These are slides from a 4 hr seminar we did on Turnaround Investments in Germany. The audience consistet mainly of people who had little experience in Turnaround Investing in Germany. Therefore it could be read by anyone. However, we have not converted the slides to a reader format. That means sometimes it will be difficult to understand what is meant. Do not hesitate to post a question. www.famas.de

1. FaMAS GmbH
Turnaround Investment Seminar 2014
Essentials
Munich, September 2014

2. © FaMAS GmbH 2014
Agenda – Introduction to Turnaround Investments
Introduction to FaMAS (1 Slide)
Specifics about Investments in Turnaround (3 Slides)
Turnaround Investments for foreign Investors (6 Slides)
Investment Process in Turnaround Companies (24 Slides)
– Sourcing
– Screening
– Due Diligence & Negotiations
– Post Transaction Issues
Turnaround Investment Financing Options (3 Slides)
Case Example (3 Slides)
Munich 2014 Page 1

3. © FaMAS GmbH 2014
FaMAS – Key facts
Turnover: 10 Mio. to 100 bn. EUR
Employees: 100 to 100.000
Engagements: Manager, Consultant and Advisors
Clients are
Small and Large
Companies
International
All major German
industries
Electronics, automotive suppliers, telecoms, IT, chemical, pharmaceutical,
equipment manufacturing, tourism, banks, insurance, agriculture, online
trade
Team fluent in 7 languages (German, English, French, Russian,
Turkish, Spanish, Italian)
Worked in over 20 countries
With 1000 private investors from more than 90 countries
FaMAS assisted
Financing projects
with a volume of
more than EUR 1
billion
Munich 2014 Page 2
Turnaround &
Transactions
First Turnaround Transaction in 1996
Overall >40 Turnaround Consulting/Management
Over 350 Turnaround Company Transactions screened every year
5-10 Buy-side Turnaround Engagements per year
Participated in about 30 Transactions in last 18 years in 20 countries
Functional
expertise
B2B Sales & Distribution, New Customer acquisition, Sales Force training,
Cold Calls training, Market and competitors Strategy, Integration of IT
systems (CRM + ERM), business process improvements, organizational
setup, Change Management, Kaizen, KVP, Purchasing optimization,
purchasing cost support, risk management, business development. etc..

4. © FaMAS GmbH 2014
Agenda
Introduction to FaMAS
Specifics about Investments in Turnaround
Turnaround Investments for foreign Investors
Investment Process in Turnaround Companies
– Sourcing
– Screening
– Due Diligence & Negotiations
– Post Transaction Issues
Turnaround Investment Financing Options
Case Example
Munich 2014 Page 3

5. © FaMAS GmbH 2014
Why are you interested in making Turnaround Investments
in Germany?
Munich 2014 Page 4

6. © FaMAS GmbH 2014
Why invest in Turnarounds Companies
Source:
Venture Economics
returns (USA) between
1987 and 2006
• US Ventura Capital,
16.6
• US Buyouts 12.2
• Europe: 10.4
Volker Kraft, PE in
Turnarounds 2006
• Average Return of
Turnaround
Investments in
Europe 59,5%
Munich 2014 Page 5

7. © FaMAS GmbH 2014
…but the risk is high as well
Munich 2014 Page 6
Source: www.prepin.com Special Report October 2011: Distressed Private Equity

8. © FaMAS GmbH 2014
Standard vs. Turnaround Investment Process
Munich 2014 Page 7
Screening LOI
IVIIIIII V
SigningDue Diligence Post-Acquisition
• Only few distress
companies
• Key question: At
what costs and
how can it be
turned around?
Standard
Key
Activities
Turn-
around
Key
Activities
• A lot more
companies to
screen and select
• Key question: Is
the Company for
sale?
• A lot of time to
prepare an LOI
• Often price
guidance
• Content of LOI
focused on
„price“, other
aspects not
important
• Negotiate terms
with one
stakeholder:
• Owner
• Low pressure to
sell can lead to
lengthy contract
negotiations
• 5 Stakeholders
possible:
• Owners and/or
banks or
administrator
• Management
• Other creditors
• Customers
• Workers council
• Little/no time to
prepare an LOI
• No price guidance
• Description of
turnaround/take-
over strategy
important in
addition to price
• Price may not be
driving factor
• Share deal
• Extensive reps
and warranties
available
• Can take 6-12
months
• Often low
pressure to sell
company
• Often Asset deal
• Almost no reps
and warranties
• DD often only
takes few weeks
• High pressure to
sell company
• Start planning
future strategy
• Focused on
taking financial
control
• May take several
months to
implement
• Post-acquisition
plan must be
ready before
acquisition
• Active
operational
management
(e.g. set-up
NewCo, apply for
Tax ID)

