Markku Blomqvist was the principal owner of Kentek, and he had succeeded in building a strong and a profitably growing business, with around 100 employees. Although the growth was rapid, Markku felt that the company needed a new shareholder base in order to continue and accelerate growth and to take the organization to the next level. “From the start we knew that we would be selective with respect to the buyer and that finding the right buyer for a business like ours could take time.
We also knew that we needed professional advisors, not only to find potential buyer candidates, but also to lead the negotiations”, Blomqvist says. Our international network in IMAP offered the international opportunities the owners of Kentek were looking for.
It was our responsibility to manage the competitive, international sales process , with the aim of maximizing the company value and obtaining good terms and conditions for the sale from the owners perspective. With the help from IMAP, we found mainly European industrial buyer candidates and private equity investors that fit the criteria. Out of around 50 potential buyer candidates, we met with Finnish and international industrial companies s as well as with private equity investors in the Nordic countries. In the first round of negotiations, we did not get to the desired result. In autumn of 2012, through a second round we found an industrial buyer, Diploma PLC in England. Diploma PLC is listed on the London Stock Exchange and its product and service strategy and history of acquisitions made them a suitable buyer candidate. Diploma PLC’s turnover was over 300 MEUR and a market value of approximately 900 MEUR. In addition to Europe, the company has operations in North America, Asia and Australia.
“We definitely wanted to find a buyer large enough to invest in the development of Kentek’s operations and on the other hand bring new products to widen our product range. Diploma is exactly this kind of a buyer”, says Blomqvist.
The Due Diligence material, consisting of over 12 000 pages, was extraordinarily comprehensive and complex due to Kentek’s widely spread operation range and the subsidiaries in Russia and the Baltic States.
The assembly of the Due Diligence material in the depth the buyer requested was significantly more challenging than normally. Due to our systematic management of the sale process, the buyer was given access to the financial, legal and commercial data, and they also conducted interviews with the key persons at Kentek.The transaction process was carried out in four-steps:
- Adjusting the minority interests in the subsidiaries in Russia and the Baltic States to support the overall structure (through share swaps and share redemptions) before the actual transaction.
- Selling 80% of Kentek Ltd's shares to Diploma PLC.
- Involving an earn out for part of the transaction price to focus the interests of the parties.
- Arranging a Put & Call-arrangement to Markku Blomqvist and Pavel Fedorov, the manager of the Russian Operations, who together own 20% of Kentek’s shares.
The transaction had to be approved by the Russian competition authorities. The approval came on Christmas Eve 2013, as a result of the 6 week application process. Through the process and negotiation, Kentek Group enterprise was valued at approximately 16.6 million EUR (EBITDA multiple around 6.5 - 7).
Although the foreign new owner of Kentek changed a few things in the company during the first few months, most things remain the same. Markku Blomqvist and the Russian director Pavel Fedorov have stayed with the company and they also remain as minority shareholders.
"We are committed to remain in the service of Diploma. We are not yet in the pension age and we want to continue to work and influence the way the business develops in the future. Diploma appreciates and needs our knowledge of Russia and the Baltic States,
and we get to experience the strengths of a large owner, "says Blomqvist.
According to Blomqvist, Kentek needed the extra support to continue to grow in Russia, where there is great potential for growth as the investment rate is high there. Diploma is willing to invest in growth in the Russian market, and in the future Kentek will open a number of offices in Russia in addition to the existing offices in Moscow and St. Petersburg.