Transition Management

The initial mandate given to Ethiaxe was to assist the Board of Directors, in which all the shareholders were represented, in the analysis of all possible options:

• Growth by the acquisition of a competitor
• Growth by investing even more in advertising and strongly strengthening the sales team to conquer new export markets
• Widening the product range to biscuits for children, a fast-growing market in emerging countries
• The sale of the company to a large food group that could build on the brand "XYZ traditional regional cookies as granny used to bake them" and thus provide a perspective of stability and development to the employees.

Ethiaxe first organized several meetings to listen of the Board of Directors, other meetings with the Chairman and the two top managers to understand the history of the company, its culture, the recent stages of its development, the logic of the decisions taken, its understanding of the market.

Ethiaxe collected as much information internally and externally as possible and organized and analyzed them thoroughly.
At the end of this SWOT analysis submitted to the Board of Directors, only two viable options remained on the table:

• Growth by acquisition or sale to a major international player. An acquisition would require a significant reinforcement of the equity and thus would require to bring in a new minority shareholder because it was impossible to increase the debt. It was a viable option because XYZ had an excellent reputation in the market and was a recognized and respected brand.
• The second retained option was to integrate XYZ in a major food group, as major food groups were increasingly looking for local brands that allowed them to supplement their offer by surfing on the wave of "authentic regional products" that consumers were more and more looking for.

After intense discussions with the shareholders, the decision is made to sell XYZ to a large group. It appeared to be the best option in terms of opportunity and risk.

The shareholders decided to confer a new mandate to Ethiaxe to support them throughout the sales process: search for appropriate targets, valuation of XYZ, MOU, negotiation, closing, passage of the commands to the new owners.

Ethiaxe proceeded with a valuation of the company, with a high, medium and low price range, submitted it to the Board which approved it. Ethiaxe selected a Short- List of 6 possible buyers, ranking them in order of preference (industrial complementarity, cultural compatibility, dynamic of success with the possible buyer, proven ability to integrate successfully an acquisition, etc.).

The Board of Directors decided to retain the first three candidates ranked. Talks were initiated with the three groups. Then in the second phase, an exclusive MOU was signed with one group. After 2 months of negotiations, the closing was successfully completed. During the negotiations, the price and the guarantees offered by the sellers were not the points that required the most challenging discussions.

The most difficult topics were the guarantee to the existing management and employees, that it would be allowed to stay and that the new owners would be building on their competence and passion, and allowed to contribute to a development plan building on XYZ’s strength. The second topic that required a good deal of discussion was the guarantees relating to the respect of minority shareholders that could possibly decide not to sell their XYZ shares. Was the buyer thinking of a squeeze out of the minority sharholders? If so, at what price per share? Ethiaxe suggested to the buyers to favor another solution: to offer minority the option of exchanging their XYZ shares for shares of the buyer. If this option was chosen, what would be the exchange ratio?

XYZ was sold and integrated into one of the world's largest food groups, while now having the means of its ambition and industrial synergies made possible by belonging to a large group (obtaining better supplier prices, enjoyment of powerful marketing capabilities, etc.). XYZ, thanks in particular to Ethiaxe’s patient work of bringing together sellers and buyers during the negotiations, kept a large autonomy and became the flagship brand for "traditional cookies as granny used to bake them" of the group.

The intervention of Ethiaxe was decisive in the success of the whole operation. Classic investment banks focus on the financial aspects of deals. Ethiaxe, by its original approach, analyzes in depth, identifies and dedicates a great deal of attention to the cultural aspects of the companies, looks well beyond the closing, accompanies the sellers beyond the closing, because it is then that the quality of the agreements concluded demonstrate their strength and that it is decided if the operation is a success or a failure. History shows that M & A transactions often prove to be failures, all the attention being focused on the financial and legal aspects, which are certainly necessary, but the success of an operation is achieved by women and men and not by texts or financial flows.
JCF March 30, 2019