9. © FaMAS GmbH 2014
Agenda
Introduction to FaMAS
Specifics about Investments in Turnaround
Turnaround Investments for foreign Investors
Investment Process in Turnaround Companies
– Sourcing
– Screening
– Due Diligence & Negotiations
– Post Transaction Issues
Turnaround Investment Financing Options
Case Example
Munich 2014 Page 8

10. © FaMAS GmbH 2014
Foreigner can purchase German distressed companies
easier than profitable companies
A profitable company…
• Everyone wants to buy it
• The price is high
• Sellers prefer European or even
German investor
Purchasing a distressed company is
easier…
• Few investors
• Sale process is quick
• Price is less important
• Seller does not care who buys it
BUT:
Transaction Security is Crucial
Munich 2014 Page 9

11. © FaMAS GmbH 2014
1-2% of companies have serious financial problems
Frequency of
companies
Employees/company
Roughly 5 Mio.
companies in Germany,
but only 1% have more
than 100 employees
1%=50.000
1% of companies
have severe
problems
500 p.a.
Munich 2014 Page 10

12. © FaMAS GmbH 2014
FaMAS screens about 350 distressed companies yearly
500 distressed
companies yearly
70% analyzed
by FaMAS
5-10%
10-20%
70-80%
Munich 2014 Page 11

13. © FaMAS GmbH 2014
Turnarond companies are best for foreign investors
500 distressed
companies yearly
Types of problems
Too much debt BUT
profitable operation
Too much debt and
limited operational
problems
Not profitable,
operational and
market problems
Possible Reasons
• Bad commercial management
• Growth financed by debt
• Investments financed by debt
• Bad years financed by debt
• Market is shrinking
• German labour costs are too
high
• Market is shrinking
• Start-up
• Bad management
• No unique asset
Turnaround
• Relatively easy
with debt
restructuring
• More difficult
• Easy for
foreigners with
access to new
markets
• Foreigner can
open new
markets
70% analyzed
by FaMAS
5-10%
10-20%
70-80%
Munich 2014 Page 12

14. © FaMAS GmbH 2014
Foreign investors can save 24% of costs on German high
labour cost companies
Costs = 99
Profit = 1
Other Cost = 64
Labour = 35
German company
Profit = 25
Other = 60
Labour = 10
Transport = 5
German Sales with
Foreign Production
Costs = 75
Labour Cost in LCC 5-10 x
times lower than in Germany
• Some labour
remains in Germany
(Sales,
Administration, etc.)
• Transportation costs
increase
• Profit increases to
25%
Comment
Munich 2014 Page 13

15. © FaMAS GmbH 2014
Some of the turnaround acquisition are very cheap and can
be bought at more than 50% discount to book value
Industry
Sector
Year EUR
Sales
p.a.
Book
Value of
Assets
EUR
Mio
Effective
Purchase
Price (EUR
Mio)
Discount
to book
value
Expected
value
after
turn-
around
Value
increase
Plastics 2013 200 30 14 53% 50 260%
Foundry 2013 11 8 1 85% 8 700%
Solar 2013 20 3 1,2 53% 5 320%
Construction
equipment
2013 60 60 9 (20debt) 51% 70 140%
Plastics 2014 50 24 7 71% 30 330%
Electronics 2014 10 8 1 85% 5 400%
Solar 2014 190 300 60 (100debt) 47% 350 119%
Machining 2014 80 35 25 34% 60 160%
Munich 2014 Page 14

16. © FaMAS GmbH 2014
German distressed companies are attractive investments for
foreign Investors for mainly 5 reasons
Access to
World Class
Technology
Foreign
investors get
Good Image
Details follow on next pages
Problems are
easy to fix for
Foreigners
Low Price
Acquisition
Access to Top
Customers

