Acquirer Autumn 2011 - Livingstone Partners

cquırer
The
The corporate finance magazine from Livingstone Partners
AUTUMN 2011
A healthy
outlook
Livingstone’s Healthcare
expertise helps GADA
fund its growth plans
PLUS: FLYING HIGH. LUKE JOHNSON INTERVIEW. DEFENCE BATTLES ON

IN THIS ISSUE
Features
04
06
09
12
14
16
18
20
23
Regulars
05
22
SECTOR: INDUSTRIAL
Just the ticket
Parking solutions
COVER STORY
A healthy outlook
Helping GADA to grow
SECTOR: TRAVEL
Flying high
Why is investor appetite for
travel firms so strong?
INTERVIEW
An entrepreneur
to his fingertips
We meet Luke Johnson
SECTOR: INDUSTRIAL
Catering for ambition
A good deal for Lincat
ROUNDTABLE
Battling through
Issues for the defence sector
SECTOR: INDUSTRIAL
Machine-tooled
for success
A Mittelstand M&A deal
SECTOR: CONSUMER
Ale’s well that
ends well
A US craft brewer expands
INDUSTRY ADVISERS
A wealth of
experience
Meet our latest recruits
COMMENT
James Ashton on the
opportunity for private equity
VIEW FROM GERMANY
Daniel Schäfer on private
equity and the Mittelstand
CONSULTING EDITOR Kirstie Hamilton
MANAGING EDITOR Tim Turner
ART DIRECTOR Rob Cuthbertson
DESIGN DIRECTOR Ben Barrett
ACCOUNT MANAGER Lucy Tatton-Brown
PRODUCTION DIRECTOR John Faulkner
MANAGING DIRECTOR Claire Oldfield
CEO Martin MacConnol
2 // WWW.LIVINGSTONEPARTNERS.COM // AUTUMN 2011
Comment
Greece defaulting; the
other PIIGS struggling;
Europe only agreeing what
many consider a temporary
fix; the United States agreeing
a deal the day before default;
politicians positioning; banks
restructuring; raw materials,
gold, safe-haven currencies all
rising as confidence drops…
Not exactly a relaxing summer!
And yet… and yet… M&A markets remain active. Quality
businesses are attracting competing, aggressive offers.
The flight to safe, quality assets is also reflected in the M&A
markets. Corporates and private equity investors alike are actively
seeking good businesses that have traded through the recession: if
they offer technology, niche markets and exports, all the better. As
always, the key to getting the right deal is to have the experience
and reach to contact the ideal partner, whether that be an investor,
acquirer or target. And that is where Livingstone continues to play
a key role.
Finding the right buyer or the right seller, wherever they are in the
world, has been a cornerstone of the Livingstone philosophy. When that
is combined with an openness and
“We can build the
confidence critical
for a successful
transaction”
willingness to understand cultural
drivers, without losing sight of the
primary requirements of our client,
it means that we can deliver the best
deal, at the right time, in a smooth
and controlled manner. We can
build the confidence critical for a
successful transaction. The philosophy appears simple, but it requires
a depth of sector knowledge, global reach and deal experience. We
achieve this through a stable team that has worked together for well
over a decade, and strong, partner-led advice.
So, amid the minefield of economic uncertainty, great deals can be
achieved, using a guide who knows the safe paths to success, and who
is willing to walk beside you. A true partner for complicated times.
Contact:
NEIL COLLEN, Partner, Livingstone Madrid
T: +34 963 524 504, E: collen@livingstonepartners.es
Published by Wardour, 5th Floor, Drury House,
34-43 Russell Street, London WC2B 5HA, UK
Tel +44 (0)20 7010 0999 www.wardour.co.uk
All rights reserved. The views expressed by
contributors are their own.
Livingstone Partners is an international
investment banking boutique specialising in
company sales, acquisitions and private equity
transactions. Our teams in London, Madrid,
Chicago and Düsseldorf draw upon the
integrated infrastructure of a unique,
independent business with a 35-year pedigree
of closing deals for clients around the world.
If you have any questions or would like
more information on Livingstone, please contact
Ann Wilson on +44 (0)20 7484 4727 or email
wilson@livingstonepartners.co.uk
FOR MORE… Acquirer Plus brings
you up-to-date news and views
from Livingstone. Visit
livingstonepartners.co.uk/acquirerplus
£18.3bn
The value of acquisitions
abroad by UK companies
in the first quarter of
2011: the highest reported
value for outward
investment since the
fourth quarter of 2007
NEW JOINERS
Welcome
aboard
Livingstone Partners has made two
appointments to boost its Corporate
Finance team in London. The new
arrivals are Roshan Doostdar and
Thomas Holroyd, who joined in
May and July respectively, both as
Corporate Finance Executives.
Doostdar arrived from Ernst
& Young, where he worked in its
Transaction Support and Business
Modelling teams for financial
services sector clients. So why join
Livingstone? “It comes down to the
opportunity to work in a variety of
sectors,” he said. “A big attraction is
working on several live deals at any
one time and getting exposure to
every aspect of a deal.”
Holroyd joined from PwC’s
Business Recovery Services
division, where he was a Senior
Associate. He is excited to have
joined Livingstone because of its
culture. “It is a boutique firm with
a flat structure, which means that
individuals have more responsibility
at an earlier stage in their career
than at larger firms,” he said.
“Livingstone has a strong reputation
and an excellent brand in the midmarket
space.”
Source: Office for National Statistics

COVER PHOTO: JOHANNA WARD
PORTRAIT: PETER JAMES FIELD AGENCYRUSH.COM / IMAGES: JOHANNA WARD, GETTY IMAGES
DEAL SUMMARY
2011 – the
story so far
Livingstone Partners has completed
as many deals in 2011 to date as in the
whole of 2010, and behind the general
increase in transaction volumes are
some interesting shifts in activity
between sectors.
For example, Healthcare is up
significantly, with the team completing
six transactions to date in 2011,
compared to three in 2010. Healthcare
has accounted for over 20% of
completed deals in 2011. See page 6 for
information about a recent Healthcare
deal, The GADA Group.
Similarly, Livingstone has completed
seven Business Services transactions
so far this year, compared to five in
2010, and this sector now accounts for
25% of transaction volume in 2011. The
Industrial sector is also up, with seven
deals so far this year, or 25% of activity,
compared to just over 20% in 2010.
The story is more nuanced for the
media:tech and Consumer sectors, as
transaction volumes across these sectors
have been affected by ongoing economic
uncertainty. Consumer transactions
have declined marginally, from 22% of
Livingstone’s completed deals in 2010 to
18% so far in 2011, while media:tech has
suffered from a slowdown in marketing
services in particular.
Overall, activity levels are up and
acquirers and investors continue to seek
quality opportunities across all sectors.
The final quarter is traditionally a very
busy one for Livingstone, and it will be
interesting to see what sector shifts
emerge over the next few months.
Industrial strength
Andrew Isgrig has joined the firm’s
Industrial sector team as a Managing
Director at Livingstone Chicago. He
brings with him 17 years of M&A and
capital-raising experience.
Isgrig was previously Principal and
Managing Director of Deloitte Corporate
Finance, where he completed more than
25 transactions and developed Industrial
sector and cross-border transaction
expertise. He has successfully sold niche
businesses to both leading private equity
firms and multi-national groups.
He is happy to be joining Livingstone at
an exciting time for the firm. He said: “I
have worked with some of Livingstone’s
partners throughout my career, and I
know it is a fantastic culture to be joining.
“I am excited to help drive our Industrial
team forward, working closely with my
partners from the UK, Germany and Spain.
DEAL UPDATE
NEWS
Digest
The Livingstone platform is an ideal one
from which to work with mid-market
companies and help them tap investors,
targets and buyers from around the world.”
David Sulaski, Partner at Livingstone
Chicago, added: “We are thrilled to
“The Livingstone platform
is an ideal one from which
to work with mid-market
companies”
welcome Andrew to our talented
professional team, and know that our
clients – buyers and sellers alike – will
benefit from his command of the global
corporate and industrials landscape.”
Isgrig will be working closely with
Phillip McCreanor, who heads up
Livingstone London’s Industrial activity.
ANDREW ISGRIG SGRIG
A new Frontier
Since our Spring 2011 cover story, the
successful merger of Exploration Logistics
and US business MEDEX Global Solutions
has been announced – a deal on which
Livingstone advised the management
and shareholders of Exploration Logistics.
The enlarged business will be known as
Frontier MEDEX Group, will have revenues
of $100m, and will deliver a fully integrated
worldwide assistance, medical safety and
security service.
The management and founding
shareholders of both businesses invested
in the new combined entity, with additional
backing of $21m being supplied by MML
Capital Partners.
“After completing the growth
capitalisation of Exploration Logistics in
December, our immediate prize was doing a
deal with MEDEX,” said Phillip McCreanor,
Partner at Livingstone London. “We are
delighted to have helped the management
in fast-tracking their business plan.”
WWW.LIVINGSTONEPARTNERS.COM // AUTUMN 2011 // 3

