Friday6 March 2020 ★ FINANCIAL TIMES 13
COMPANIES
K AY E W I G G I N S , J O E M I L L E R
A N D R O B E RT S M I T H
When the German industrial heavy-
weightThyssenkrupp ecided to put itsd
lift and escalators business — the com-
pany’s crown jewel — up for sale last
year, it was a sign of desperation.
The once-mighty conglomerate was
reeling from a series of profit down-
grades and a plummeting share price
that led to itsrelegation rom the flag-f
ship Dax blue-chip index, and had run
out of cash to fund its pension liabilities.
Now, it has pulled off something of a
coup. The group hasbrought n €17.2bni
from a group led by private equity firms
Advent International nda Cinven n onei
of Europe’s biggest ever buyout deals.
The price far surpasses the figure of
between €13bn and €14bn that its
interim bossMartina Merz xpected ate
an arlier stagee. And it did so just as
stock markets were plummeting amid
coronavirus fears.
For some, the deal and its priceare a
symbol of the buyout boom and a
throwback topre-crisis years, when
buyout groups teamed up and took on
larger and larger leveraged deals.
“Every single cycle has a deal like
that, a peak deal,” saida private equity
advisernot involved in the process.
The price tag is €700m higher than
the final sum offered by a consortium
led by private equity groupsBlackstone
andCarlyle, the only other bidder at the
final stage of the auction, a person
involved in the process said.
The winning bid values the company,
whose lifts are installed in skyscrapers
such as New York’s One World Trade
Centre, at about 14 times its adjusted
earnings of just under €1.2bn, two peo-
ple familiar with the matter said.
The deal’s total leverage, the ratio of
its debt to earnings, will be about eight
times, one of the highest levels recorded
on a large European private equity buy-
out in recent years.
Yet, among theother groups that had
tried to buy the business, all with pri-
vate equity involvement, few have criti-
cised the winners’ approach.
“I can’t say they’re going to do
a bad deal,” one rival dealmaker said. “I
wish I could, but they’re buying a fantas-
tic business.”
Part of the unit’s draw is its reliable
stream of revenue from longstanding
servicing contracts.
The private equity firms were “even
more attracted to” the company
because of the coronavirus outbreak,
said Ranjan Sen, a Frankfurt-based
managing partner at Advent, which has
its headquarters in Boston.
That is because of its “high customer
retention rates” and “defensive cash
flow”, Mr Sen said.
Even in a downturn, safety regula-
tions require companies to pay for their
lifts to be serviced.
The sale marks a change of heart for
Thyssenkrupp, which in May, reluctant
to loosen its grip on its sole highly profit-
able division, planned a partial flotation
of the unit.
Towards the end of last year, a team of
12 led by Thyssenkrupp’shead of merg-
ers and acquisitions,Volkmar Dinstuhl,
realisedthere was “a lot of money lying
around” nda it might be able to attract
eye-watering sums in a sale toprivate
equity groups, a person close to the
company said.
Mr Dinstuhl, who moonlights as one
of Germany’s topchess players, was
right. Buyout groupshad started paying
pricesthat “up until now were more or
less reserved to [corporations]”, which
can generally afford to pay more
because they can save costs in a merger,
another private equity adviser said.
Advent and Cinven had even been
authorised to make a higher offer in
order to secure what they saw as a reces-
sion-resistant asset at a time when the
prospect of a global economic slowdown
looms. It is the kind of lucrative assetthat gets used as an example of a cash-
generative investment in dealmakers’
business school textbooks.
Even if new construction slows, the
company can grow by acquiring smaller
servicing businesses, and potentially by
winning more contracts to maintain
lifts run by industry rivals such asKone.
“It’s the remaining pearl of Thyssenk-
rupp,” Mr Sen said. “If you want quality
assets, you have to build the conviction
to pay for them... we feel good interms of price.” Bruno Schick, head of
the Frankfurt office at Cinven, said the
group had found itself “in a position to
get our hands on a business that many
people thought wouldn’t be available, or
wouldn’t go to private equity”.
Advent and Cinven had been working
on plans to bidsince last spring. Now
that they have won, the group plans to
expand the business by acquiring new
companies “as fast as it can reasonably
digest” them, Mr Sen said.
Having been burnt by Brussels’ veto-
ing of a merger between its steel unit
and Tata ast year, Thyssenkrupp was l
reluctant to consider the highest early
offer, a roughly €17bn bid from Finnish
rival Kone, in partnership with private
equity firmCVC, for fear of being
embroiled in antitrust concerns again.
The tipping point came two weeks
before the deal was sealed, when Thys-
senkrupp announced it was prioritising
the bids of two private equity consorti-
ums, and deprioritising the offer from
Kone, which the company soon with-
drew from in anger.
“Thyssenkrupp left a billion euros on
the table, and they will have to justify
that to their shareholders,” said a per-
son close to the process at the time.