17. © FaMAS GmbH 2014
German distressed companies are attractive investments for
foreign Investors for mainly 5 reasons
Access to
World Class
Technology
Foreign
investors get
Good Image
• Even the worst financial company still manufactures products
according to the German quality standard. This technology can be
used in home (foreign) market
• Distressed companies are often a problem for the government,
the banks and the employees. If an investor buys a company he
solves the problems and creates a good image for himself in the
community
Details follow on next pages
Problems are
easy to fix for
Foreigners
• High cost problems are usually driven by high labour costs which
are between 25-45% of the sales value in Germany. Foreign
investors often haven quick access to lower labour costs which
generate immediate savings.
Low Price
Acquisition
• Distressed companies are often selling at less than 50% of the
book asset value because of time pressure
Access to Top
Customers
• Immediate access to many top German customers based on
many years of relationship
Munich 2014 Page 16

18. © FaMAS GmbH 2014
Agenda
Introduction to FaMAS ()
Specifics about Investments in Turnaround (3 Slides)
Turnaround Investments for foreign Investors (6 Slides)
Investment Process in Turnaround Companies (24 Slides)
– Sourcing
– Screening
– Due Diligence & Negotiations
– Post Transaction Issues
Turnaround Investment Financing Options (3 Slides)
Case Example (3 Slides)
Munich 2014 Page 17

19. © FaMAS GmbH 2014 Company Profile Page 18
Required Steps for investments
Approach companies
directly
Advertise
Screen, discuss and meet
companies
Go to industry / company
events
Meet with sellers, meet
with M&A brokers,
intermediaries
Personal meetings or
podium discussions
Hire FaMAS
Post Transaction
Due Diligence
/Transaction
Sourcing/Screening
Key
Activities
Review documentation,
historical financials,
business data,
competitors, customers,
supplier analysis, product
analysis, etc.
Prepare Turnaround Plan
Prepare acquisition story
and indicative offer letter
Hire lawyers, auditors,
property and
environmental surveyors
Negotiate with owners,
stakeholders, manager,
banks, customers, etc.
Agree transaction
structure (majority,
minority, earn-out
clauses, reps and
warranties, etc.)
Hire and replace
managers and other
employees
Take control of financial
and operating issues
Prepare customer visits,
supplier visit
Establish Turnaround
Team
Execute Improvement
Plan / Change
management – off-
shoring, outsourcing,
sales stimulation and cost
reduction programme

20. © FaMAS GmbH 2014 Munich 2014 Page 19
How many opportunities do you need to screen to make one deal?

21. © FaMAS GmbH 2014 Munich 2014 Page 20
Source: Streetofwalls.com
Example: Funnel of a PE Firm with 10 industry teams

22. © FaMAS GmbH 2014
The Funnel: 200-400 opportunities to do one deal
Munich 2014 Page 21
50-100
Telephone/email
Conversations
15-30
Company
Visits
5-10 intensive
Due Diligence
2-3
Negotiations
1
• Size of the area approximates time
spent on each step of deal
origination
• Total time required to originate one
deal > 2200 hrs
Sourcing
200-400
Opportunities

23. © FaMAS GmbH 2014
The Funnel: 300-500 opportunities to do one deal
Munich 2014 Page 22
50-100
Telephone/email
Conversations
15-30
Company
Visits
5-10 intensive
Due Diligence
2-3
Negotiations
1
• Size of the area approximates time
spent on each step of deal
origination
• Total time required to originate one
deal > 2200 hrs
Sourcing
200-400
Opportunities

24. © FaMAS GmbH 2014
Why is the screening requirement so high?
Munich 2014 Page 23

25. © FaMAS GmbH 2014
Some typical criteria to screen
Munich 2014 Page 24
Criteria Number of
categories
Bucket 1 Bucket 2 Bucket 3 Bucket 4
Company
Size
4-10 <5 Mio 5-15 Mio 15-50 Mio >50 Mio
Investment
Size
4-10 <2 Mio 2-5 Mio 5-25 Mio >25 Mio
Industry 20-100
Profitability 4-10 losses Break-even growing High
growth
Finance
layer
4-10 Pure equity mezzanine Unsecured
debt
Secured
debt
Multiply 4x4x20x4x4 = 5120 (assume no correlation)

