Moregate Consulting

Moregate's Volker Schulze, as member of the WTG Board, introduced a new governance structure at Board level enabling the Board to appoint a new Managing Direcor in Kieron Sambrook-Smith.

Critically, the new leadership and governance structure enabled the introduction of new capital into the organisation aiming at strategic investments.

DTI Capital was chosen by the Board to back the recapitalisation.

The new shareholder structure will also enable further growth through acquisitions giving WTG the firepower to significantly increase its footprint in their chosen market segments.

Whilst DTI focused on raising the funds, Moregate worked with the Board and WTG's Senior management team to prepare the organisation and shareholders politically, emotionally and financially for the biggest change since the original buy-out from Cable & Wireless.

Moregate's introduction of WTG Technologies to DTI Capital marked DTI's maiden investment in the UK.

The buy side was advised by international law firm Kaye Scholer, London-based Blick Rothenberg and Latitude for the financial and commercial due diligence respectively.

The sell side was advised by DLA Piper, the law firm and Torch Partners, the Corporate Finance specialist and investment bank.

Moregate led the entire deal process:

• Deal initiation
• MBO management
• Fund raising and Financing
• Financial and commercial due diligence
• Negotiation
• Completion process, including the legal process

WTG was sold off by Cable & Wireless in a drive to focus on its core telecoms heritage.

A key success factor for the MBO was Moregate founder Volker Schulze's relationship with Cable & Wireless's CEO Jim Marsh, combined with his ability to form credible relationships with all stakeholders, including Jeremy Jensen, the CFO.

Moregate Consulting managed the entire deal cycle of a Management Buy-Out (MBO). This included negotiating the complex bid process run as an auction, due diligence, fund raising, managing the legal process, post deal transition and subsequent business turnaround.

We transitioned some 100 staff across compliant with TUPE regulations ensuring certainty for the staff and operations.

As this deal was an asset deal, we set up a new legal entity capable of running the assets in an independent fashion generating positive cash flows critical to become a "going concern" and satisfy WTG's clients of its credibility as a long term business partner.

Critically, we negotiated Cable & Wireless's commitment to the new entity through a Preferred Supplier Agreement, as well as financial commitment through a short term vendor loan.

We proposed scenario planning techniques to elaborate on the strategic challenges and to develop a robust strategy positioning BP Solar to succeed in the face of a dynamic, uncertain environment:

• Capture the scale of a growing industry and how to position BP Solar at the top
• Make investments in new technologies work quickly
• Anticipate disruptive supply and process changes early
• Anticipate changing demand patterns early influenced by
  • technology efficiency gains
  • government funding
  • willingness to a premium for environmentally friendly energy

Key deliverables included:

• Future scenarios around alternative energy
• Develop a strategic direction - markets and capabilities
• Integrate with multi-year strategic plan
• Enable the organisation to adapt to new changes

WTG Technologies Ltd is a medium sized specialist systems integrator delivering secure information solutions (secure collaboration, intelligence management and other complex web-based applications) for secure government organisations in the Public Sector, specifically Justice and Security.

WTG was sold off by Cable & Wireless in a drive to focus on its core telecoms heritage.

After managing and leading the original MBO and separation from Cable & Wireless, Moregate was retained to ensure the new company was turned around and capable of becoming a going concern.

Key achievements include:

• Transitioned 100 people via TUPE
• Transitioned all fixed and current assets
• Turnaround and rebuilding the loss making entity (-£1.5m) to become a £0.5m EBITDA company at its first audit
• Implementation of corporate controls
• Restructured the P&L through improving key drivers such as revenue, gross margins and overheads
• Secured current sales and established new revenue channels through a strategic alliance
• Hired senior management

Equally important was the appointment of a more than credible Chairman in Chris Conway, former Chairman of Detica.

The business is completely independent of Cable & Wireless and has demonstrated a very positive trading history to the satisfaction its customers, channel partners and investors.

Recently, we have finalised a funding process to equip the company for a second stage funding and growth initiative. New senior management was hired with specific experience in managing growth.

OMV is one of the largest companies in Austria and a leading energy company with an active role in shaping the energy industry in Central and Eastern Europe, Southern Europe and Turkey exploiting the enormous growth potential of these regions.

At the start of shaping their "3plus" strategy OMV invited us to assist with scenario planning techniques with the aim to equip the senior management team understand how to deal with uncertainty relating to geographic growth, political stability and energy demand in the growth regions of CEE, SEE and beyond.

We ran a number of training workshops to equip senior managers with critical tools and techniques to help them evaluate strategic questions and as a risk management and early warning process for mission critical projects.

US Can, a US based international food, beveragec and aerosol canl manufacturer with a large presence in Europe acquired May Verpackungen of Germany to form U.S.C. Europe.