SECTOR: INDUSTRIAL
JAMES GAVIN
DEAL AT A GLANCE
CLIENT: ZEAG GROUP
SECTOR: INDUSTRIAL –
ENGINEERED PRODUCTS
DEAL TYPE: SALE
BUYER: FAAC GROUP
4 // WWW.LIVINGSTONEPARTNERS.CO.UK // AUTUMN 2011
Just the ticket
Cultural differences and practices proved to be no barrier to the
successful sale of multi-national parking solutions provider ZEAG
February was a busy month for Hallmark
Industries. In the space of a few weeks,
Livingstone advised the company on the sale
of two of its subsidiaries: first the lighting
controls specialist Zodion and then parking
solutions provider ZEAG Group, which was sold
to Italian company FAAC.
The acquisition of ZEAG will enable FAAC to
broaden its offering in the parking systems sector.
ZEAG develops and assembles car parking
equipment and systems, providing both new
installations and aftersales service and support. Its
clients include airports, hospitals, shopping centres
and public car parks. Thanks to the deal, FAAC will
“ The acquisition of ZEAG will enable FAAC to broaden
its offering in the parking systems sector”
be able to offer its clients a broader product range
and ZEAG will be able to enter markets in which it
did not previously have a direct presence.
Livingstone and Hallmark worked together closely,
says Alex John, Deal Leader at Livingstone London.
“We had been engaged by Hallmark’s ultimate owner,
MML Capital Partners, to sell its businesses,” he
explains. “We were in the process of selling Zodion
when Hallmark received an approach from FAAC for
ZEAG that was sufficiently attractive to enter into
discussions. We negotiated the offer, agreed terms
and managed the deal through to completion.”
The main challenges were typical of any deal that
involves an overseas buyer, thanks to differing norms
between Italian and UK M&A practices. However,
there was an additional layer of complexity. “This
was not just about the sale of a UK business to an
Italian purchaser,” explains James Lever, Partner at
Livingstone London. “ZEAG is a multi-national
business owned by a UK parent, but with offices
throughout Europe, the US and South Africa.”
The valuation multiple paid for ZEAG was
significantly higher than those achieved in recent,
relevant transactions. Livingstone was able to
negotiate the price through a detailed assessment of
the strategic benefits it would bring to the Italian
group’s business – and effective communication of
these to FAAC and its advisers.
Ian Wallis, Managing Partner at MML Capital,
highlights Livingstone’s key role in agreeing the
final price. “FAAC wanted to achieve an off-market
transaction without an auction,” he says. “At that
point, the key issue for us was obviously price, but
also deliverability, because if we were going to sell
the business without any sort of wider process, we
wanted to know the party we were going into talks
with would deliver.
“Where Livingstone was particularly helpful was
in making sure that the acquirer knew we had
professional advisers on our side of the table who
would hold the process together tightly.”
Ultimately, it was an ideal transaction for both
sides, according to ZEAG chairman Brian Kent.
“FAAC was looking to expand a small division into
a major division, and there aren’t that many major
companies to buy in the parking business,” he says.
“The fit of timing/quantum with a willing seller
and buyer was perfect for a smooth transaction at
this time –it is not always the case that both buyer
and seller are fully satisfied.”
Contact:
James Lever, Partner, Livingstone London
T: +44 (0)20 7484 4711, E: lever@livingstonepartners.co.uk
Alex John, Deal Leader, Livingstone London
T: +44 (0)20 7484 4712, E: john@livingstonepartners.co.uk

MIND THE GAP
WITH BANK LENDING STILL AT A LOW LEVEL, THERE IS AN
OPPORTUNITY FOR PRIVATE EQUITY TO FILL THE GAP, SAYS
JAMES ASHTON. BUT IT’S NOT QUITE THAT SIMPLE…
It’s hard to see what the problem is.
Banks are falling over themselves to lend
to businesses – at least if you believe the
story banking chief executives are telling.
But for all the talk at the top, the
credibility gap still exists if you go down
to the local level. Banks are talking tough
about devolving more decision-making
but, in truth, progress on the road back to
normality in the aftermath of the credit
crunch has been painfully slow. The banks
came in £2 billion short of their Project
Merlin lending targets, agreed with the
Government in a truce that was meant
to draw a line under political attacks on
banks’ activities and bankers’ pay.
It’s no surprise. If lenders aren’t focused
on shrinking their balance sheets (Lloyds
and RBS), they are trying to boost returns
and cut costs (Barclays and HSBC).
Backing sensible business plans to help
entrepreneurs grow is far from the top
of the agenda while they put their own
houses in order.
To be clear: bank financing is available,
but probably at 50-75% of the level it was
at before the credit crunch. It’s certainly
easier to secure financing than it was a
year ago, but the economic wobbles of the
last quarter mean it is hard to discern any
noticeable improvement in recent months.
Such a state of affairs creates both an
opportunity and a challenge for private
equity. The opportunity is to cement its
reputation as a force for good – although
that may be putting it a bit strongly. Simply
to be seen as a financing alternative to the
banks would do.
The furore over the collapse of UK care
homes group Southern Cross shows that
suspicion over private equity is never
far from the public consciousness. But
in the past three years, the industry has
been largely left alone to get on with
it, while banks, and their methods and
remuneration, have been in the spotlight.
That has brought about the challenge.
Entrepreneurs are far happier than they
used to be to accept an injection of capital
to allow them to build their businesses
or release some value for themselves.
For private equity firms, it is good to feel
wanted. However, they have historically
been more comfortable working in tandem
with the banks than replacing them or
making do without them. While bank
lenders remain so selective, private equity
is being forced to rethink the relationship.
“The opportunity for private
equity is to cement its
reputation as a force for good”
Without so much debt on hand, private
equity investors are having to sink more
capital into deals than they were five years
ago. That means they must either accept
lower returns or force down the price they
are prepared to pay for acquisitions.
This means in turn that mid-sized
companies looking to sell are less likely
than before to sell to private equity buyers.
Fields of private equity buyers have, to an
extent, given way to strategic acquirers
who can suddenly compete with the money
men again.
Limited bank lending also has another
side effect; financial engineering of the
kind seen before the credit crunch is rare.
So maybe the lending drought isn’t an
entirely bad thing.
James Ashton is City Editor
of The Sunday Times
COMMENT
WWW.LIVINGSTONEPARTNERS.COM // AUTUMN 2011 // 5

COVER STORY
A HEALTHY
OUTLOOK
Livingstone deployed its Healthcare sector expertise
to match The GADA Group, an entrepreneurial
cross-border medical device distributor, with
private equity house RBS Equity Finance
Helping companies to find growth capital can
sometimes prove arduous – particularly
when they operate in geographies and focus
on strategies that are off the radar of most
traditional UK private equity houses.
GADA, based in the UK but with operations in
Italy, Romania and Turkey, wanted to consolidate
its position as the largest pan-European medical
device distributor and service provider, in part by
making acquisitions elsewhere in Europe.
Livingstone’s Healthcare team advised the
shareholders of GADA on a significant growth
equity investment in the group by private equity
investor RBS Equity Finance.
A COMPLEX DEAL
The trajectory of the deal was anything but
straightforward. Richard Fetterman, Partner at
Livingstone London and Head of the firm’s
Healthcare team in London, takes up the story.
“When we began discussions with GADA, they
were looking initially at acquisition opportunities
in the UK market,” he explains. “But it soon
became clear to us that they had some very
ambitious plans and saw a unique opportunity to
lead a pan-European consolidation in their sector.”
GADA’s Chief Executive, Giovanni Albonetti,
explains that the Group aims to build a platform
to distribute its medical devices and health
services at pan-European level. “We want to
make acquisitions to enlarge our platform,” he
says. “The larger the platform, the more value we
will create for our suppliers and customers. We
focus on a select number of countries where we
6 // WWW.LIVINGSTONEPARTNERS.COM // AUTUMN 2011
need to be either number one or number two in
the businesses we operate.”
“GADA’s management could see that singlegeography
dependence was not a good strategy,”
adds Kristian Gavan, Director at Livingstone
London. “They could also see the increasing
sophistication of European healthcare procurement
– the way in which, over the next 15 years, you are
no longer likely to find little enclaves within a
hospital buying kit on their own. It is moving
towards a joined-up procurement strategy that
will build in ancillary services.”
For GADA, this transition represents a huge
opportunity to leverage its knowledge and
relationships. But to achieve this, and to make
the identified acquisitions, it needed to raise a
significant war chest.
As Albonetti himself puts it: “We wanted to raise
finance to fund acquisitions in growth markets.”
RISING TO THE CHALLENGE
If the objective was clear, getting there was more
challenging. GADA had only limited experience of
private equity – and nor, for that matter, were
many private equity houses well versed in pan-
European healthcare distributors.
From the outset, it was clear that this wasn’t
going to be a run-of-the-mill transaction. While
the business has its headquarters in the UK, its
main operating businesses are in countries that
are not necessarily to the taste of all private equity
backers. Second, although GADA had ambitious
acquisition plans, it had relatively little
experience in buying businesses of scale.
JAMES GAVIN
JOHANNA WARD