26. © FaMAS GmbH 2014
Deal Timeline for Deal Screening (after Sourcing)
1 2 3 4 5 6 7 8 9 10 11 12 13 … 27 28 … 64 … 72 … 77Stages
Project Coordination (e.g. Business
Planning, Financial Modeling)
Seller-Buyer Telcos & Meetings
Qualification of Target List (i.e.
Personal & Phone Research)
Evaluation
Contact Target
Arranging Meetings + Prepare
Presentations
Identify Potential Targets for Investor
Estimated Duration (in weeks)
Due Diligence
Closing
Asset/Share Purchase Agreement
Page 25
1
2
3
4
5
Minimum Transaction Period Maximum Transaction
Period
Minimum time required to complete stage
Maximum time required to complete stage

27. © FaMAS GmbH 2014
How to source opportunities?
Options to source
opportunities
Pros Cons
Advertise (in journals) Quick setup
Easy
• Works rarely (chance 1:1000)
• Costly: 1 page EUR 5-10.000
Sell-side M&A Brokers,
Investment Bankers
Direct approach • Takes more time
• Need to convince about
intentions
• Auction processes (with costly
deals)
Direct Mail /Postage, Email Clearly defined
target group
• Very costly if posted
• Sellers rarely react to
letters/emails
Direct Calls Clearly defined
target group
Direct Contact
• Very costly
Munich 2014 Page 26

28. © FaMAS GmbH 2014
Example from a SME Private Equity Firm
Munich 2014 Page 27

29. © FaMAS GmbH 2014
Why should you do it yourself?
Munich 2014 Page 28

30. © FaMAS GmbH 2014
Why should you do it yourself?
Because of
deal quality
Munich 2014 Page 29
FaMAS top-down services which enable „own sourcing“ faster

31. © FaMAS GmbH 2014
That is why own sourcing is important
Munich 2014 Page 30
• EUR 9.8 Mio
difference over
10 years
approximates
980.000 EUR per
year
• Compare with
EUR 110.000 of
cost for own
sourcing

32. © FaMAS GmbH 2014
Lessons Learned
Munich 2014 Page 31

33. © FaMAS GmbH 2014
Lessons from Deal Sourcing
1. A large flow of teasers is crucial. At an average ratio of 300 teasers per
deal you cannot look at just 10 deals and expect to make a good investment
2. It is a full-time job: You can do it part-time, but you have to be extremely
lucky (1:300) and are probably not going to do the best deal for yourself
Munich 2014 Page 32

34. © FaMAS GmbH 2014
Screening is a function of (deal quality x deal probability)
Munich 2014 Page 33
200-400
Sourcing
Opportunities
50-100
Telephone/email
Conversations
15-30
Company
Visits
5-10 intensive
Due Diligences
2-3
Negotiations
1
Three Key questions:
• Is it a company/situation we like?
• What is the ROI?
• How likely can we get the deal done (not
the turnaround)

35. © FaMAS GmbH 2014
Deal Screening
There are two mistakes one can do in the deal screening:
Munich 2014 Page 34
Deals
good
bad
Deal done
yes no
How
Screen/filter in
Turnaround?
43
21

36. © FaMAS GmbH 2014
Develop deal Screening Scores per Deal
1. Evaluate starting
situation
2. Benchmark against your
own deal type priority
3. Evaluate Turnaround
Options
4. Evaluate Deal Process
issues
5. Estimate how a realistic
deal could look like?
Proceed to LOI or cancel evaluation?

37. © FaMAS GmbH 2014
DDSSpD
1. Evaluate starting
situation
2. Benchmark against your
own deal type priority
3. Evaluate Turnaround
Options
4. Evaluate Deal Process
issues
5. Estimate how a realistic
deal could look like?
Munich 2014 Page 36
• Collect data about the company
• Evaluate documents, interviews
• Speak to industry experts
• What is important for you?
• Use number scores or knock-out criteria
• Prioritize with subsequent flow consequences
• What can be done?
• How long will it take and what are the costs?
• What is the benefit of it?
• How many competitors?
• What is your advantage in the deal?
• What are the critical points for the seller?
• What is a possible purchase price?
• What are the financing options?
• What is the payoff, if it works? What if not?
Proceed to LOI or cancel evaluation?