Our consultants were invited to run a 100 day plan to assist both management teams to unlock the value of the merger through the integration of their businesses.

An increase of Earings per Share (EPS) in excess of 30% of the original target was achieved by the integration team through improving the key value drivers of the business, i.e. the implementation of better procurement contracts, increase in revenue and gross margins (pricing, customer management) and more effective manufacturing.

Workstreams in relation to the value drivers were set up. Each workstream was led by the director in charge of the respective value area, who set the strategic agenda in form of project charters. The key strategic intent was acquired through the consolidation of hypotheses from Executive Interviews and Strategy workshops held prior to the formal kick-off of the integration programme.

About U.S. Can:

U.S. Can became privately owned in 2000. Headquartered in Lombard, Illinois, it has consolidated sales revenues of $844 million, 2,200 employees worldwide, and 13 domestic US facilities located in West Virginia, Indiana, Pennsylvania, California, Ohio, Illinois, Maryland, and Georgia. U.S. Can Co. Europe is based in the UK with aerosol manufacturing facilities in the UK, France, Italy, Spain, and Germany. The company acquired May Verpackungen with three facilities in Germany, which concentrates on the production of pet food and general line cans.

U.S.C. Europe is owned by Dutch organisation Impress.

Moregate Consulting was called in by the Managing Director to help with the integration of the two companies.

An Integration Steering Group was formed consisting of the board members and senior executives of both organisations. It was chaired by the Managing Director and led by Moregate in conjunction with the Integration Director.

Moregate provided the tools, techniques and advice to equip the Steering Group members to baseline the combined entities, to identify and sign off cost savings and shareholder value creating growth opportunities well in excess of  the deal value and restructuring costs.

The emphasis of the approach was to equip the management team to create value over and above the intrinsic value of the two businesses combined on a stand-alone basis.

Project background

In May 2010 Electrosonic (ES) acquired the DRV Group (DRV) for an undisclosed value.

Electrosonic operates world-wide in the leisure, command and control and corporate markets. The leisure market has an estimated £500m annual value,  the corporate AV and Support market has an estimated value of £3bn  world-wide and command and control estimated to be £500m

DRV focuses on the corporate market, but has recently started to diversify into the medical education segment.

The overall market for AV integration and services is set to change with the key drivers being globalisation, commoditisation and IT/AV technology conversion.

The acquisition of DRV was seen as a platform for growth by developing more long term relationships whilst integrating both organisations and developing the offerings available to both existing and new customers.  

It was important to retain all staff and their key relationships with both customers and suppliers during the integration process; this was balanced with the need to integrate both businesses into a single organisation and ensure flexibility was also retained and developed.  Electrosonic offered DRV structure and stability whilst having a strong financial position to underpin future growth opportunities in new geographic regions or by developing new offerings.

Approach

Moregate deployed its 100 Day Process with the objective to align and integrate the two organisations, identify the synergies and benefits targets and start the organisational structuring with the aim to optimise the operating model and working practises.

The 100 Day Process is a holistic approach to post M&A integration and is designed to address the six key factors of successful M&A into account. These factors are split into three “hard” and three “soft” factors:

The critical working assumption was to not disrupt the day-to-day operation whilst addressing the key consolidation issues immediately and head-on.

The programme was structured around four Updates:

1. Strategy imperatives and Baselining
2. Sizing the Prize
3. Design and Consolidation
4. Detailed Implementation Plan

At all stages in the process risk and change management issues were managed in advance through a combination of the 100 Day Processes acting as an early warning system and assisting the Integration Director with managing issues as and when they occurred.

The key principles upon which Moregate bases the 100 Day Process specifically deployed in this case are:

• Identification of synergies and benefits linked to the overall business strategy to ensure shareholder value creation
• Synergies and growth benefits are being tracked through the P&L
• Organisational consolidation addressed and executed very early during the process to free-up the way for strategic, organisational and operational change

David Ambrose Managing Director of Electrosonic commented “This is a very exciting phase for our business, the acquisition of DRV provides a platform for growth.  At the project outset we recognised the need for some experienced input to help provide a framework for the integration.  Moregate helped us develop this framework and guided us through the one hundred day plan to integrate the two organisations.  The short term injection of key skills helped us mitigate risks in the integration and remain focussed on our overall strategic objectives”

Success factors

·      Ownership and governance

·      Strict financial management

·      Communication

Results and benefits

·      Clarification of strategic and financial objectives

·      Cost savings unlocked and linked to the P&L

·      Shareholder value creation and platform for growth

·      Uncertainty reduced

As part of a major restructuring of the refinery and in response to the political environment the sovereign oil companies, Bapco and Banoco, joined forces under the leadership of the Undersecretary of the Ministry of Oil and the Bapco CEO.

Given the public profile of this integration stakeholder management at senior management and political/governmental level had been of utmost importance to ensure a smooth transition in a culturally diverse environment.