WE WANTED TO
RAISE FINANCE
TO FUND ACQUISITIONS IN
GROWTH MARKETS
WWW.LIVINGSTONEPARTNERS.COM // AUTUMN 2011 // 7

COVER STORY
With these considerations in mind,
Livingstone got to work identifying
appropriate potential partners. “We
realised that, with this being a relatively
complex deal by UK mid-market
standards, it would need an investor who
had been active in healthcare over the past
10 years and had experience across the
whole of the capital structure,” says Gavan.
“So we were looking for people who had
that heritage and were now looking for
something a bit different, as the outlook for
healthcare niches that have traditionally
attracted PE investment is looking more
uncertain. The strong underlying trends of
European healthcare distribution offer a
great mix of robustness and growth.”
With the shortlist complete,
Livingstone then introduced GADA to a
select group of potential private equity
partners who had shown that they
understood GADA’s strategy for growth.
“They had to buy into the vision – this
would never just be a spreadsheetbased
investment decision,” explains
Gavan. “They had to see what GADA
wanted to create and that this is a
platform in the truest sense – building
something very powerful, but
something that needs commitment
from everyone who is involved.”
Following discussions with the
shortlist of potential funders, it soon
became clear that there was a positive
meeting of minds between Albonetti and
RBS Equity Finance.
“What GADA needed was the right
partner, both in terms of deep pockets
and also somebody with a good level of
value to add, in terms of contacts and
strategic input,” says Fetterman. “RBS
Equity Finance has shown great
tenacity and a willingness to stick to
principles on the things that matter;
not just grabbing what it can get, but
accepting that it also had to find
different ways around problems. That
proved to us that we had found a
compatible partner for GADA.”
RBS Equity Finance’s investment will
support GADA’s acquisitions of
complementary businesses, with a focus
on Central and Eastern Europe, while
also enabling it to further develop its
range of products and services with which
to support its hospital customers.
Albonetti recognises that it wasn’t easy
for Livingstone to put together the deal.
“We are a complex and somewhat unusual
business, and it was also the first time that
we had presented our company to the
London financial community,” he says.
“Thanks to Livingstone, we were able
to employ language that the City
understands. As a result of the efforts of
Livingstone’s Healthcare team, we were
able to bring an Italian family business
with some recent internationalisation
to the world’s most sophisticated
financial market, and I am delighted
with the advice and guidance I received
throughout this journey.”
HEALTHCARE IS IN GOOD SHAPE
Headed up by Richard Fetterman in London and Jim Moskal in Chicago,
Livingstone Partners’ Healthcare team is having another busy year: GADA
was Livingstone’s sixth deal in the sector so far in 2011.
In January, Livingstone’s London team advised on the sale of WCI
Consulting Group, a UK-based patient safety and compliance consultancy to
the life sciences industry, to India’s TAKE Solutions. Other healthcare deals on
which Livingstone has advised include the merger of Frontier MEDEX Group in
March and acquisition of US-based AllegroMedical.com, a leading distributor
of medical supplies and equipment, by Scrip Products Corporation.
That transaction was handled by Livingstone’s Chicago team, as
was the sale of Dispensing Solutions, Inc, the leading provider of prepackaged
medications and point-of-care dispensing solutions, to PSS
World Medical, Inc, a national distributor of medical supplies, equipment
and pharmaceutical products to healthcare providers.
In July, the London and Düsseldorf teams jointly advised the
shareholders of Spiegelberg GmbH, a leading medical devices
manufacturer, on the sale of the business to SHS GmbH, an investment
8 // WWW.LIVINGSTONEPARTNERS.COM // AUTUMN 2011
LIVINGSTONE PARTNERS
HEALTHCARE SECTOR TEAM:
London
Richard Fetterman, Partner,
Livingstone London, T: +44 (0)20 7484 4739,
E: fetterman@livingstonepartners.co.uk
Kristian Gavan, Director,
Livingstone London, T: +44 (0)20 7484 4747,
E: gavan@livingstonepartners.co.uk
Daniel Domberger, Director,
Livingstone London, T: +44 (0)20 7484 4731,
E: domberger@livingstonepartners.co.uk
Elena Rusanovskaya, Analyst,
Livingstone London, T: +44 (0)20 7484 4721,
E: rusanovskaya@livingstonepartners.co.uk
Chicago
Jim Moskal, Managing Director,
Livingstone Chicago, T: +1 312 670 5918,
E: moskal@livingstonepartners.com
Ryan Buckley, Vice President,
Livingstone Chicago, T: +1 312 670 5925,
E: buckley@livingstonepartners.com
Madrid
Neil Collen, Partner,
Livingstone Madrid, T: +34 963 524 504,
E: collen@livingstonepartners.es
Ximo Villarroya, Partner,
Livingstone Madrid, T: +34 963 524 504,
E: villarroya@livingstonepartners.es
Düsseldorf
Jochen Hense, Managing Partner,
Livingstone Düsseldorf, T: +49 211 300 495 22,
E: hense@livingstonepartners.de
Dr. Ralf Nowak, Partner,
Livingstone Düsseldorf, T: +49 211 300 495 24,
E: nowak@livingstonepartners.de
Johannes Dupke, Consultant,
Livingstone Düsseldorf, T: +49 211 300 495 33,
E: dupke@livingstonepartners.de
company that manages a €120m growth capital fund, and that specialises
in the Healthcare and Life Sciences sector.
“Healthcare is a sector we’ve long had good credentials in,” explains
Fetterman. “It’s a sector we know well, we have excellent contacts and we
fully understand the fundamental drivers.”
Jim Moskal, Managing Director at Livingstone Chicago, highlights
some key drivers pushing mid-market M&A in the US Healthcare sector.
“Our two most recent US healthcare deals, DSI and AllegroMedical.com,
were both value-added healthcare distributors that were not subject to
reimbursement risk, under which US Congress and the President can
simply reduce pricing for various procedures at a stroke. Investments
in the healthcare space that don’t have a direct reimbursement risk are
particularly attractive,” he explains.
Such companies are attracting the strongest interest in the US, and
further deals are in the pipeline. “Right now, for both strategic and
financial buyers, there’s strong interest in healthcare M&A, and that
will continue,” Moskal predicts.

Four private equity experts explain why
they believe investor appetite for travel
businesses is so strong and look ahead
to potential M&A activity in the sector
According to Robert Louis Stevenson, “To travel hopefully is
a better thing than to arrive.” Travel suffered greatly during
the recession, but ‘hopeful’ is assuredly the mood among the
private equity fraternity. And with good reason.
Despite the downturn in the market, investor appetite for travelrelated
businesses has remained strong. But the real surprise,
perhaps, is that most recent M&A activity has been focused on the
B2C travel sector, even though the more marked recovery in trading
over the past 24 months has been in B2B.
Daniel Smith, Director at ISIS Equity Partners, puts this down
largely to the channel shift from offline to online. “A huge number of
MOST RECENT M&A ACTIVITY
HAS BEEN FOCUSED ON
THE B2C TRAVEL SECTOR
travel bookings are now done online, which means an enormous
amount of power lies with the consumer,” he says. This has led to
innovation, with new businesses starting up, rapidly achieving scale
and engaging in M&A.
Kings Park Capital’s co-founder Jason Katz, who sold the online
business lastminute.com when he was at UBS, believes that B2C
companies’ ability to catch the imagination is key. “lastminute.com
never actually made much money but got sold for a billion dollars,”
he points out. “With its exposure to social media and viral marketing,
B2C is simply sexier for some players.”
But while B2C has caught the eye, there appears to be little doubt
that B2B’s time is coming. Chris Watt, a Director at ECI
FLYING HIGH
SECTOR: TRAVEL

Partners, which recently completed the secondary buy-out of
Reed & Mackay (see panel, opposite), believes this is a good time to
be investing in business travel: “It was hit pretty hard in the
downturn, but the recovery is tangible and well established.”
Yet the economic environment is still far from easy and it is vital to
be selective. In a huge market, how hard is it to identify prospective
winners? “First, you’re looking for a genuinely differentiated product,”
says Smith. “Second, you need to be at the heart of optimising
distribution, and that has changed markedly with the internet.”
And it will continue to change, notes Katz. “Only 10% of cruise
holidays, for example, are booked online, and I expect that number
to grow exponentially, to 40% in 2014.”
Technology is “critical and growing ever more so”, he adds. “So you
have to make sure you’re investing in a product or a company that
has the right platform and is positioned for the future. There are
plenty of examples, not necessarily in travel, such as Bebo and
MIKE TATE
LAURENCE WHITELEY
10 // WWW.LIVINGSTONEPARTNERS.COM // AUTUMN 2011
Myspace, that were absolutely the place to be –
then, 12 months later, no one’s heard of them.”
While online capability is a must for all would-be
investors, Katz also sees considerable growth in domestic
travel and in the less mature European markets, such as France,
Spain or Italy, where distribution is more fragmented, resembling the
situation in the UK a decade ago. Then there’s the Asian outbound –
or, to European operators, inbound – market, which is demonstrating
a long-term growth trend.
CAN PRIVATE EQUITY COMPETE?
Can private equity continue to compete with the large online travel
agents? “The answer must be ‘yes’,” says Katz, “because we’ve just seen
the three-way merger between Go Voyages, eDreams and Opodo. But
there’s no doubt that it can be quite difficult for private equity to compete
with strategic buyers that are bidding with a big synergy number.”
IN ONLINE TRAVEL IN
PARTICULAR, THERE
IS GROWTH TO BE HAD