But the winnowing had the opposite
effect, according to an insider. “PrivateLifts deal takes buyout boom to next level
Advent and Cinven’s €17.2bn leveraged purchase of Thyssenkrupp division is hailed a success for both sides
Top European leveraged buyouts
By enterprise value ( bn) Wind (Weather Inv) TDC (PE-led consortium) VNU (PE-led consortium)
BAA (Ferrovial) AWG (PE-led consortium)
Thames Water (Macquarie) Alliance Boots (KKR) Akzo Nobel (Carlyle)
Nestlé Skin Health
(EQT Partners) Thyssenkrupp’s
elevator division
(Advent- and Cinven-
led consortium) Acquiror’s name in parentheses Data cover deals where target companies’ core operations are based in Europe Sources: Dealogic; companyThyssenkrupp’s lift business is hugely profitable
Operating profit, sum four quarters ( m)- - 0Elevator technologyIndustrial componentsMaterials servicesMarine systemsPlant technologyAutomotive technologySteel EuropeM U R A D A H M E D— S P O RT S
C O R R E S P O N D E N T
Inter Milan ims to return to the top ofa
Italian and European football by win-
ning fans and securing revenues far
beyond its home country and conti-
nent, according to the club’s ownerSte-
ven Zhang.
The 28-year-old son ofZhang Jindong,
the billionaire founder of China’sSuning
retail conglomerate, was made presi-
dent of Inter in 2018 after the company
paid €270m for a majority stake in one
of the sport’s biggest teams.
In the past year, Inter has spentabout
€200m capturing star players such as
striker Romelu Lukaku and midfielder
Christian Eriksen, who are helping the
club mount its strongest challenge for
the Serie A title since it last topped
Italy’s premier division a decade ago.
With Europe’s so-called Financial Fair
Play rules linking how much clubs can
splash out on players to their revenues,
Mr Zhang plans to rapidly increase
Inter’s so the club can invest further in
the squad after years of failure.
“For Inter, as one of the most impor-
tant clubs in the world, you have to try
your best to win,” said Mr Zhang, in an
interview ahead of his appearance at the
FT Business of Footballsummityester-
day. “We don’t want to [sell]... our tal-
ented players and attract the best tal-
ents from around the world.”
Playing in Italy poses challenges for
Inter’s ambitions. Last season, Serie A
teams shared €1.2bn in broadcasting
revenues, €2bn less than clubs in the
English Premier League, themost valu-
able domestic competition.
Mr Zhang plans to target new fans in
his native China and other emerging
markets. The club has created an in-
house media team, which creates short
video clips and other content for social
media sites such as US-basedFacebook
andInstagram, as well as platforms pop-ular with young, Chinese audiences
such as Beijing-basedTikTok.
These efforts are designed to convince
sponsors to pay higher sums to reach a
global fan base. Inter is in talks with
tyremakerPirelli, its shirt sponsor, to
increase the value of the current
endorsement deal worth around
€10.5m a year, according to people
familiar with the discussions.
“Since Inter was bought by Suning,
the club has gone through a huge trans-
formation,”said Mr Zhang. “Firstly, our
performance on the pitch. Secondly, our
commercial and marketing value. You
can see from our digital platforms, the
numbers are double or triple what they
were a couple of years ago... so it is log-
ical that our value [to sponsors] as a
club is going up too.”
However, Interremains far behind its
main rivals. In the five seasons between
2013 and 2018, the latest period for
which comprehensive figures are avail-
able,its revenues rose from €162.8m to
€280m, according to the consultancy
Deloitte. ButJuventus, Italy’s dominant
club having won the last eight Serie A
titles, made revenues of €394m in the
2017/18 season, while Spain’sReal
Madrid enerated €750.9m that year.gTravel & leisure
Inter Milan’s Chinese owner targets global fans
Inter has spentabout €200m buying
star players in the past year‘I can’t say they’re going
to do a bad deal. I wish I
could, but they’re buyinga fantastic business’
Engineers at work in a Thyssenkrupp test tower in Germany. Advent saw the highly profitable unit as the industrial group’s ‘remaining pearl’ —Krisztian Bocsi/Bloombergequity understood that we were serious,
and not just using them to drive up the
price,” they said.
The deal will be funded in part with
high-yield bonds and leveraged loans
that equate to 6.9 times adjusted earn-
ings, according to people close to the
deal. This is at the top end of the lever-
age range that bond and loan fund man-
agers find acceptable.
On top of that, there could be an extra
slice of financing known as payment-in-
kind ebt, which is higher-risk becaused
the borrower can pay interest with fur-
ther debt. If the buyers go ahead with
that, banks are looking to place the risk-
iest portion of the debt with specialist
credit funds.
“People are falling over themselves to
get into the PIK,” said a banker who is
not involved in the deal, citing the mul-
titude of large investors that have raised
large pools of money dedicated to this
type of lending, such as Blackstone’s
GSO Capital Partners.
Despiteappetite from money manag-
ers and the better than expected result,
there was no jubilation amongstaff at
Thyssenkrupp’s HQ yesterday.
Mo m e n t s a f t e r t h e d e a l w a s
announced at the close of a marathon
supervisory board meeting, Mrs Merz
admitted to having a tear in her eye at
the prospect of losing a third of the busi-
ness’s total workforce.
“Our full attention is now on ensuring
a fast and rigorous restructuring
of each and every business unit to
improve the competitiveness of the
company,” she said.
Thegroup ill next attempt to divestw
its factory-building unit and shore up its
steel operations. But thistime, private
equity is unlikely to come knocking.
“The lift business was always a totally
different business, the onlyattractive
businessin the whole group,” said
Michael Muders, a portfolio manager at
Union Investment, one of Thyssenk-
rupp’s major shareholders. “If they
don’t fix the steel business,” he added, a
complete disintegration of Thyssenk-
rupp “is definitely a danger”.MARCH 6 2020 Section:Companies Time: 5/3/2020- 18:04 User:jon.wright Page Name:CONEWS2, Part,Page,Edition:EUR, 13, 1