Dresdner Kleinwort Wasserstein’s M&A team has pulled itself up from sixth largest in Germany last year to the top of the pile with a series of deals in which its network of relationships proved vital. Michael Marray reports.
The members of the M&A team at Dresdner Kleinwort Wasserstein (DrKW) in Frankfurt had plenty to celebrate in April, when the Dealogic first-quarter figures for completed deals in the German M&A market had them perched on the top of the league table.
Head of corporate finance and advisory for Germany, Switzerland and Austria is Raimund Herden. He previously worked at Goldman Sachs but in mid-2001 moved from Goldman in the Messeturm to DrKW’s headquarters on Theodor Heuss Allee – just a few hundred metres away. Since then, DrKW has been making steady progress in the M&A sector, and his team ended 2003 in sixth place for completed German transactions. But DrKW still wants to improve – achieving the first place for the first quarter of 2004 is a sure sign that it is heading in the right direction.
Private equity investors
DrKW is benefiting from the high level of interest in Germany from private equity investors. And crucially, since it is playing in its home market, the bank has a well-established network of relationships in the German corporate world, including links to the sometimes secretive family-owned Mittelstand companies. This network of relationships also helps to deal with situations in which the federal or land governments are on the sell side and political sensitivities have to be taken into account.
This was the case in one of the first quarter’s most high-profile deals in Germany, in which DrKW acted as exclusive adviser to Boston-based private equity investor Bain Capital. This involved state-owned railway company Deutsche Bahn (DB) selling a package comprising its steel trading business, Interfer Stahl, and its specialty chemicals unit, Brenntag. Bain Capital quickly sold on Interfer Stahl to entrepreneur Albrecht Knauf but held onto Brenntag.
Deutsche Bahn originally announced that it wanted to sell the Brenntag package in October 2002. DrKW already knew the company well because it was involved in the initial public offering of Brenntag parent Stinnes AG in 1999. Brenntag operates in 47 countries, and one of the main challenges was to understand the individual markets and get the general trends right.
“We had very good relationships with the management board of Brenntag and also with the Deutsche Bahn people, and we knew it was going to be a high-visibility transaction – and also politically sensitive since Deutsche Bahn is government owned – so we thought very carefully about who to approach on the buy side,” explains Kim Comperl, director in the transaction execution group, who has primary responsibility for looking after financial sponsor buyers.
Awareness pays off
Bain Capital is a global leader among financial sponsors but had not done a major deal in Germany. DrKW was aware that it was looking for a large deal in that sector, so towards the end of 2002 the DrKW team went to Bain’s office in Munich and was subsequently mandated as exclusive adviser.
Bain Capital won the auction against competition from other major private equity players with a E1.4bn bid and the deal formally closed in the first quarter. Dresdner has a strong leveraged finance team and provided debt financing to Bain as one of four mandated syndicated loan lead managers, – which, as a rule, tends to be 65%-75% of the purchase price if financial buyers are involved.
Another big deal in the first quarter was Allianz’s sale of its stake in Beiersdorf (whose products include the Nivea skincare range) to Tchibo. Allianz has been Dresdner’s parent company since 2001, so there will inevitably be sniping from competitors that this was an in-house mandate that was handed to DrKW on a plate.
“Beiersdorf was an important deal for Allianz and it can’t afford to hire an adviser just because they are part of the Allianz family,” says Mr Herden. “This was a great deal and we were very pleased to win that mandate. And, when you look at the league tables, although a E4bn deal clearly makes a big impact, nonetheless more than half of our deal volume came from other transactions.” These included Bain/Brenntag, and the E1bn-plus sale of Verbundnetz Gas to the utility EWE.
League table jungle
Mr Herden professes that he does not get too worked up about league table status. The way that credit for deals is allotted in M&A has always led to a jungle of confusing statistics, and differences between one set of league tables and another, he says.
“We want to be a top player in the market, with a diverse mix of large high-profile deals like Bain/Brenntag, plus Mittelstand M&A deals and equity deals,” he says. “Our medium-term goal is to be a top-three player but profitability must be good for our unit. Where, for example, a US bank may take on deals in Germany for league table status, this is our home market and we have to make money here.”
The overall trend in Germany suggests that there will be a steady deal flow for all the big M&A houses to feed on in the coming years. Currently, volume is steady, although still below the levels in the late 1990s boom. And DrKW is slowly expanding its team of 40-plus bankers – although, because it was never heavily overstaffed, it had less slimming down to do than some of its competitors in the past few years.
In particular, there is a constant stream of deals out of the German Mittelstand as descendants of the company founders, often professional people with no management involvement, want to turn their equity stakes into hard cash. The added competitive pressures of globalisation and the single eurozone market often require heavy new investment, and many owners would rather sell up and realise cash than take on new risk with heavy investment programmes.
There are situations in which DrKW can identify these family-owned businesses that want to sell out, and can bring the deals direct to private equity investors without an auction process. Financial sponsors clearly prefer this approach.
Nearly all the big financial sponsors now have offices in Germany and are hungry to do deals. “If you look at the last 18 months, most of the large deals in Germany have involved financial buyers,” says Mr Herden. “There are a lot of funds available to be invested and there are a lot of attractive deal opportunities in many industries. Also, in comparison to the UK or the US, the German M&A market is less overbanked and not as mature.
“Maybe the economic environment in Germany is not ideal but if you pay a multiple point less there is lot of leeway to cover the risk. Many German companies on a relative scale are still less highly valued and clearly you are better off buying at the bottom of the economic cycle.”
Another deal involving a financial buyer was recently announced, but it did not close in time for the first-quarter figures. This involved the acquisition by Texas Pacific Group of Isola AG, the world’s leading provider of copper-clad, glass fibre-reinforced base materials, used in the production of printed circuit boards. DrKW was sole financial adviser to Texas Pacific.
Also announced recently was the US-based Danaher Corporation’s acquisition of dental equipment manufacturer Kaltenbach & Voigt (KaVo). DrKW is acting as sole financial adviser to Danaher in the deal.
“Danaher targeted dental equipment as a new growth platform and KaVo was at the top of its wish-list. But because KaVo was a closely held family business, it was always going to be hard for a US company to establish meaningful contact,” explains Florian Fautz, co-head of the transaction execution group. “It was a good example of a deal in which we were able to use longstanding relationship networks to open doors for a foreign buyer.”
Deal momentum
Realistically, few observers expect DrKW to top the 2004 league table for completed deals but the team has kept up its rapid pace by announcing a series of deals in April. Perhaps the highest profile transaction was announced on April 19, involving mg technologies’ E2.2bn sale of its Dynamit Nobel plastics, pigments and explosives business.
The deal, in which DrKW was advising mg technologies, also involved private equity player Kohlberg Kravis Roberts (KKR), which did the deal via its industrial portfolio company, Rockwood Specialties Group, at the same time conducting a capital increase for Rockwood financed by KKR and Credit Suisse First Boston Private Equity.