A COMFORTABLE JOURNEY
In February 2010, Richard Boardman, CEO of Reed & Mackay, the
market leaders in business travel management, was in search of
additional investment to support the next phase of growth for the
business. Baronsmead Venture Capital Trusts, which, through ISIS
Equity Partners, had backed his management team from 2005, was
now looking to exit, providing the opportunity for fresh investment.
But the travel industry was still on its knees after the recession, and
it wasn’t obvious where the investment interest would come from. It was
a challenge, and Boardman turned to Livingstone Partners for help.
“We felt from the beginning,” recalls Christopher Jones, Director at
Livingstone London, “that R&M stood out as the leading high end travel
management company, with a very strong and loyal client base.”
Livingstone’s task was to find the right partner for R&M to support
its future growth prospects. Fortunately, R&M had prospered during
the recession while many of its peers suffered, which demonstrated the
resilience of its business model. It specialises in providing high-quality
services to professional services clients, mainly based in the City of
London, and relies for much of its business on non-discretionary travel
spend. It is thus less sensitive to market fluctuations than companies
with a less focused client base.
The Livingstone team sounded out potential institutional investors,
and ECI Partners emerged as an early frontrunner. Once it was clear
that the chemistry was right and agreement could be reached on price,
it signed up to a deal that provided a cash multiple of 4.8x and an IRR of
more than 35% to the existing investors. While the Baronsmead VCTs
exited in full, ISIS has re-invested alongside ECI through ISIS IV LP.
For Andy Hibbert, R&M’s Chief Executive, ECI and ISIS are perfect
partners. “They share the vision of preserving our culture, which is key
to our success, while supporting us in our development of products and
services that will provide more value to our existing and future clients.”
Boardman is also delighted. “Livingstone did an extremely professional
and thorough job,” he says. “The valuation was a strong reflection of
the business, its capability and its performance over the past five years.
And in ECI, I believe they have found an excellent partner for the team.”
Contact:
James Lever, Partner, Livingstone London
T: +44 (0)20 7484 4711, E: lever@livingstonepartners.co.uk
Christopher Jones, Director, Livingstone London
T: +44 (0)20 7484 4724, E: jones@livingstonepartners.co.uk
Daniel Domberger, Director, Livingstone London
T: +44 (0)20 7484 4731, E: domberger@livingstonepartners.co.uk
Watt argues that “as private equity investors, we ought to be
pprepared
to pay a premium for growth. In online travel in particular,
tthere
is growth to be had. Agreed, large trade buyers with deep
ppockets
that want to buy for strategic reasons can put a price on the
ttable
that private equity just can’t match. TUI and Kuoni have been
aactive
recently, but it’s not happening generally.” He cites ECI’s recent
aacquisition
of CarTrawler as “another example of private equity’s
aability
to compete”.
Meanwhile, the wave of consolidation in the sector is widely
eexpected
to continue. Bowmark Capital Senior Partner Mark Salter
eexpects
more activity, particularly in hotel booking engines or ‘bed
bbanks’.
“There’s been a bit of a land grab, and we are now increasingly
ggoing
to see others following Kuoni – which bought GTA – and TUI
TTravel
in buying hotel beds. These offline players need to have an
oonline
proposition, and it’s the bed banks that are providing that.”
“There are always new entrants emerging with new, successful
bbusiness
models,” Katz adds. “One moment they are new darlings,
tthe
next they are consolidation targets.”
Watt believes there could be “some de-consolidation, with larger,
iintegrated
travel businesses looking to dispose of certain assets. And
pperhaps
what emerges from that will be attractive to private equity.”
INVESTMENT I
CRITERIA
So S what are the private equity experts looking for in a management
team? t Unsurprisingly, the response is unanimous: a strong
knowledge k of the market, good commercial judgement, high levels
of o energy, enthusiasm and commitment to what they doing. “They
must m be prepared to invest lots of blood, sweat and tears over three
to t five years,” says Watt. “We also like them to recognise that we’ve
done d quite a lot of deals in the travel sector and that we’ve got skills
that we like to bring to bear.”
Smith has found that the best are “absolutely obsessed” about their
business. “A word we like to use is ‘restlessness’ – a continual feeling
that you haven’t got it quite right.”
And, says Katz, they need to want to invest. “It’s very tiresome to
hear some managers talk of a brilliant idea but then declare that they
don’t want to commit any of their own money.”
But surely cash-out deals are at the heart of private equity deals?
The consensus is that they’re all right as long as management
continues to remain focused. It seems the only way to be sure of that
is to spend time with the team, to confirm that they still have the
desire to drive the business forward.
Katz concedes that “you always have sympathy with a
management team who want to take some money off the table to
cement their security. But it’s clearly a balance and, if it’s such a
great business plan, surely you want considerable exposure to it?”
ISIS has found a way to be comfortable with cash-outs. “Often,”
says Smith, “the only two options available to entrepreneurs are
‘sell all’ or ‘keep all’. It’s good to be able to offer a third, where they
can de-risk and keep a share. Entrepreneurs can realise their
ambitions for maximising value and are given a level of
involvement they are comfortable with.”
WWW.LIVINGSTONEPARTNERS.COM // AUTUMN 2011 // 11
SECTOR: TRAVEL

INTERVIEW
AN ENTREPRENEUR
TO HIS FINGERTIPS
Luke Johnson, co-founder of Risk Capital
Partners, tells Kirstie Hamilton what it takes
to be a successful entrepreneur and explains
what he looks for in an investment
T
hey must have seemed an unlikely team when they climbed on to
the stage at an Oxford Union debate in June: there was Levi Roots,
the chef famous for his Reggae Reggae Sauce; Peter Stringfellow,
whose nightclub is famous for a different kind of sauce; and Luke
Johnson, the entrepreneur renowned for his food-related investments.
The trio were supporting the proposition that ‘The Only Way To Make
It Is If You Make It Yourself’. On the day, an establishment opposition
team that included the senior partner from City law firm Slaughter
and May outmanoeuvred them, but outside the debating chamber,
Johnson is convinced that appreciation of entrepreneurs is growing.
“Things are changing dramatically for the better,” he says.
“Government, schools, universities – all sorts of institutions are
recognising the importance of smaller businesses.”
Although Johnson has worked in some large organisations in his
time – he was chairman of UK broadcaster Channel 4 – he is at heart
a lover and supporter of entrepreneurs and smaller businesses.
His latest investment in The Bread Factory (see panel, below) is
a classic Johnson investment in a sector he knows well. Risk Capital
Partners, the private equity company he formed with Ben Redmond in
2001, is also an investor in Patisserie Valerie, the upmarket patisserie
chain, and Giraffe, a casual family-friendly restaurant chain. In the past,
Johnson has been involved in, launched or bought a string of successful
restaurant and retail businesses, ranging from the PizzaExpress chain
to celebrity hangouts like Le Caprice and The Ivy in London.
“I prefer to invest in companies where we are backing a founder
or someone who is already a part-owner of the business,” explains
A HEAD FOR BREAD
Tom Molnar and Ran Avidan became involved in The Bread Factory in
2004 when Gail Mejia, the company’s founder, wanted to focus on her
café chain, Baker & Spice. When Mejia began the business in 1992,
she called it The Bread Factory as a joke – the one thing it wasn’t
producing was factory-style bread.
It was, however, a huge success. Under the
management of Molnar and Avidan, two former
McKinsey consultants, the business has moved on
to combine top-quality artisan baking with worldclass
service and infrastructure.
Five years ago, they launched GAIL’s,
an artisan café and bakery with eight
branches across London. The
company also sells its bread
through Waitrose branches
and Ocado.
Earlier this year, Molnar
brought in Livingstone Partners
to advise the shareholders on
12 // WWW.LIVINGSTONEPARTNERS.COM // AUTUMN 2011
Johnson. “We do fewer deals where it is a subsidiary of a big corporate.”
As a result, he has become an expert on the makeup of entrepreneurs.
“Probably only one in 10 of us will ever actually start a serious business,”
he says. “It doesn’t suit a lot of temperaments because of the risk and the
effort required, and the sacrifices.” Often, he believes, entrepreneurs
feel they have something to prove and are driven to succeed.
“I was listening to a very successful retail entrepreneur. For him,
very clearly, a motivating factor was that he didn’t go to university,
whereas his brother went to Cambridge. He felt he had a lot to prove.”
Johnson and his team have a long list of qualities they seek in assessing
management teams, including honesty and integrity, industriousness,
intelligence, self-discipline, self-confidence and high levels of motivation.
If the list – which also includes numeracy, good health and a significant
knowledge of the industry and its dynamics – seems to go on forever,
Johnson is realistic about what is achievable: “We are all flawed, and
obviously they won’t score 10 out of 10 on all those things. Every deal is
a compromise.” However, he says successful entrepreneurs will almost
invariably be extroverts who can motivate a workforce and inspire people.
MORE THAN JUST CAPITAL
In The Bread Factory, Johnson found an investment where he and his
company can offer more than just capital. He has been enthusiastic
about opportunities in the artisan bread business for several years.
Bread has largely become an industrialised commodity in the UK, with
three giant bread makers dominating the market. But as a restaurateur,
Johnson knew that consumers wanted a better quality product.
Risk Capital also brings real skills to help The Bread Factory grow.
“I think Tom [Molnar, The Bread Factory’s CEO] saw that we could add
value through our understanding of the retail trade,” says Johnson. “We
have a track record with banks in the sector, we understand growing
retail chains, and we have a knowledge of property, IT and the
economics of outlets like [Bread Factory-run café chain] GAIL’s.”
Johnson also understands that entrepreneurs need to be given their
own space if they are to succeed. “We’re non-executive; we don’t try to tell
them how to do their jobs,” he says. “Our role is about advice, counsel and
being a good listener, but it’s not about taking charge – that is fatal.”
Contact:
Simon Cope-Thompson, Partner, Livingstone London
T: +44 (0)20 7484 4706, E: sct@livingstonepartners.co.uk
Tom Phipps, Director, Livingstone London
T: +44 (0)20 7484 4717, E: phipps@livingstonepartners.co.uk
finding a new investor. The aim was to provide new capital to fund
further growth, but the deal also had to be structured to suit the
needs of all shareholders. Some wanted to increase their holdings
and re-invest, while others were looking for an exit.
Risk Capital Partners had known the business for some time. Having
approached the management team in late 2010, with the combination of
food service and financing expertise, Livingstone advised the shareholders
to allow Risk Capital a window of opportunity to explore the potential
benefits it could bring, rather than launching immediately into a wider
marketing process with other private equity houses. The result was a
swiftly concluded deal at a price that satisfied all parties.
Simon Cope-Thompson, Partner at Livingstone London, says: “Risk
Capital will be an excellent partner for the company and its management
team as they look to accelerate the growth of both parts of the business.”
“Livingstone forced us to sharpen our pencil and offer a decent
price to take out some of the other shareholders,” says
Johnson. “They also helped to ensure that the deal
completed. We are very optimistic that this is going
to be a successful partnership.”