38. © FaMAS GmbH 2014
Who are you?
Munich 2014 Page 37

39. © FaMAS GmbH 2014 Munich 2014 Page 38
Key Factors Description
Market &
Products
Management
Customers
Financials
(Balance Sheet
+ P&L)
Asses likely
Transaction
FaMAS approach on Screening:
What are possible costs and benefits of this opportunity?

40. © FaMAS GmbH 2014 Munich 2014 Page 39
Key Factors Description
Market &
Products
• How well does peer group perform?
• What is the current situation in the market, i.e. is the entire sector in trouble?
• What is the USP of the target?
• Is the sales team underperforming? If so, why (e.g. bad products, bad sales
personnel)?
Management • Is the management able to turn around the company (e.g. industry/distress
experience, period of employment)?
• Is the management interested to co-invest? Are they competent, e.g. can they
explain the business plan?
Customers +
Suppliers
• What is the level of dependence (e.g. relocation costs, single source status)?
• How far goes their commitment (e.g. price increases, working capital bridge)?
Financials
(Balance Sheet
+ P&L)
• Has the business been profitable before?
• Why has the business been loss-making?
• What are cost benchmarks of competitors?
• What is the value of fixed assets? Asset-based lending options?
• High interest payments? Are problems on the debt side due to the type of
business or failure to negotiate terms in line with the market?
Asses likely
Transaction
• Asses Price of the company
• Asses Transaction Structure (leverage, earn-outs, customer contracts, etc)
• Financing options
FaMAS approach on Screening:
What are possible costs and benefits of this opportunity?

41. © FaMAS GmbH 2014
Lessons Learned
Munich 2014 Page 40

42. © FaMAS GmbH 2014
Lessons about Deal Screening in Turnarounds
1. Making a bad deal is worse than not making a good deal
2. Understanding realistic Turnaround and Deal Structure is essential
3. A bad company does not mean a bad deal
4. Almost impossible to predict whether you can make a good deal. It is something you
find out only after some research
5. Involve decision makers (Investment committee) from the beginning
6. Clear picture about must haves and nice to haves is important– you have to be
clear about what you want. Ohterwise you will be looking at every deal that comes to
you
7. Timing is critical: If you want to make a good Turnaround deal, you need to be fast.
You need to learn about the process and the type of deals in the market before you can
make a good deal quickly
Munich 2014 Page 41

43. © FaMAS GmbH 2014
Due Diligence
Munich 2014 Page 42
Sourcing
200-400
Opportunities
50-100
Telephone/email
Conversations
15-30
Company
Visits
5-10 intensive
Due Diligences
2-3
Negotiations
1
Three Key questions:
• What do stakeholders expect?
• What do really believe about it?
• What do we write into the offer?
LOI
SPA

44. © FaMAS GmbH 2014
Costs per company per investment process stage
Munich 2014 Page 43
1
EUR 500-1.000
EUR 1.000-5.000
EUR 10.000-50.000
EUR 25.000-
250.000

45. © FaMAS GmbH 2014
Who are you?
Munich 2014 Page 44

46. © FaMAS GmbH 2014
Decision Steps: LOI
Munich 2014 Page 45
Once the right target has been identified an indicative offer (LOI) has to be
submitted:
Key Points Descriptions / Considerations
Pricing • Indicative and final bid sometimes differ > 50 %
• Indicative offer is a strategic bid to enter the process
• Pricing depends on other bidders, preliminary (incomplete) information,
own turnaround/take-over strategy
Turnaround/
Takeover Strategy
• Is the investor capable of turning around and of managing future
business?
• Any previous experience in both (i) Germany and (ii) same or related
business sector?
Financial Resources • Proof of funds to give seller comfort on transaction security
Other Bidders • Competition influences pricing and strategy on own bid
• Identify other bidders & determine if “crazy” strategic bidder is involved
Insider Information
and Relationship to
Sell-Side
• Power of sell-side highest at this stage
• Good relationship to sell-side advisors helps generate good information
(SSA often does not know the business as good as you)

