrusionBlow Molding

Blow Molding

Blow Molding

Blow Molding

Blow Molding

Blow MoldingFiber Extrusion

Fiber Extrusion

Fiber Extrusion

Fiber Extrusion

Fiber Extrusion

Fiber ExtrusionPipe, Conduit & Tubing

Pipe, Conduit & Tubing

Pipe, Conduit & Tubing

Pipe, Conduit & Tubing

Pipe, Conduit & Tubing

Pipe, Conduit & Tubing

Other Extrusion

Other Extrusion

Other ExtrusionOther Extrusion

Other Extrusion

Other Extrusion

Film Extrusion Film Extrusion

Film Extrusion

Film Extrusion

Film Extrusion

Film Extrusion

Injection MoldingInjection Molding Injection Molding

Injection Molding

Injection Molding

Injection Molding

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Asia Middle East & Africa CEE&CIS WE NA CSA

The size of a typical plastics converterin Eastern Europe

10 - 100100 - 500

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1000 - 20002000 - 5000

5000 -10000 10000 -

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Process type (All)

Count of Company name

Demand range

Drop Series Fields Here

Main characteristics of the Eastern European plastics industry

The winners:1. Injection moldingGrowth in the near future will be led by automotives, E+E and other typical subcontractor industries (in the

early 90s, market expansion was driven by low-investment production)2. Film productionIn the near future, growth will be fueled by hi-tech food and packaging industry films, as opposed to

construction and agriculture films that were responsible for growth in the past 3. Pipe extrusionIn the eastern regions, it will be pipes for infrastructure building, while in the west, it will be higher value-added

pipes that are set to propel market growth (e.g. PEX)4. Blow moldingThe market will be driven by food industry applications

Typical processes applied in Eastern Europe

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Process type

Processing method – main customer segments – demand (kt/y)

I. Injection molding – 2434 kt/ y I. Household II. Automotive III. Food IV. Building and construction

II. Film (blown, cast) extrusion – 2383 kt/yI. FoodII. Packaging III. Household IV. Cosmetics

III. Pipe extrusion – 1092 kt/yI. Building, construction and infrastructureII. AgricultureIII. Electric industryIV. Electronics, telecommunication

IV. Blow molding – 828 kt/yI. FoodII. CosmeticsIII. PackagingIV. Chemical industry

Top processing techniques*Processing thermoplastic plastics 2008

Expected changes on the Hungarian market

• Products with higher added value will come to the fore (DCG); after the current auto and E+E industry slump, relatively strong growth is expected

• Manufacturing of products related to FMCG will show above-average growth• In the construction industry: hi-tech solutions (e.g. PEX) and products related to home

renovation and energy efficiency (insulation panels, energy-efficient windows, solar panels)

• High value-added sports accessories (e.g. ski boots, EVA sports shoe soles, etc)• Concentration of capital: In the absence of luck or special opportunities, many small

companies won’t be able to keep up with increasingly demanding customers – There will be increasing need to implement front-line technologies, which require capital

– Management costs in small plants with less than 5 kt/y processing capacity are too high relative to all HR expenses

The most sought-after plastics processingcompany types

• Profitable

• Small or no long-term debt (owns its production plant)

• Net current assets are positive (financing our own production = stability)

• Processing 1-15 kt/y

• Professional injection molder, film extruder, blow molder

• Provides integrated services (assembly, coating, printing, tool making, etc)

• Located in modern industrial park

• Sophisticated manufacturing culture, skilled workforce

• Located near motorway

• Availability of skilled local labor force

• Balanced and international customer portfolio

• Long-term contracts with customers

Why would someone sell their company?

• Exhausted “necessity entrepreneurs”• Retirement (those who launched businesses during the democratic transition

while in their 40s are now nearing retirement age)• Shortage of capital (affordable bank financing is not available)• Shrinking market opportunities• Succession problems in family-owned firms• The company has outgrown the managerial capabilities of owner/manager• Losing market share thanks to lack of appetite (or resources) for acquisitions

Who wants to buy plastics converters in Eastern Europe, and why?Acquisition vs greenfield investment

• Globally operating European, American or East Asian companies looking to buy market share• Companies following their customers to Eastern Europe• Financially strong Eastern European companies looking to expand• Venture capital firms wanting to diversify their portfolios• Prices are low

Acquisition vs greenfield investment• With an acquisition, a company is buying time, customers, local knowledge, market share and expertise• Following a greenfield investment, investors often find themselves on a “minefield.” This often results in

loss of market share or sales revenue.

Calculating the value of a company

1. Calculating asset value2. Calculating discount cash flow3. Market potential (products’ market

potential, economic environment, state of competition)

4. Permits, licenses5. Long-term contracts, references6. Equipment7. Organizational and production culture8. Human resources9. Location

The three factors determining company value

Financial factors Marketing and customer factors

Operational factors

EBITDA Customer markets Expertise of top management

Company size, sales revenues Customer portfolio and customer relations Uniqueness of technology

Financial trends over the company’s lifetime

Barriers to market entry and profile change Further opportunities in the area of plastics processing

Growth prospects State of competition, market position relative to competitors

Added value

Capital injection requirements Measurability of performance

The company sale process

• Registration– Filling out ECEBD form-------------------------------------------------------------------------------------------------------------------------------------------------------------

• Preparations (min. 4 weeks)– Financial, commercial and technical due diligence; calculating company value– Preparing marketing material (teaser)– Continuous analysis of business performance– Continuous analysis of potential customers

• Marketing program (5-6 weeks)– Finalizing information memorandum– Targeted contacting of potential strategic and financial investors– Compiling management presentations– Preparing data room

• Indications/offers (6-8 weeks)– Short-listed customers study the information memorandum and make non-binding letters of intent (buyers may be in talks with

other companies as well)

• Company visits (8-10 weeks)– After evaluating letters of intent, seller chooses which investors it wants to negotiate with– Presentations, plant visits– Detailed data provision (e-mail or data room)

• Negotiations/signing of agreements (4 weeks)– Buyer prospects make final binding offers– Price negotiations– Signing of final sales contract

The acquisition process

• Identifying acquisition objectives (8-10 weeks)– Reviewing and analyzing objectives of acquirer company– Defining the characteristics of potential target companies

-----------------------------------------------------------------------------------------------------------------------------------------------------------------– Finalizing acquisition strategy, preparing confidentiality agreements

• Preparations, making contacts (12-14 weeks)– Contacting acquisition target companies approved by buyer– Preliminary survey of target companies– Comparing target companies, providing preliminary evaluation

• Negotiations, company visits (8-10 weeks)– Visiting acquisition target companies; management presentations– Issuing letter of intent by buyer– Preliminary consultations on legal and pricing issues

• Finalizing acquisition target– Detailed financial, legal, commercial and technical analysis of target company– Finalizing acquisition structure and conditions– Final decision on acquisition target

• Completing transaction– Preparing the final purchase contract– Completing financial, legal, commercial and technical analysis – Closing transaction

Others

• M&A service is usually commission-based– In case of acquisition mandates, commission is designed to include incentives toward lower acquisition price

• Acquisition costs borne by buyer• Management is often kept in place for 12-24 months following the acquisition

Thank you

Tamás Kovácstamas.kovacs@ecebd.com

+36-1-391-6577+36-70-368-5141