OUR ROLE IS ABOUT ADVICE,
COUNSEL AND BEING A GOOD
LISTENER, BUT IT’S NOT
ABOUT TAKING CHARGE
JO WARD
WWW.LIVINGSTONEPARTNERS.COM // SPRING 2011 // 13

SECTOR: INDUSTRIAL
DEAL AT A GLANCE
CLIENT: LINCAT HOLDINGS PLC
SECTOR: INDUSTRIAL
DEAL TYPE: SALE
BUYER: MIDDLEBY CORPORATION
14 // WWW.LIVINGSTONEPARTNERS.COM // AUTUMN 2011
CATERING F R
AMBITI N
The sale of AIM-listed catering equipment manufacturer Lincat
to The Middleby Corporation demonstrates the importance of
having the right kind of adviser. Mike Tate reports
As recently as Q3 2010, shares in Lincat Group were
changing hands for little more than £5. Seven months
later, a deal was announced valuing each share at
£10.50, and the business as a whole at £58 million.
That was the price paid by The Middleby Corporation,
the Illinois-based global leader in the food service industry,
thanks to Livingstone Partners. “Livingstone got a higher
price than we – or anyone – expected,” says Paul Bouscarle,
Chief Executive Officer of Lincat Group plc.
The late John Craddock and his son Martin had acquired
Lincat in 1979. They transformed it, organically and
through acquisition, into a leading player in the UK
catering equipment market. Flotation in 1988 was followed
in December 1994 by the acquisition of IMC, a UK
manufacturer with a complementary product range – a
move that brought in Bouscarle as CEO of the group.
Martin Craddock became Chairman, a role he only recently
handed over to Alan Schroeder.
By 2010, however, Craddock and Bouscarle felt they had
taken the business as far as they wanted to and were ready
to hand over the reins. Now, being listed became a
hindrance rather than an advantage. Between them, their
two families owned almost 50% of the business, and the
overhang of a partial disposal of shares was already
reflected in a heavily discounted share price. Only by selling
the entire business to a trade buyer could the Board attract
a substantial premium to market value.
Lincat wanted an adviser that would take a more proactive
and energetic approach than a traditional stockbroker.
Bouscarle recalls being impressed with Livingstone’s
organisation and systematic approach during his initial
meeting with the advisory firm. “That’s why we went with
them,” he says. “They made it easy to understand what was
going to happen, why and when. They kept to the timetable
throughout and made life very easy for us.”
UNLOCKING VALUE
Lincat’s shares had been publicly traded since 1988, but
were changing hands at a value that, in Livingstone’s
opinion, didn’t fully reflect the business’s attributes.
Unlocking the unrecognised additional value in Lincat was
the challenge that Livingstone faced once it had been
appointed to manage the sale of the business.
The team, led by Phillip McCreanor, Partner, and Eleanor
Wilkinson, Director at Livingstone London, spent October
and November 2010 familiarising themselves with the
business and drawing up what Bouscarle recalls as a “very
well-written and well-laid-out Information Memorandum”.
It described what the market had failed to see: a substantial
and successful, high-margin manufacturer of commercial
catering and bar equipment with a strong track record of
continuous product development, an unrivalled UK
network of dealers and a broad range of end customers,
from cafés, pubs, hotels and restaurants to hospitals,
schools and other institutions.
The business had held up well during the recession,
boasted gross profit margins of 50%, was highly cash
generative, and was on track to achieve turnover of £32.7
million and operating profits of £5.6 million for the year to
31 December 2010.
CONFIDENTIAL MARKETING
To protect the business, it was important to avoid being
forced to announce the potential transaction before the

TO HAVE ACCOMPLISHED A 100% INCREASE
ON THE PRICE IMMEDIATELY PRIOR TO THE
CAMPAIGN COULD BE CONSIDERED REMARKABLE
deal was agreed. The first step to achieving this was to work within
the UK Takeover Panel’s parameters and select no more than six
potential purchasers. Livingstone used its sector knowledge to
narrow the market to a handful of trade buyers with both a
strategic rationale and a strong enough balance sheet to pay a
significant premium.
“Our strategy was a combination of helping buyers to see the
true value of the business and running a process with the right
level of competitive tension to bring the best offers out of
interested parties,” Wilkinson explains.
By the end of February 2011 they had settled on Middleby,
which was keen to expand into the UK and establish a foothold in
Europe, in line with its growing international ambitions. It had
the necessary funds and it became clear that, culturally, the two
companies were an almost perfect fit. Both had succeeded by
allowing each of their individual brand management teams
considerable autonomy.
THE RACE IS ON
Now the race was on to get the deal done. “We felt that we had
maintained competitive tension throughout,” Wilkinson adds,
“but we knew that once we entered into exclusivity, the buyer,
whoever it was, would be in a position to exercise more power. We
had to be ready to move fast.” In fact, the transaction was ready to
be announced within a matter of weeks.
LIVINGSTONE PARTNERS PUBLIC ADVISORY TEAM:
Richard Fetterman, Partner, Livingstone London
T: +44 (0)20 7484 4739, E: fetterman@livingstonepartners.co.uk
Richard Barlow, Senior Consultant, Livingstone London
T: +44 (0)20 7484 4700, E: barlow@livingstonepartners.co.uk
The purchase was effected via a scheme of arrangement, which
(unlike in the case of a traditional offer for the shares) would allow
the vendors to control the process and offers stamp duty savings. It
also provided more certainty for Middleby, which would not face a
lengthy campaign to buy out any minority shareholders.
The Livingstone team was justifiably proud of the substantial
premium it was able to capture for its clients. Achieving a 40%
uplift to the share price immediately prior to the announcement
was impressive enough – but to have accomplished a 100%
increase on the price immediately prior to the campaign could be
considered remarkable.
McCreanor says the transaction represents “an excellent example
of our ability to deliver cross-border, public company transactions,
juggling the demands of an auction process to achieve the best price,
with the conflicting requirements of the UK Takeover Code.”
The last word goes to Lincat Chairman Alan Schroeder, who
says: “Livingstone has done an excellent job and was a pleasure
to deal with as the team guided us through the process, adding
value at each stage.”
Contact:
Phillip McCreanor, Head of Industrial sector team, Livingstone London
T: +44 (0)20 7484 4725, E: mccreanor@livingstonepartners.co.uk
Eleanor Wilkinson, Director, Livingstone London
T: +44 (0)20 7484 4742, E: wilkinson@livingstonepartners.co.uk
Phillip McCreanor, Partner, Livingstone London
T: +44 (0)20 7484 4725, E: mccreanor@livingstonepartners.co.uk
Eleanor Wilkinson, Director, Livingstone London
T: +44 (0)20 7484 4742, E: wilkinson@livingstonepartners.co.uk
WWW.LIVINGSTONEPARTNERS.COM // AUTUMN 2011 // 15

ROUNDTABLE
The defence sector is experiencing a period
of significant change and uncertainty, but a
roundtable of industry leaders reveals that British
companies are rapidly adjusting to new realities
16 // WWW.LIVINGSTONEPARTNERS.COM // AUTUMN 2011
BATTLING THROUGH
It’s not easy in the UK defence industry at the
moment. The Government’s Strategic Defence &
Security Review – published last year to deal with
the armed forces’ £36 billion budget black hole – set
out cuts of 8% over the next four years.
In addition, a major review by Bernard Gray, the new
Chief of Defence Materiel, and Lord Levene’s planned
structural change to the MoD-Government relationship,
promise long-term gain, but potentially short-term pain.
With these gloomy developments hanging over the
sector, it was appropriate that, when industry leaders met
at the Army and Navy Club in London in June for
Livingstone’s Defence sector luncheon, they were greeted
by thunder and rain. As soon as the decision-makers from
the sector began to talk through the industry’s challenges,
however, it was clear that these companies are up for the
fight and determined to create bright futures for
themselves in the new defence and security landscape.
Lynton Boardman, Director at law firm Burges
Salmon, began by asking the table if the traditional way in
which they thought about their sector had gone forever.
A NEW ERA?
“The nature of the beast has changed,” said Maxwell
Packe, Chairman of leading international navigation
systems supplier Kelvin Hughes. “Traditional defence
does not cover the threats that nations now face. These
have moved into security: of borders, oil platforms and
nuclear power stations, for example.”
Mel Brooks, Group Corporate Development Director
at Qinetiq, the FTSE 250 global defence technology and
service provider, agreed. “Defence and security are
increasingly the same thing,” he said. “This means it’s a
time of change, but one that is fascinating for this
industry. Will the Ministry of Defence want to move
into areas such as cyber security and, if so, when?”
“We need to know the type of MoD we’ll be dealing
with in three or four years’ time,” added Paul Davies of
Cassidian, the defence and security arm of aerospace
giant EADS. “If these changes are going to be made, it
needs to happen as soon as possible so that the Defence
sector can adjust accordingly.”
The point was raised that a ‘cyber 9/11’ could jolt the
UK defence industry into action in these new sectors.
Acknowledging this, Andrew Thomis, Chief Executive of
Cohort – the AIM-listed provider of technical advice,
managed services, systems and software to the defence,
security and associated sectors – urged the table not to

