A report by Silverfleet Capital in conjunction with Mergermarket, an Acuris company

MAY 2019

EUROPEAN BUY & BUILD 2018

HIGHEST YEAR ON RECORD 702 ADD-ON DEALS

LARGEST ADD ON VALUE: $3.3B

16 add-ons exceeded £60m or €67m (much fewer than before)

Of these 16 add-ons, seven were H2 deals and one was a H1 deal which only came to light in H2

vs. 2017: 35 deals which exceeded £60m

Highest year on record

European Buy & Build activity in 2018 reached record heights with 618 add-on deals announced. We have pro-forma adjusted this number to 702 based on the methodology below.

H1 2018 data has been revised upwards by 29% to include additional deals that came to light since our H1 2018 report

We have therefore made a pro-forma adjustment of 29% to the H2 figures to bring the full year total to 702

Other than this very high-level trend we have not made any pro-forma adjustments to the dataset

UK & IE is the most active region although lower activity than 2017 – France & DACH performed strongly

Despite Brexit, UK & IE is the most active region with 131 add-ons

This is then followed by the Nordic region (103 add-ons), France (75 add-ons), and DACH (73 add-ons)

This follows a similar ranking to 2017

Average and total disclosed add-on deal values remain strong(although fewer values disclosed)

Total disclosed deal value of £9.5 billion with only 58 add-ons disclosing deal values (representing only 9.4% of total). The average deal value for the year was £164m

vs. 2017: £8.3 billion total deal value with 103 disclosed values (16% of total). Average deal value of £80m

vs. 2016: £8.2 billion total deal value with 97 disclosed values (17% of total). Average deal value of £84m

We believe a trend towards not disclosing deal values is the underlying explanation for the higher average deal values.

2018 MAIN FINDINGS

01

Silverfleet Capital has analysed the trends in Buy & Build activity within the European private equity market since 1998. Based on data from respected research company Mergermarket, this year’s report analyses global add-on activity undertaken by European headquartered companies backed by private equity during 2018.

Our objective with the annual Buy & Build Monitor is to highlight new developments in buy & build activity, including changes in the number and value of transactions during a designated year, regional trends and identifying the largest transactions during the year.

The trend in 2018 was strong overall, both in terms of volume of add-ons completed (8% increase vs. 2017) and the average size of add-ons for which values were announced (£164 million vs. £80 million in 2017). However the sample size of deal values disclosed was much lower than previous years, hence this figure must be treated with caution. This also affected the total number of add-ons announced with values greater than £60 million or €67 million. This was much fewer than previous years with only 16 transactions, compared to the 35 announced in 2017. We believe the underlying explanation for this is a trend towards not disclosing deal values.

We hope you find our latest report useful. If you have any questions or would like to discuss any of the findings, please feel free to get in touch with Mao Isobe at Silverfleet Capital (London).

One final point to note is that Mergermarket converts the deal data into GBP at the rate following the day an add-on is announced, hence FX rates used in the report will vary.

INTRODUCTION

02

PARIS

LONDON

METHODOLOGY

The data used in the Silverfleet Buy & Build Monitor is prepared by Mergermarket. It only includes add-on acquisitions made by companies where more than 30% of their equity is held by a private equity fund and where the platform business is a European headquartered company.

The value of the add-on needs to exceed €5 million or the target should have at least €10 million of sales to be included. Datasets reported on by other commentators do not appear to have this minimum size threshold and would therefore not be directly comparable.

One challenge that we always face when writing this report is that the data for the last quarter being reported on is usually incomplete, especially as smaller add-ons are less well reported and frequently come to light after the analysis has been completed.

We have therefore decided to apply a pro-forma increase of 29% to H2 2018 volumes to assess trends. From our H1 2018 analysis, we can see this is the size of adjustment that would have been required for our H1 2018 pro-forma to have been accurate in terms of add-on volumes.

84 additional transactions (pro-forma) have therefore been added to the H2 2018 reported volumes. Extrapolating this methodology of creating pro-forma numbers to any detailed breakdown of the data such as the regional analysis is however much less straightforward, so we have chosen not to do so.

Please note that a number of possible add-on transactions have been excluded as the equity stake % in either the platforms or the add-ons were not disclosed.

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A provisional total of 702 add-ons took place in 2018 compared to 650 in 2017, representing an 8% increase. This represents the highest level of add-on activity since we started tracking the data in 1998.

TRANSACTION VOLUME AND VALUE

04

Volume of add-ons Volume of add-ons in 2018 (FY) Provisional value

Volume of Mid-Market M&A indexed Volume of PE Buyouts indexed

600

700

800

500

400

300

200

100

0

Num

ber o

f add

-ons 80%

20%

100%

120%

60%

40%

0%

201820142010 201620122008 201720132009 201520112007

Annual volume of add-ons

We analyse the geographic data based on the location of the add-on rather than that of the acquiring business. The table shows the geographic split of add-on targets acquired in the three years up to and including 2018. The regions are presented in order of total activity in 2018. The 2018 pro-forma volume adjustment of 84 is shown separately as it has not been allocated by region and hence we expect the geographic data for 2018 to increase slightly in most regions.