47. © FaMAS GmbH 2014
Decision Steps: LOI (2/2)
Munich 2014 Page 46
The key issue is transaction security and timing because...
... Distress businesses may be losing money and Seller wants to cut losses
as soon as possible
Transaction security, e.g. proof of funds and transaction security, may be the
driving factors
Once ship has left the port it is getting increasingly difficult to
jump on the decks due to high pressure to sell company
within a short time

48. © FaMAS GmbH 2014
Due Diligence and Signing
Munich 2014 Page 47
Screening LOI
IVIIIIII V
SigningDue Diligence Post-Acquisition
• Only few distress
companies
• Key question: At
what costs and
how can it be
turned around?
Standard
M&A
Key
Activities
Turn-
around
M&A
Key
Activities
• A lot more
companies to
screen and select
• Key question: Is
the Company for
sale?
• A lot of time to
prepare an LOI
• Often price
guidance
• Content of LOI
focused on
„price“, other
aspects not
important
• Negotiate terms
with one
stakeholder:
• Owner
• Low pressure to
sell can lead to
lengthy contract
negotiations
• 5 Stakeholders
possible:
• Owners and/or
banks or
administrator
• Management
• Other creditors
• Customers
• Workers council
• Little/no time to
prepare an LOI
• No price guidance
• Description of
turnaround/take-
over strategy
important in
addition to price
• Price may not be
driving factor
• Share deal
• Extensive reps
and warranties
available
• Can take 6-12
months
• Often low
pressure to sell
company
• Asset deal
• Almost no reps
and warranties
• DD often only
takes few weeks
• High pressure to
sell company
• Start planning
future strategy
• Focused on
taking financial
control
• May take several
months to
implement
• Post-acquisition
plan must be
ready before
acquisition
• Active
operational
management
(e.g. set-up
NewCo, apply for
Tax ID)

49. © FaMAS GmbH 2014 Munich 2014 Page 48
Employees
Admin-
istrator
Manage-
ment
Banks
Customers
Suppliers
Objective Effective Power Ideal Buyer
Who has the highest decision making power in the process?
Minimise write-offs
Maximise sales price
Meet creditors’ claims
Good contract
Continue business
Safe jobs
Ensure delivery &
good pricing
Ensure sales &
good pricing

50. © FaMAS GmbH 2014 Munich 2014 Page 49
Employees
Admin-
istrator
Manage-
ment
Banks
Customers
Suppliers
Objective Effective Power Ideal Buyer
Decision Steps: Due Diligence & Signing – Stakeholder
Strategy Decision Power (1/2)
Minimise write-offs Lots of own money
Maximise sales price
Meet creditors’ claims
No preference
Good contract
Continue business Financial
Safe jobs
Ensure delivery &
good pricing
Ensure sales &
good pricing
Low
(if no dependency)
High-low
High-low
High-low
High-low
Medium
Strategic
No competitor
Sufficient capital
Good reputation

51. © FaMAS GmbH 2014 Munich 2014 Page 50
Turnaround
Decision
Supported By Opposed by
Reduction in
personnel
• Shareholders
• Banks
• Customers
• Local government
• Employees
• Banks
• Administrator
Increase in Sales
• Everyone • Competitors
Product Price
Increases
• Everyone except customers • Customers
Increase CAPEX
for new machinery
• Customers
• Employees
• Shareholders
Reduction in
material costs
• Everyone except suppliers • Suppliers
Negotiate new
financing terms
• Shareholders
• Management
• Banks
• Administrator
Decision Steps: Due Diligence & Signing – Stakeholder
Strategy Potential Conflicts (2/2)
It is essential to identify turnaround measures and carefully evaluate it to avoid conflicts with
stakeholders