Moregate's founder and senior director, Volker Schulze, headed up the overall integration programme reporting to the CEO and the Undersecretary of the Ministry of Oil.

The 100 Day Process was deployed with the key aim to design a new organisation based on modern industry standards. To ensure organisational transition in conjunction with process design in excess of 100 staff contributed to the integration process.

Key synergy targets included the overall process design accompanied by efficiency gains though improved coordination and communication processes.

The 100 Day Process culminated in the presentation of the new organisation design and its implementation plan in a townhall meeting to an audience consisting of senior managers and government officials.

We had four key objectives common to most turnarounds:

Take control and manage the immediate crisis

Due to inadequate financial controls and poor working capital management the business suffered serious pressure from creditors, banks and other stakeholders. If not managed the business would have been fatally wounded. Our consultants introduced working capital management tools and processes to manage cash flow, profit and loss and balance sheet forecasts. This allowed management to deal with creditors, debtors and banks to manage the cash balance. At management level we had to improve leadership expertise and start laying the foundations for the change. We asked our partners at P5 Management to take the existing management through a series of coaching sessions.

Rebuild stakeholder support

Stakeholder management became the key focus after the stabilisation. Only then could we start and re-engage suppliers and partners with the view to devise a new business model.

Fixing the business
Strategic focus and devising a changed business model was the key challenge going forward as the existing management was given no time to relax and revert to the old way of doing business. Early, simple measures as offering lease finance, identifying niche solutions and new pricing structures moved towards a fundamental change of the business model.

Resolve future funding
A new financial structure was put to investors and banks. Moregate was able to secure current funds, raise new bank debt and invest itself. The company now has sufficient working capital headroom and additional funds to invest to transition to the new business model.

Moregate worked with Decision Strategy International (DSI), a leader in scenario planning based in the US, to build strategic scenarios for 2020 for the CEO and his senior executive team.

We deployed the scenario planning tools and techniques developed by Prof Schoemaker of Wharton Business School, President and CEO of DSI.

With growing uncertainty in the energy markets, geopolitical rivalry and energy demand driven by the BRIC countries (Brazil, Russia, India, China) combined with an emerging alternative energy industry, not to mention recent issues with nuclear energy, the National Grid CEO, Steve Holliday, faced strategic issues under uncertainty.

The scenarios are designed to provide strategic options well in advance and act as early warning dashboards to ensure the organisation is prepared for the challenges certain economic, social and legal indicators present.

The scenarios are not designed to predict the future as we are not claiming to have the chrystal ball, but are plausible futures that indicate, through the analysis of leading and lagging indicators, whether the world is moving to one or another scenario or a combination of a number of scenarios.

The scenarios, combined with the fact that over 100 senior managers went through the scenario planning process, equip the executive management team at National Grid with critical decision making authority in relation to mergers and acquisitions as part of an international growth strategy, funding and commissioning large investment projects, as well as negotiating with regulators.

Our team ran well over 20 workshops with senior managers from across the world, a great number of executive interviews, including the CEO and his direct reports, conducted a great deal of research through interviewing external parties, such as the World Energy Council.

After the scenarios were presented to the board, some of the proposed options were implemented within the first three months.

When BP acquired Veba/Aral in 2001 it was the largest cross-border merger in that year. Lord Browne, the then BP CEO laid out a strict financial scenario and integration process to ensure the deal was integrated with as little disruption as possible, organisationally and financially.

Volker Schulze, Moregate's Founding Director, was asked by Ian Palliser, CEO Germany and the BP Director responsible for the integration to advice on the organisational integration, especially at board level and the integration of the finance function into the BP process. This was especially critical for BP's reporting requirements to the executive board and the stock market.

The acquisition of Veba/Aral added significant downstream assets to the BP portfolio in form of retail outlets (Aral) and a number of state-of-the-art refineries across the country.

As part of the ongoing engagement, we helped restructure the IT function in Germany resulting in the engagement of Atos Origin taking over the IT staff and assets in a $60m three year outsourcing deal.

Further along Moregate managed the re-organisation of the downstream IT function in Asia, Australia and South Africa, and programme managed the overall organisational changes at a global level.

Moregate was subcontracted by Ineum (now Kurt Salomon) to provide critical corporate finance capabilities and modeling expertise.

Moregate worked closely with the Senior Vice President of Strategy to develop a corporate finance model capable of producing scenarios in relation to a JV investment.

The cornerstones of the model were the ability to value the JV business based on various strategic approaches Airbus open to Airbus and its subsidiaries. The model was based on real options theory resulting in measuring critical corporate finance variables such as Ebitda, cash flow, NPV and IRR as criteria for investment.

Kovi Moodely deployed his wealth of corporate finance expertise to the benefit of the project.