1) Allocating the pro-forma adjustment evenly would result in a 13.6% uplift to the numbers above it.

GEOGRAPHIC TRENDS

05

Target region 2016 2017 2018 17-18 (% change)

UK and Ireland 125 141 131 -7%

Nordic Region 113 120 103 -14%

France 76 65 75 15%

DACH 68 66 73 11%

Benelux 47 56 61 9%

Italy 35 46 51 11%

Spain and Portugal 24 41 31 -24%

Central and Eastern Europe 19 21 17 -19%

South Eastern Europe 4 3 1 -67%

Total Europe 511 559 543 -3%

North America 44 54 43 -20%

Asia Pacific 18 17 18 6%

Latin America 8 9 8 -11%

Africa 3 5 4 -20%

Middle East 1 6 2 -67%

Total Rest of World 74 91 75 -18%

Pro-forma1 84

Total overall 585 650 702 8%

Nordic RegionAs reported in the H1 2018 report, the Nordic region, usually one of the most active areas in Europe, was relatively weak in 2018, even allowing for some under-reporting of data. Of the Nordic countries, Sweden was the strongest performer with 42 add-ons, accounting for c.41% of total add-ons. This was off-set by low levels in Denmark and Norway which both had ten fewer add-ons than in 2017.

Despite lower add-on activity in Denmark, one of the largest add-ons in 2018 occurred in Denmark. Polaris-backed Molslinjen, the Danish ferry operator acquired shipping company Danske Færger for DKK 594m – this transaction is covered in more detail in section 6.

05. GEOGRAPHIC TRENDS

2) Allocating the pro-forma adjustment evenly would result in a 13.6% uplift to the numbers above it.

Absolute # of add-ons2

Target country 2016 2017 2018 17-18 (% change)

Sweden 46 34 42 24%

Denmark 29 33 23 -30%

Norway 21 29 19 -34%

Finland 17 24 18 -25%

Iceland 1 N/A

Total Nordic 113 120 103 -14%

In addition, one of the Danish add-ons was made by 7days, a Silverfleet portfolio company. 7days, a specialist workwear supplier to the healthcare sector based in Germany, agreed to acquire the Danish company Praxis Herning A/S, which supplies the same end markets in the Nordic region. The purchase price has not been disclosed. The acquisition is the first step in the growth strategy for 7days, in particular through increasing its market penetration in other regions of Europe.

05. GEOGRAPHIC TRENDS

DESPITE IMPENDING BREXIT, UK & IE REMAIN THE

REGION WITH THE MOST ADD-ON ACTIVITY

4219

23

18

131

1

17

1

75

61

73

51

31

European add-ons in 2018

16 add-ons with EV over £60m or €67mThe below table presents a list of the add-ons announced in 2018 with values greater than £60m or €67m.3 These are analysed in more detail on the following pages.

3) The FX rate used by Mergermarket to translate into GBP is the rate the day after the deal is announced.

Where a EUR value exists, we have also checked that it exceeds €67m.

ADD-ONS WITH EV OVER £60M OR €67M

06

Date Bidder Bidder Country Target Target

CountryDeal Value

(£m) Sector

16/07/18 Messer Group GmbH GermanyLinde AG (Gases business in North America and certain business activities in South America)

USA 2703 Manufacturing

05/02/18 EG GroupUnited Kingdom

The Kroger Co. (Convenience store business)

USA 1529 RCL

13/07/18 Viridium Group GmbH & Co. KG Germany Generali Lebensversicherung AG Germany 1475 Services

27/02/18 Motor Fuel LimitedUnited Kingdom

MRH (GB) LimitedUnited Kingdom

1200 RCL

05/03/18 KCA Deutag Drilling LimitedUnited Kingdom

Dalma Energy LLC (Omani and Saudi Arabian businesses)

Oman 478 Services

25/03/18 Cerba HealthCare S.A.S. France Groupe Bio7 France 393 Healthcare

04/01/18 Nuts Groep B.V. NetherlandsDe Nederlandse Energie Maatschappij B.V.

Netherlands 177 Services

21/12/28 M7 Group SA Luxembourg UPC DTH S.a.r.l Luxembourg 162 TMT

11/08/18 Groupe Circet S.A. France KN GroupIreland (Republic)

134 TMT

02/10/18 Irca S.p.A. Italy Dobla B.V. Netherlands 133 RCL

10/08/18 Valeo Foods Group LimitedIreland (Republic)

Tangerine Confectionery LimitedUnited Kingdom

100 RCL

09/04/18 Alpitour S.p.A. Italy Eden travel group Srl Italy 87 RCL

29/06/18 Faerch Plast A/S Denmark CGL Pack Annecy S.A.S. France 72 Manufacturing

10/10/18 Molslinjen A/S Denmark Danske Færger A/S Denmark 70 Services

20/03/18 Averys SA France Ramada Storax Group Portugal 66 Manufacturing

19/06/18 Nets A/S Denmark Dotcard Sp. z o.o. Poland 64 TMT

Seven add-ons were announced in H2 2018 that exceeded an enterprise value of £60 million or €67 million and these are included in the table above. There were nine deals of this size in H1 2018, eight of which were commented on in our last report and one which came to our attention later (these are also shown above). This brings the total number of these larger add-ons in 2018 to 16, much lower than that of previous years (35 in 2017).