52. © FaMAS GmbH 2014
Post-Acquisition Issues
Munich 2014 Page 51
Screening LOI
IVIIIIII V
SigningDue Diligence Post-Acquisition
• Only few distress
companies
• Key question: At
what costs and
how can it be
turned around?
Standard
M&A
Key
Activities
Turn-
around
M&A
Key
Activities
• A lot more
companies to
screen and select
• Key question: Is
the Company for
sale?
• A lot of time to
prepare an LOI
• Often price
guidance
• Content of LOI
focused on
„price“, other
aspects not
important
• Negotiate terms
with one
stakeholder:
• Owner
• Low pressure to
sell can lead to
lengthy contract
negotiations
• 5 Stakeholders
possible:
• Owners and/or
banks or
administrator
• Management
• Other creditors
• Customers
• Workers council
• Little/no time to
prepare an LOI
• No price guidance
• Description of
turnaround/take-
over strategy
important in
addition to price
• Price may not be
driving factor
• Share deal
• Extensive reps
and warranties
available
• Can take 6-12
months
• Often low
pressure to sell
company
• Asset deal
• Almost no reps
and warranties
• DD often only
takes few weeks
• High pressure to
sell company
• Start planning
future strategy
• Focused on
taking financial
control
• May take several
months to
implement
• Post-acquisition
plan must be
ready before
acquisition
• Active
operational
management
(e.g. set-up
NewCo, apply for
Tax ID)

53. © FaMAS GmbH 2014
Post-Acquisition Issues (1/2)
Munich 2014 Page 52
Timing & Duration Description Category
Stage IV & V
3 – 4 weeks
Set-up NewCo (Asset Deal)
•Structure of new company incl. name of managing director,
name of companies, responsible person to make filings in
Germany
•Transfer purchase price for shelf companies
•Execute new Articles of Association and documentation for
acquisition of shelf companies
•Notarization of acquisition of shelf companies
•Filing with the commercial register
•Settle invoice to notary public
•Announcement to employees pursuant to Sec. 613a BGB
• Often overlaps with Post-Acquisition
Legal
Stage V
2 – 3 weeks
• Open new bank account for shelf companies
• File for tax numbers for shelf companies
• Establish postal address in Germany for shelf companies
• Execute new employment agreements with managing
directors (if applicable)
• Execute wage payments to be made by new subsidiaries
Operational/F
inancial

54. © FaMAS GmbH 2014 Munich 2014 Page 53
Timing & Duration Description Category
Stage V
2 – 3 weeks
• Ask all contractual partners of all agreements of target
company for approval for transfer of agreements to new
entities
• Register domain names etc. for new owner
• Registration of notice of conveyance with land register
• Make sure to transfer sufficient funds to have working
capital for first payments in place
Legal/Others
Stage V
1 – 2 weeks
• Inform all stakeholders about take-over
• Ensure delivery and payment to respective parties
Operational
Post-Acquisition Issues (2/2)

55. © FaMAS GmbH 2014
Key Lessons for foreign investors
• Distress deals are more complex than standard M&A transactions: Up to 6 different
stakeholders with own interests: Banks, administrator, management, employees,
suppliers, customers
• Transaction security and speed more important than pricing:
• Information asymmetry: Sell-Side does not share important negative information with
prospective buyers to make target more attractive
• Patience & Persistence: Investors either go with their “first shot” - no matter if company
can be turned around or not – or do not find suitable companies, spend a lot of money
on screening and finally give up
• Neglect of post-acquisition issues: Failure to set-up NewCo, apply for new Tax-ID
seem trivial, but extremely important to implement
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56. © FaMAS GmbH 2014 Company Profile Page 55
How FaMAS can help
Personal relationship with
distress debt teams in all
leading German banks
(and smaller players)
Proprietory deal flow
through extensive
networking (e.g. through
alumni and similar
organizations)
Exhaustive cooperation
with intermediaries
Top-down research
Post TransactionTransaction SupportSourcing/Screening
Support
of FaMAS
Pre-Due Diligence done
within 1-3 man days
Conditional 2nd level due
diligence on-site with 5-
15 man days including
design of cash-flow
forecast and verification
of strategic fit
Transaction and
negotiation support in
sale-purchase agreement
Post-Acquisition planning
Support in ownership-
transition period
Consolidation of
synergies in merger
Interim management or
quick hire of new
management
Headhunting
Re-negotiation of all key
contracts with
management, suppliers,
clients and other partners
Continuous monitoring of
company development
Over 350 companies are
screened every year
Top-Down research of
additional 300-600
companies per year
Track
Record/
Capabilities
FaMAS team with
flexible and fast
management-solutions
specialized in turnaround
situations
Conducted mandates in
Germany, UK, France,
Spain and overseas
All or parts

