KKR buys Afriflora for 200 million, Marktlink advises

02 July 2014 Consultancy.uk

Private equity giant Kohlberg Kravis Roberts & Co (KKR) has reportedly invested $200 million in Afriflora, a large grower and distributor of roses based in Ethiopia. With the expansion capital, the firm expects to accelerate its growth ambitions, for KKR, the investment provides its first foothold on African soil.

Afriflora was founded in 2004 by Dutch businessman Gerrit Bar Barnhoorn. The business has remained within family hands, and is currently run by his sons, Peter Barnhoorn, who serves as CEO and John Barnhoorn, an Executive Director at the company. With a footprint of 450 hectares of land and 8,700 employees Afriflora is one of the largest producers of fair trade roses on the globe. The firm yearly sells 730 million roses through the Dutch flower auction FloraHolland. In FY14 Afriflora booked a profit of €17 million on a revenue of €81 million.

Roughly two years ago, Afriflora decided to actively dive into the venture capital market, with the aim of attracting additional capital. To facilitate the process, the family run business hired Marktlink, an M&A consultancy based in the Netherlands. The corporate finance experts supported Afriflora with finding the right investors, and after a number of targets had been selected, the due diligence. The decision ultimately fell in the favour of KKR, a US-based private equity firm. Last week the two firms confirmed that a deal had been struck, and although they refused to release any details, ‘informed sources’ and media report that the investment is around $200 million, which if true, would turn the KKR-Afrilora deal into one of the top 10 largest private equity transactions in Africa this year.

AfriFlora - KKR - Marktlink

Tim van der Meer, partner at Marktlink, comments: “Afriflora is a special company. Its sincere societal involvement, combined with an innovative commercial vision of the growers’ profession, has resulted in a special, fast-growing company which is extremely successful in all aspects. As advisor to the Barnhoorn family we were able, after a preparation period of several months, to contact a number of investors. We knew that KKR wanted to invest in companies that are active in Africa. Although several other parties showed an interest, it became quickly clear that KKR would be the ideal investor for this company.”

For the Barnhoorn family, who will remain active as management after the transaction, the investment provides ammunition to realise the ambitious growth targets, including 200 new hectares of production ground and growing the number of employees by 5,000 to nearly 14,000. For KKR, the deal reflects a first step in its plans to enter the African market. 

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8 tips for successfully buying or selling a distressed business

18 April 2019 Consultancy.uk

Embarking on the sale of a business is one of the most challenging experiences a management team can undertake. Even serial dealmakers acknowledge that the transaction process can be gruelling, exposing management to a level of scrutiny and challenge through due diligence that can be distinctly uncomfortable.

So, to embark on a sale process when a business is in distress is twice as challenging. While management is urgently trying to keep the business afloat, they are simultaneously required to prepare it for scrutiny by potential acquirers. Tim Wainwright, an experienced Transactions Partner with Eight Advisory, says that this dual requirement means sellers of distressed businesses must focus on presenting their business in a way that supports buyers in identifying value, whilst simultaneously being open about the causes of distress. 

According to Wainwright, sellers of distressed businesses should focus on eight key aspects to ensure they are as well prepared as possible:

  • Cash: In a distressed situation cash truly is king. Accurate forecasting and day-by-day cash balances are often required to ensure any buyer is confident that scarce cash reserves are under proper control. 
  • Equity story and turnaround plan: Any buyer is going to want to understand the proposed turnaround strategy: how is the business going to enact its recovery and what value can be created that means the distressed business is worth saving? Clear presentation of this strategy is essential.
  • The business model: Clear demonstration of how the business model generates cash is required, with analysis that shows how financial performance will respond to key changes – whether these are positive improvements (e.g., increases in revenue) or emerging risks that further damage the business.  Demonstrating the business is resilient enough to cope with these changes can go a long way to assuring investors there is a viable future.
  • Management team: As outlined above, this is a challenging process. The management team are in it together and need to be consistent in presenting the turnaround. Above all, the team needs to be open about the underlying causes that resulted in the distressed situation arising.  A defensive management team who fail to acknowledge root causes of distress are unlikely to resolve the situation.

8 tips for successfully buying or selling a distressed business

  • Financing: More than in any traditional transaction, distressed businesses need to understand the impact on working capital. The distressed situation frequently results in costs rising as credit insurance becomes more difficult to obtain or as customers and suppliers reduce credit. Understanding how these unwind will be important to the potential investors.
  • Employees: Any restructuring programme can be difficult for employees. Maintaining open communications and respecting the need for consultation is the basic requirement. In successful turnarounds, employees are often deeply engaged in designing and developing solutions. Demonstrating a supportive, flexible employee base can often support the sale process.
  • Structuring: Understanding how to structure the business for the proposed acquisition can add significant value. Where possible, asset sales may be preferred, enabling buyers to move forward with limited liabilities. However, impacts on customers, employees and other stakeholders need to be considered.
  • Off balance sheet assets: In the course of selling a distressed business, additional attention is often given to communicating the value of items that may not be fully valued in the financial statements. Brands, intellectual property and historic tax losses are all examples of items that may be of significant value to a purchaser. Highlighting these aspects can make an acquisition more appealing.

“These eight focus areas can help to sell a distressed business and are important in reaching a successful outcome, but it should be noted that it will remain a challenging process,” Wainwright explains. 

With recent studies indicating that the valuation of distressed business is trending north. With increased appetite from buyers who are accustomed to taking on these situations, it is likely that more distressed deals will be seen in the coming months. “Preparing management teams as best as possible for delivering these will be key to ensuring these businesses can pass on to new owners who can hopefully drive the restructuring required to see these succeed,” Wainwright added.