The largest add-on acquisition in the half year was CVC and the Messer Group’s $3.3bn acquisition of Linde AG’s Gases business in North America and certain business activities in South America. This significant add-on acquisition furthers Messer’s ambitions to become a global player in the industrial gases sector.

We show below an analysis according to sector. Add-ons classified as pharmaceutical, medical or biotech have been classified here as healthcare. Similarly add-ons shown as industrial and chemicals in our last report are included under Manufacturing. Both financial and business services are shown together as Services.

The largest add-on acquisition in the half year was CVC and the Messer Group’s $3.3bn acquisition of Linde AG’s Gases business in North America

06. ADD-ONS WITH EV OVER £60M OR €67M

Manufacturing 3 add-ons

5 add-ons

3 add-ons

4 add-ons

1 add-on

Retail, Consumer & Leisure

Technology, Media & Telecoms

Services

Healthcare

Sector Number of add-ons >£60m

The largest add-on acquisition in the second half of 2018 was MG Industries’ $3.3 billion acquisition of assets in the Americas from Linde.

MG Industries is a JV between CVC and Messer, formed in 2018. MG Industries will operate under the Messer brand and are aiming to become a global player in the industrial gases sector through gaining a presence in the Americas.

M7 Group SA, a Luxembourg-based company providing satellite television services for consumers and business customers completed the third largest add-on for H2 2018 at €180m.

M7 Group is a portfolio company of Astorg Partners and completed the acquisition of Liberty Global’s Eastern European DTH satellite TV operations in December.

The second largest add-on in the period was Cinven-backed Viridium Group’s acquisition of Generali Lebensversicherung

This transaction created the clear leader in the German life insurance consolidation market. The total transaction value was approximately €1.9bn.

Advent International portfolio company Circet Groupe acquired KN Group for a reported amount of over €150m.

KN Group is an Ireland-based provider of engineering services to the telecommunications, transport, infrastructure and power sectors. The consolidated business will have a turnover of €1.1b.

7 add-ons with EV over £60m or €67m announced in H2 2018

06. ADD-ONS WITH EV OVER £60M OR €67M

Carlyle-backed Irca, a major European producer of chocolate, artisanal pastry, ice cream and baking products, acquired Dobla for an estimated minimum consideration of €150m.

Headquartered in the Netherlands, Dobla is a premium manufacturer of chocolate decorations, and filled a gap in Irca’s existing product range.

Polaris-backed Molslinjen, the Danish ferry operator acquired shipping company Danske Færger for DKK 594m.

The transaction marked Clipper's exit from the passenger ferry segment, further strengthening their focus on bulk and ro-ro activities.

CapVest-backed consumer food products company Valeo Foods acquired Tangerine, the confectionary manufacturer and distributor for an estimated minimum consideration of €100m.

The transaction complemented Valeo's Big Bear confectionary acquisition.

Faerch, an Advent portfolio company and Denmark-based manufacturer of trays for the food industry, acquired CGL Pack from PSB Industries In France.

This transaction was valued at €81.5m. Although this transaction happened in H1 2018, it only came to light in the H2 dataset.

06. ADD-ONS WITH EV OVER £60M OR €67M

Prefere ResinsOn 24th April 2019 Silverfleet Capital’s portfolio company Prefere Resins announced an important add-on transaction that will be included in the statistics for H1 2019. Prefere agreed to acquire the melamines and formaldehyde activities of privately held Ineos Enterprises (closing of the transaction is subject to regulatory approval).

While an important milestone for Prefere Resins, it is a good illustration of a point covered in this report; there appears to be a trend towards not disclosing deal values. Despite the transaction being sizeable, it would have been just outside top quartile in terms of deal size in 2018, neither seller nor buyer wished to disclose the Enterprise Value of the deal. Under 10% of add-on transactions disclosed values in 2018 – much lower compared to 16% in 2017 and 17% in 2016. It also shows that this trend applies to both large and small transactions.

As a result of this, it is hard to gauge the true extent of the market for Buy & Build in value terms though clearly the volume of transactions is rising inexorably as is the importance of this method of value creation.

“Prefere Resins is a typical Silverfleet investment, where we invested to support a market leading specialised business achieve its next phase of international growth, and we are pleased to have been able to achieve this within a year of our initial investment”

Jennifer Regehr Silverfleet Capital

CASE STUDY

07

“The acquisition of the Melamines & Paraform businesses from INEOS Enterprise with their leading positions in melamine resins and formaldehyde as well as formaldehyde derivatives represents a key step towards our strategic plans to grow our business to become a global resin producer”

Arno Knebelkamp, CEO of Prefere Resins Holding GmbH.

07. CASE STUDY

Silverfleet Capital Partners LLP

One Carter Lane London EC4V 5ER United Kingdom www.silverfleetcapital.com

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