forget its strengths in other areas of technology. “Cyber
is vital, but it’s not the UK’s only defence need,” he said.
“Look at the situation in Libya, for example. Those
things are always going to come along and will drive
demand for a range of advanced capabilities.”
FOLLOW THE MONEY
So what should companies in the Defence sector do
when the future needs of their largest domestic
customer are unclear? Around the table, it was almost
unanimous that, with the UK market so unreliable,
businesses had increasingly to look to sell to the US or
emerging markets in the Middle East and Asia.
“The US market is about 20 times as large as the
UK,” said Boardman. “With a potential customer base
that vast, you only have to take a small slice of its
defence budget to do very well.” Packe agreed: “If you’re
in the Defence sector, you want to sell into America.”
But the industry also has to look past the US to
emerging nations, many of which need to drag their
military hardware and systems into the 21st century.
“For example, there are huge amounts of kit that need
upgrading in India,” said Julian Forsyth, Director of
Business Development and Communications at
armoured vehicle manufacturer Force Protection
Europe. “But companies have to research these new
spaces thoroughly. You can waste a lot of time and money
trying to break into a market you don’t really understand.”
Mike Wimsey, whose business, Pyser-SGI, specialises
in developing and manufacturing night vision
equipment and cameras, agreed that the UK market
shouldn’t be treated as more important than any other.
“About 80% of our business is outside the UK,” he said.
Others, however, commented that it is more difficult to
sell a product to a foreign client if the domestic customer
– the MoD – is not buying it. “It could be argued that the
UK is taking a cavalier attitude to its defence base,” said
David Miller, Chief Executive of Key Technologies, a
growing Defence engineering group. “If the UK is buying
from Italian companies, how can a client in Singapore,
for example, trust us when we say that we’re the best?”
DEALING WITH UNCERTAINTY
These problems have had an effect on M&A in the
industry. There are certainly deals to be done, but
approaching new technologies from an acquisition
perspective can be difficult. “It’s harder to forecast
opportunities for new technology in some emerging
sectors, so pricing is difficult,” pointed out Tom Senior,
Group Strategy Manager at Chemring plc, a leading
provider of counter-IED equipment and another FTSE
250 group. “However, about a third of our growth for
the past two years has come from acquisitions, so there
are still large groups out there that want to do deals.”
Graham Carberry, Director at Livingstone Partners,
added: “Despite the uncertainty, we have seen an uptick
in Defence sector interest in M&A over recent months.
The strongest appetite is for businesses operating
within secure communications and homeland and cyber
security, whose budgets are actually growing.”
This all comes back to the point that the MoD’s shortterm
need to balance the books is getting in the way of
effective decision-making and of a clear, articulate longterm
strategy, leaving the Defence sector caught in the
middle. “We need to be looking at what the world will be
like in 10 years’ time,” said Davies. “Unmanned vehicles
are a big new space that everyone needs to get their head
around, but it’s difficult to plan when you don’t know if
the money is going to be there from the MoD.”
In conclusion, Forsyth agreed that the Government
has to listen to the Defence sector if it is to ensure both
the future of innovation in the UK and its long-term
security. “The MoD has to be prepared to commit to the
level of innovation and change that companies are
suggesting takes place,” he said.
Contact:
Jeremy Furniss, Partner, Livingstone London
T: +44 (0)20 7484 4703, E: furniss@livingstonepartners.co.uk
Graham Carberry, Director, Livingstone London
T: +44 (0)20 7484 4728, E: carberry@livingstonepartners.co.uk
Opposite: Maxwell Packe, Chairman of
Kelvin Hughes
Above (clockwise from top left):
Andrew Thomis of Cohort; Tom Senior
of Chemring; Julian Forsyth of Force
Protection Europe; the table enjoys an
animated discussion of the issues facing
the Defence sector
JAMES DE MELLOW
JOHANNA WARD
WWW.LIVINGSTONEPARTNERS.COM // AUTUMN 2011 // 17

MACHINE-TOOLED
FOR SUCCESS
The German Mittelstand has traditionally been suspicious of M&A, but the
acquisition of UNION Werkzeugmaschinen GmbH Chemnitz by HerkulesGroup
shows how such deals can help companies to expand their portfolio
MICHAEL WOODHEAD
Germany’s small to medium-sized companies –
commonly referred to as the Mittelstand – have a
distinct character. They are, by and large, familyowned,
and many can trace an uninterrupted history
going back more than a century. They are mostly engaged
in specialist manufacturing and rarely make the headlines,
preferring quietly to go about their business. It is the
Mittelstand that has been the engine of Germany’s economic
revival since the financial crisis of 2008.
However, because so many Mittelstand companies are still
owned by the families who founded them, the idea of buying
and selling businesses as a strategic option is not as ingrained
as it is in other countries. Consequently, to complete
transactions with Mittelstand counterparties, banks and
private equity funds have had to adapt their approach to be in
tune with German conditions and sensitivities.
This is particularly crucial in the present climate, and the
acquisition of UNION Werkzeugmaschinen GmbH Chemnitz
by HerkulesGroup is a good example.
EAST MEETS WEST
In some ways, the deal is a microcosm of the changing
business landscape since the reunification of Germany 21
years ago. Maschinenfabrik Herkules GmbH (a member of
the HerkulesGroup) is a traditional, medium-sized west
German engineering company with a workforce of more than
1,600. It was founded in the town of Siegen in North-Rhine
Westphalia in 1911 by Franz Thoma. His grandson, Christoph
Thoma, is now Chairman and CEO of the HerkulesGroup.
UnionChemnitz, meanwhile, was a former communist
engineering combine based in Chemnitz in Saxony. It dates
back to 1852 (making it the oldest surviving machine tool
manufacturer in Europe) and survived the fall of the Berlin
Wall by becoming a workers’ cooperative. It has a workforce of
175 and a turnover of €35 million.
HerkulesGroup produces huge machine tools – some of
them as much as 20m long – that are used in large-scale
milling operations. It has a history of steady expansion in
North America and its major markets are Russia and
China, giving it an 80% market share outside Europe.
18 // WWW.LIVINGSTONEPARTNERS.COM // AUTUMN 2011
UnionChemnitz, meanwhile, makes precision boring
machines for markets in Europe.
“There were obvious, important synergies between the two
companies, both in their products and their customer base,”
explains Jochen Hense, Partner at Livingstone Düsseldorf.
“Milling and boring go hand in hand. And their markets
complemented each other. In this case, HerkulesGroup is
dominant overseas and UnionChemnitz is strong in Europe.”
THE BEST WAY FORWARD
The deal originated when WaldrichSiegen Holding GmbH,
part of the HerkulesGroup, began looking to acquire an
engineering company that would expand its product line and
strengthen its position as the market leader in heavy machine
tools. “We showed HerkulesGroup that Livingstone Partners
is very familiar with the machine tool industry in Germany
and with the market,” says Hense.
As a result, HerkulesGroup drew up a list of potential
acquisition targets and mandated Livingstone to review the
candidates. The team identified UnionChemnitz as the
strongest candidate with the best strategic fit, and the next
task was to persuade UnionChemnitz that a takeover was the
best way forward for the business – something that you might
have expected to be fairly straightforward, given the relative
sizes of the two companies.
Not so. After reunification, UnionChemnitz had managed
to avoid the fate of many other East German factories –
overnight collapse – through privatisation. The Fritz Heckert
Combine, of which it was part, went bankrupt and
UnionChemnitz was sold off. A severe crisis in the mid-1990s
was resolved when the management and workers secured
UnionChemnitz’s future by buying the company themselves.
They subsequently developed the business until, in 2006, the
Dutch investment group Nimbus injected fresh capital into
the business and invested to support the future growth of the
company. Thanks to a combination of new machinery and
cost-cutting measures, UnionChemnitz began to expand.
“The employees asked Nimbus to step in,” Hense explains.
“They brought in a new and dynamic managing director who
also took a personal stake in the company and brought in a

