KPMG Germany: Listen to our War Stories – the Scholz Case and How we Work
Thomas Dorbert has worked for a number of European banks (Dresdner Kleinwort Germany, BNP Paribas France, Mediobanca Italy) mainly in Structured & Leveraged Finance, and had developed a broad network within the whole financing community. His experience spans over 25 years of working within numerous sectors – from capital markets, through to deep restructuring, from LBOs through to investment grade lending, providing neutral financing advice in any situation. Here, he tells Finance Monthly more about debt funding trends in Germany and offers a behind-the-scenes insight on one of the most complex multi-jurisdictional restructuring cases – the Scholz Case.
The funding landscape has dramatically changed – new debt funding trends in Germany, alternative funding options available for corporations which seek to deviate from traditional banks – could you tell us more about the recent changes and their impact?
The lending landscape in Europe and Germany has changed a lot over the last years. More non-banks have come to the market and terms have become more aggressive again. Huge liquidity has led to low margins and cov-light or less structures.
Debt funds have become very important, having pushed into the markets not only in LBO deals, but also lending to large and mid-sized corporates. Generally, those funds are more expensive than banks but also more flexible.
Another development is the growing importance of alternative asset financing. We see an increasing number of those structures providing security to lenders and better terms to borrowers.
An additional source of capital are private placements or notes. Market liquidity is huge (e.g. “Schuldschein” in Germany) with money from institutional investors like insurance companies, pension funds, international banks or family offices. Clients can chose between a widely spread investor base or some larger block investors.
What challenges do you face when starting a new case?
Each specific case has its specialities and must be analysed thoroughly. A transparent communication with top management and shareholders is crucial for us. Being able to explain the strategic rationale and conveying an attractive debt story to new (financing) partners is the core element. This is why we have to understand every detail translating it into the language of a credit committee. Getting the message across is often key for success. Consideration of tax issues combined with financial advisory can add a lot of value and safe real money.
However, network, communication and a sound understanding of our client and financing partners are more important than modelling skills, which are a basic tool but cannot generate success.
From a client´s point of view, what is special about being a financial advisor at KPMG and how do you convince your clients to trust KPMG as their advisor?
Generally, we have a very individual look at any situation and the client can see that. Undoubted loyalty, broad expertise and network, as well as creative thinking are key. Our teams are used to work together and this has often led to successful dual or triple track processes where clients keep all the options until very late in the process. In the last 12 months we have pushed through a decent number of cases where alternatives in equity funding, hybrid money or debt financing were structured and finally implemented. The client remains in the driver’s seat because we simply do not adhere to standard solutions.
What were the most remarkable facts about the Scholz case?
In a nutshell: in one of the most complex and difficult cases many people have ever seen, we managed to keep Scholz on its feet. We started with a huge debt burden, an overwhelming number of stakeholders fighting against each other and decreasing profits and cash flows. To run a truly competitive global dual track process (Debt and M&A) for an asset that some people called “a falling knife” was a challenging job. Our global process led to two binding offers and eventually a take-over by a Chinese investor willing to buy a big chunk of the debt at a discount, a stabilized company continuously supported by the banks and a solution finally accepted by all parties. After all the dust has settled, most stakeholders were satisfied with the results.
To get the best out of a situation, a financial advisor logically has to offer the complete 360°- range of Corporate Finance services like Debt, M&A and IPO as well as other services like Tax or Accounting in parallel with experienced specialists in these fields.
We develop financing structures fully adapted to the individual strategy, cash flow profile and investment horizon of our clients. We follow our client´s guidance when it comes to tough negotiations without impacting long term banking relationships.
In numerous deals, the solution eventually adopted has been found through a dual or triple track process that has pushed different options in parallel with competitive processes.
Important factors are the advisor´s independence from any sales-driven own interest, global reach, a broad network and long experience of the individuals in successfully structuring similar transactions.