European private equity group Electra Partners has completed its third deal of the year, backing a management buyout of German advertising and marketing group Scholz & Friends.
Electra and management at the firm are acquiring the 77 per cent stake held by UK-listed media group Cordiant Communications, which is trying to raise funds to reduce group debt prior to a possible sale of the business to rival WPP Group.
The transaction values the business at an enterprise value of around E50m. Funds advised by Electra Partners Europe are underwriting E40m, including an element of senior debt that will be refinanced post-closing.
The cash proceeds payable to Cordiant in respect of the disposal of Scholz are E22.4m which will, after deduction of transaction costs, be used to repay debt. A further E1.5m may become payable in March 2004 dependant upon the performance of Scholz for the year to 31 December 2003. Scholz will repay loans made by Cordiant totalling approximately E7.5m by 31 December 2003 at the latest.
John Spearman will join the new board. According to Electra, Spearman is one of its most experienced operating partners and an industry leader, having built his own UK-based advertising agency Collett Dickerson Pearce.
A spokesperson for Electra confirmed that Electra had been working on the Scholz deal since February, when Cordiant first announced that it was planning to sell its non-core assets, and that the two groups had negotiated directly over the sale. “This deal hasn’t been done on the cheap and isn’t a fire sale. Electra has paid a fair price for the business. Scholz probably got lost in the bigger problems facing the vendor. Electra will look to improve operational management on the business and prepare for an upturn in the advertising market.”
In the year ended 31 December 2002, Scholz generated revenues of E61.7m and profit before tax of E2.8m. Net assets attributable to Scholz as at 31 December 2002 were E9.1m.
Michael Boltz, co-head of Electra Europe GmbH, said: “We are excited about the prospects for this business. As one of the top creative agencies in Germany with an established network of European offices, Scholz & Friends is extremely well placed for an upturn in advertising expenditure.”
The Scholz deal is the second buyout backed by Electra Partners Europe in Germany, over the past six months, following the acquisition of garden products company Oase in December 2002. This year, the firm has been involved in three deals across Europe, including the buyout of Ashbourne Care Homes in April, and the acquisition of three subsidiaries of Rexel, an electronic parts maker, last month.