more market-driven philosophy. As a result, even during the
financial crisis, UnionChemnitz never made a loss.”
A further obstacle was the suspicion with which private
equity companies are viewed in Germany. In 2005, Social
Democratic Party leader Franz Müntefering branded them
“locusts” that, as he put it, “suck off substance and let
companies die once they have eaten them away”. As a result,
the major hurdle that Livingstone faced was not financial, but
one of principle; Nimbus was keen not to be seen in the same
light if it sold UnionChemnitz to HerkulesGroup.
“Nimbus made it clear it might be interested, but only if the
buyer would continue to support the Chemnitz site,” says
Hense. “We managed to persuaded Nimbus that the deal
would improve its image. We stressed that HerkulesGroup
was a family-owned group of companies with money in the
bank and a strong market strategy. The offer was always going
to be good; getting Nimbus to consider it at all was the issue.”
After weeks of persuasion, Nimbus finally agreed to meet
HerkulesGroup and the Thoma family. “In the end, the deal
happened very rapidly,” says Hense. “Ultimately, it was
important for Nimbus that, as a family-run group of
companies, HerkulesGroup could act quickly, and that it had
extensive financial resources to secure the future of this
company that was so rich in tradition.”
Christoph Thoma, Chairman and CEO of HerkulesGroup,
is pleased with the acquisition. “The product and the specific
know-how available at the various companies belonging to
the HerkulesGroup enhance and complement the scope of
services for our customers,” he says. “In the future,
UnionChemnitz will be able to make use of our sales
structures. At the same time, our real net output ratio,
together with increased production capacities, will provide
benefits in terms of procurement. Overall, excellent prospects
have been opened up by this acquisition for all companies
within the HerkulesGroup. Livingstone has provided crucial
support to make this transaction happen.”
Having overcome reluctance to engage in M&A, this part of
the Mittelstand has demonstrated the benefits available for all
parties. For more analysis of private equity activity in
Germany, see View from Germany on page 22.
THE OFFER WAS
ALWAYS GOING TO BE
GOOD; GETTING NIMBUS TO
CONSIDER IT AT ALL
WAS THE ISSUE
Contact:
Jochen Hense, Managing Partner, Livingstone Düsseldorf
T: +49 211 300 495 22, E: hense@livingstonepartners.de
Johannes Dupke, Consultant, Livingstone Düsseldorf
T: +49 211 300 495 33, E: dupke@livingstonepartners.de
WWW.LIVINGSTONEPARTNERS.CO.UK // AUTUMN 2011 // 19
SECTOR: INDUSTRIAL

ALE’S WELL THAT ENDS WELL
The sale of craft brewer Goose Island to
global giant Anheuser-Busch InBev will
enable the Chicago-based company to
continue its remarkable growth
An endorsement of your product by
the President of the United States is
one of those marketing coups most
companies can only dream of. But
Goose Island Beer Co. has the photograph
to prove that Barack Obama is a fan.
In the summer of 2010, the President
made a bet with David Cameron, the
British Prime Minister, when the USA and
England were facing each other in the
football World Cup. The game was a draw,
so both men paid up and Obama sent his
counterpart a present of Goose Island 312,
a craft beer made in his adopted home city
of Chicago. Cameron responded with
some of his own local constituency brew,
Hobgoblin, from the Wychwood Brewery
in Witney, Oxfordshire.
“I advised him that in America, we drink
our beer cold,” Obama told reporters at
the time, “so he has to put this in the
refrigerator before he drinks it, but I think
he will find it outstanding. And I am
KIRSTIE HAMILTON
20 // WWW.LIVINGSTONEPARTNERS.COM // AUTUMN 2011
happy to give his a shot, although I will
not drink it warm.”
A GOOD HEAD START
Goose Island is a remarkable success
story. Founded in 1988 as a tiny brewery
in a pub in Chicago, the company has
flourished as American drinkers have
increasingly discovered the delights of
boutique beers, known there as craft
beers. Goose Island’s products include
Honker’s Ale, an English-style beer, and
the now presidentially endorsed 312
Urban Wheat Ale, named after a Chicago
area code.
Overall, Americans are drinking less beer
than in the past, but the figures for craft beer
are showing a healthy increase. The sector
grew by more than 10% last year and Goose
Island was one of the most successful
companies, outperforming the industry
average by a healthy margin. While
remaining strongly tied to its Chicago roots,
Goose Island was now sold in 26 states and
is even available in the UK. Distributors,
faced with a premium product that
consumers loved, were clamouring for more.
By mid-2010, however, this runaway
success was causing problems. “Demand
for our beers has grown beyond our
capacity to serve our wholesale partners,
retailers and beer lovers,” said Goose
Island founder John Hall at the time. He
decided that his business needed new
capital to fund more brewing capacity,
among other things, and started looking
into the best way to raise this capital.
Chad Striker of Greenberg Traurig, the
company’s long-standing corporate counsel,
had worked in the past with Jim Moskal,
Managing Director at Livingstone Chicago,
and he introduced Livingstone Partners to

the craft beer maker. “Even before we were
engaged, we showed Goose Island that we
had relationships with potentially the right
investment partners,” says Moskal. “Then, in
the summer of last year, we were brought on
board [as exclusive financial adviser] to raise
a combination of debt and equity capital to
expand its brewing capacity.”
A GENTLE GIANT
As the process got under way, Goose
Island received a call from Anheuser-Busch
InBev (AB), the brewing giant that makes
Budweiser. Goose Island had been involved
with AB since 2006 via a distribution
agreement, but the proposition that Dave
Peacock, President of Anheuser-Busch,
put forward was far more dramatic than
that – AB wanted to buy Goose Island.
The idea of a huge mass-market brewer
acquiring Goose Island might have horrified
the company’s founder, but Hall was
impressed by the story he heard.
“The two sat down, businessman to
businessman, and all the things that David
Peacock said made John Hall comfortable
with the idea,” says Moskal.
AB had already recognised the attractions
of the craft beer market and had tried to tap
into it with its own brands such as Shock
Top, a Belgian-style wheat ale. However,
Peacock had come to the view that this
alone was not going to be enough. “We really
needed to radically change our position in
the high end,” he says.
Goose Island’s Chicago heritage was
another plus point. Chicago is traditionally
Miller country – Anheuser-Busch’s big rival
– and a deal that would strengthen its
position there was an attractive prospect.
As so often happens in M&A, the
transaction was not straightforward. Goose
Island already had an outside investor in
the shape of Craft Brewers Alliance (CBA),
a publicly quoted company in which AB is
also a shareholder, and which had the right
of first refusal in the event of a transaction
taking place.
These complexities meant that Livingstone
could not launch an auction. Even so, “we
negotiated the deal at a valuation that our
client was very happy with”, says Moskal.
AB acquired 58% of Goose Island’s equity
from John Hall and other investors for
$22.5m, while CBA agreed to sell its 42%
stake for $16.3m in cash plus additional
consideration. Goose Island’s two original
brewpubs (the American term for a pub
with its own microbrewery attached) did not
form part of the deal.
THIS DEAL
ENSURES THAT
GOOSE ISLAND HAS
THE CAPITAL IT NEEDS
FOR ITS FUTURE
EXPANSION
Goose Island fans may have initially
feared for their favourite beer when it was
sold to a huge global company, but AB is at
pains to show it will not kill the goose that
lays the golden eggs.
“Goose Island will remain a standalone
division and will retain its Chicago identity,”
says Moskal. “That is what has made it so
successful. This deal solves Goose Island’s
capacity issue and ensures that it has the
capital it needs for its future expansion.”
Hall, meanwhile, is delighted, saying:
“We thoroughly enjoyed working with
Livingstone on this important transaction
for Goose Island and valued its guidance
and advice throughout the process.”
Contact:
Jim Moskal, Managing Director, Livingstone Chicago
T: +1 312 670 5918, E: moskal@livingstonepartners.com
David Sulaski, Partner, Livingstone Chicago
T: +1 312 670 5902, E: sulaski@livingstonepartners.com
WWW.LIVINGSTONEPARTNERS.COM // AUTUMN 2011 // 21
SECTOR: CONSUMER

INSIGHT
VIEW FROM:
Germany Germa Germanyy
DANIEL SCHÄFER SAYS THAT GERMAN MITTELSTAND COMPANIES MAY
BE OVERCOMING THEIR TRADITIONAL RESISTANCE TO PRIVATE EQUITY
Many more
Mittelstand
managers
are receptive
towards the
idea of PE
investments
Comment
DR. RALF NOWAK,
Partner, Livingstone
Düsseldorf Düsseldorf
22 // WWW.LIVINGSTONEPARTNERS.COM // AUTUMN 2011
Crisis? What crisis? The sovereign debt crisis that has
a tight grip on other parts of Europe has not so far
spoiled Germany’s buoyant economic performance.
For Europe’s largest economy, the past few years have
been a roller coaster ride. A 4.7% drop in economic output
in 2009 was followed by a sharp recovery, with a 3.6% rise
in the past year. In the first quarter of 2011, Germany’s
GDP rose by another 1.5% compared with the last quarter
of 2010, lifting the economy well above pre-crisis levels.
Famous industrial giants such as Siemens, Daimler and
Volkswagen have been at the forefront of this upturn, but
the country’s economic backbone of small and mediumsized
groups – the so-called Mittelstand – has also fared
better than in any previous recession.
Mitte Mittelstand companies, often family-run, have a
seeming seemingly simple formula for success: a focus on exports
and high highly advanced market niches in sectors such as
automoti automotive, machinery, chemicals and electrical
engineeri engineering – all products that cater perfectly to the needs
of emergi emerging industrial giants such as China and India.
Mittelst Mittelstand managers and entrepreneurs are well
aware that tha the sovereign debt levels in many peripheral
European
countries are a threat to the health of the
continent’s
economy, but their optimism remains
unscathed.
In the next two years, they plan to invest
significantly
in new plants, property and equipment,
according
to a recent survey by GE Capital. While their
British and a French counterparts intend to spend less
in 2012 20 than in 2011, German firms aim to further
increase inc spending by 5.2%.
However, because many family-owned
In the first half oof
2011, private equity
activity in Germa Germany was dominated by
secondary and tertiary te transactions,
rather than new iinvestments.
This
shows how, once
they have overcome
their initial relucta reluctance, German
entrepreneurs and managers
can enthusiasticall
enthusiastically embrace the
benefits an institut institutional investor
can bring. As their businesses grow,
they can achieve an
exit and good
returns for their initial backer, while
offering significant opportunities to
a subsequent investor with deeper
pockets and greater firepower to
support their strategic aspirations.
As the number of companies in
the Mittelstand and beyond that have
had good experiences with private
equity investors increases, and
we see more high-profile private
equity-backed successes, a market
companies are not listed on stock markets and rely on
internal cash flows to fund investments, a lack of capital is
often an impediment to growth. In theory, private equity
would be well suited to bridge this funding gap. In
Germany as a whole, private equity transaction volumes
have increased significantly over the past 12 months, from
13% of overall transaction volumes in 2008-09 to 19%
in 2010-11. However, this activity has yet to reach the
Mittelstand – a sector that has traditionally taken a
negative view of private equity.
At the same time, Mittelstand private equity
transactions have accounted for more of the market by
value than by volume over this period, which may suggest
that private equity houses are placing high valuations on
Mittelstand businesses in the expectation that their
strong growth will continue, and that they may be able to
outbid strategic acquirers in this area of the market.
Given the growth prospects for the Mittelstand, and the
increasing levels of private equity activity in Germany as a
whole, it may be only a matter of time before we start to
see the number of Mittelstand private equity transactions
increasing. One can certainly find many more Mittelstand
managers than five years ago who are receptive towards
the idea of private equity investment.
For an example of a recent Mittelstand transaction,
see ‘Machine-tooled for success’, page 18.
Daniel Schäfer was the FT’s Frankfurt
correspondent until June 2011. He is
now its private equity correspondent
famously scornful of ‘locusts’ may
start to see these investors in a more
positive light. We therefore expect
to see private equity transaction
volumes continue to increase over
the next 12 months.
Contact:
Dr. Ralf Nowak, Partner,
Livingstone Düsseldorf
T: +49 211 300 495 24,
E: nowak@livingstonepartners.de

A WEALTH OF EXPERIENCE
TONY HYNES AND FRANCIS IVES ARE THE LATEST ADDITIONS TO LIVINGSTONE’S
PANEL OF INDUSTRY ADVISERS. WE FIND OUT WHAT THEY BRING TO THE FIRM
Livingstone Partners has
a growing advisory panel
of seasoned industry
veterans who work exclusively
for the firm and bring to M&A
transactions a wealth of
operational experience and
board-level contacts around
the world. The Acquirer talks
to the two newest additions.
TONY HYNES
Industry Adviser to the Consumer team,
with a focus on the Food sector
After retiring as Director and Chief Operating
Officer at Greencore Group plc, a leading supplier
of fresh convenience foods to the UK and US retail
markets, Tony Hynes has joined Livingstone as
an Adviser to the Consumer team. His career
has included 19 years in the ophthalmic optics
industry, followed by 15 in frozen and fresh food.
“I came to the food industry in 1996,
managing Green Isle Foods,” he says. “Our big
success was taking Goodfella’s to number one
in the UK’s frozen pizza market. We doubled
sales in five years and I left the business in pretty
good health.” This experience gave him a solid
understanding of the industry, which he took to
his next role at Greencore.
In the current economic climate, the
pressure is on the supply base and the high
street, he says: “The consumer is still
looking for a quality product, but their
wallet is getting slimmer. This means
you have to provide more promotional
activity at the retail end, which
tightens your margin.”
Hynes is confident he will bring
a new perspective to Livingstone.
“I bring an enormous amount
of operational experience – of
manufacturing processes, driving costs
down and improving margins,” he says.
“On the sales side, if I’m in at an early stage,
I can help maximise the profitability of a
business and help others get the best out of it.”
Contact:
Francis Ives, Adviser, Livingstone London
Tony Hynes, Adviser, Livingstone London
T: +44 (0)20 7484 4700
Livingstone’s Industry
Advisory Panel:
INDUSTRY ADVISERS
FRANCIS IVES
Industry Adviser to the Business Services team,
with a focus on the Consultancy sector
Francis Ives was a key player in the growth
of Cyril Sweett Group plc, an international
construction and property consultancy. After he
retired as Chairman in 2010, a role as Industry
Adviser at Livingstone was an obvious next step.
“I’ve known Jeremy Furniss [Partner at
Livingstone London] and Livingstone for six or
seven years,” he explains. “It was a natural thing
that, when I retired, we explored new ways for
my experience to be harnessed for mutual good.”
He was responsible for floating Cyril Sweett
on AIM in 2007. “We realised that we couldn’t
double in size with our own resources,” he
explains. “We managed to raise £27 million for
40% of our shares. That enabled us to set about
a buy-and-build strategy and we took the
business from 700 to 1,200 people.”
His knowledge and expertise will be
invaluable, as the future of the UK market
remains uncertain. “Some businesses
will see a need for consolidation,” he says.
“They will have used up their funds getting
through the past couple of years, and all
consultancies need cash to expand.”
The recent political turmoil means it has
been difficult to grow in areas that were
previously thriving, such as the Middle
East and North Africa. Ives believes
expansion will take place in India and the
Far East, and that’s where his expertise
can benefit companies looking to expand
in these geographic locations.
Consumer: Barry Morris, Nat Solomon,
Tony Hynes
Banking: Ray Newton
Business Services: Michael Squires,
Francis Ives
Industrial: Chris Woodwark
media:tech: Colin Lloyd, Shane Redding,
Simon Roncoroni
WWW.LIVINGSTONEPARTNERS.COM // AUTUMN 2011 // 23

We’ve achieved results for these clients
What can we do for you?
THE GADA GROUP LTD
RBS EQUITY FINANCE
Growth capital-raising for a
pan-European medical device
distributor and services provider
in July 2011.
Livingstone initiated the
transaction, advised The GADA
Group and assisted in the
negotiations.
CHEMIGRAPHIC LTD
HSBC/RJD PARTNERS
Debt refinancing of a leading
specialist electronics manufacturer
in May 2011.
Livingstone advised the
shareholders of Chemigraphic and
assisted in the negotiations.
THE BREAD FACTORY
RISK CAPITAL PARTNERS
Sale of one of the UK’s leading
producers of artisan bakery goods
for the high-end food service
sector and the GAIL’s bakery
chain in April 2011.
Livingstone advised the vendors
and assisted in the negotiations.
UNITED RESTAURANT GROUP
GE CAPITAL CORPORATION/
MEDLEY CAPITAL
Recapitalisation of a leading US
franchisee of TGI Friday’s casual
dining restaurants in June 2011.
Livingstone initiated the
transaction, advised
the company and assisted
in the negotiations.
LINCAT HOLDINGS PLC
MIDDLEBY CORPORATION
Sale of the UK’s leading
independent manufacturer of
commercial cooking equipment to
Middleby Corporation in May 2011.
Livingstone initiated the
transaction, advised the Board
of Lincat and assisted in
the negotiations.
REED & MACKAY HOLDINGS LTD
MBO TEAM/ECI/ISIS
Sale of the UK’s leading provider of
strategic travel management
services to management backed by
ECI and ISIS in April 2011.
Livingstone initiated the
transaction, advised the vendors
and assisted in the negotiations.
VITRONET HOLDING GmbH
RWE DEUTSCHLAND AG
Strategic investment in the leading
German full-service provider of
turnkey optical fibre infrastructure
solutions and fibre-to-the-home
networks by major European utility
RWE in June 2011.
Livingstone initiated the
transaction, advised vitronet and
assisted in the negotiations.
GOOSE ISLAND BEER CO.
ANHEUSER-BUSCH INBEV
Sale of one of America’s most
respected and fastest-growing
craft brewers to Anheuser-Busch
InBev in May 2011.
Livingstone advised the
shareholders of Goose Island Beer
Co. and assisted in the negotiations.
ALLEGROMEDICAL.COM
SCRIP PRODUCTS CORPORATION
Scrip Products Corporation,
a portfolio company of Beecken
Petty O’Keefe & Co., acquired
AllegroMedical.com, a leading
distributor of medical supplies and
equipment, in April 2011.
Livingstone initiated the
transaction, advised the acquirer
and assisted in the negotiations.
www.livingstonepartners.com
WALDRICHSIEGEN HOLDING
GmbH
UNION WERKZEUGMASCHINEN
GmbH CHEMNITZ
Acquisition of one of the leading
manufacturers of boring and
milling tools by HerkulesGroup
in June 2011.
Livingstone initiated the
transaction, advised the vendors
and assisted in the negotiations.
GENUINE SCOOTERS
CHICAGO ASSOCIATES INC
Recapitalisation of a leading
wholesaler and retailer of
recreational scooters, scooter parts
and accessories in May 2011.
Livingstone advised the company
and assisted in the negotiations.
ZEAG GROUP
FAAC GROUP
Sale of a leading international
parking systems and solutions
provider to FAAC Group of Italy
in March 2011.
Livingstone advised the
vendors, Hallmark Industries
and MML Capital, and assisted
in the negotiations.