57. © FaMAS GmbH 2014 Munich 2014 Page 56

58. © FaMAS GmbH 2014
Agenda
Introduction to FaMAS
Specifics about Investments in Turnaround
Turnaround Investments for foreign Investors ()
Investment Process in Turnaround Companies ()
– Sourcing
– Screening
– Due Diligence & Negotiations
– Post Transaction Issues
Turnaround Investment Financing Options ()
Case Example ()
Munich 2014 Page 57

59. © FaMAS GmbH 2014
How would you finance a distressed transaction in
Germany?
Munich 2014 Page 58

60. © FaMAS GmbH 2014
Banks, Government funds and private investors represent
thousands of Financing Options for foreign investors
Banks
Governmental
Funds
Private
Investors
• Over 1800 registered banks in Germany with various strategies,
industry sector preference, regional limitations, asset type, etc.
• Key question: Which bank? Which facility? How long?
• Example: US Company bought German electronics company
with 100% of financing provided for the property
• About 2000 different European Union, national or regional funds
with different focus and goals: Employment, Innovation, sector
focus
• Key question: What is available for a specific investment?
• Example: Regional government backed 80% on acquisition cost
to keep 80% jobs in town for minimum of three years
• Over 300 Private Equity funds with EUR 42 billion assets under
management. Additionally 100 non-institutional FaMAS Private
Equity sources available for foreign investors
• Key question: Who is the right partner?
• Example: Acquisition of a German electronics company with a
45% acquisition financed by a German high net worth individual
Source of funds
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61. © FaMAS GmbH 2014
Distressed companies have some special financing options
which significantly reduce the risk for foreign investors
Customers
Sellers P&L
Corporation
• If supplier has a longlasting relationship with the customer
• Often seen in car manufacturing
• Financing may include better payment terms (0 days instead of
60 day), free finance for Capex and even inreased product pricing
• Example: 4 OEMs financed 50% of the acquisition costs AND
increased average prices by 20%
Source of funds
• If seller really likes the new investor and believes in strategic
value of investment
• Acquisition price paid over three years with gradual transition of
ownership
• Example: 50% of purchase price payment was delayed by three
years while 100% control was handed over after 1 year
• If business belongs to a much larger German company and the
business is loss making for many years
• Seller sells the company for 1-EUR PLUS some additional Cash
to make sure it does not become a liability within a year
• Example: Siemens Mobile was sold for EUR 1 + 500 Mio EUR in
Cash to BENQ from Taiwan
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62. © FaMAS GmbH 2014
It can be a mix of capital sources
Banks
Governmental
Funds
Private Investors
Customers
Seller
Corporation
Most traditional way of finance. With new bank regulation it has become
more difficult. Usually not availale for small deals
Usually cheapest cost of finance starting with small subsidies (not refundable)
or very low interest rates (1-5% p.a.). Downside is a lengthy process and low
transparancy
Most flexible way of finance with variable duration, shareholding, payback
periods and control rights. May be worthwhile to share the risks with local
investor. Downside is its high cost which starts at 15% p.a.
Evaluation
Very attractive, but sometimes even dangerous way of finance because of the
dependence on customer. It comes with many conditions and needs careful
evaluation and negotiation
If negotiated correctly an easy way for risk sharing and financing. It highly
depends on the strategic fit with the investor and is therefore quite rare. Usually
this is availabe for individuals not corporations
Zero risk transaction. This type probably only exists in Germany and even
there it is very rare (20-30 cases per year)
Source of funds
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63. © FaMAS GmbH 2014
Agenda
Introduction to FaMAS (2 Slides)
Specifics about Investments in Turnaround (3 Slides)
Turnaround Investments for foreign Investors (5 Slides)
Investment Process in Turnaround Companies (24 Slides)
– Sourcing
– Screening
– Due Diligence & Negotiations
– Post Transaction Issues
Turnaround Investment Financing Options (3 Slides)
Case Example (3 Slides)
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64. © FaMAS GmbH 2014
Case Study: Financials do not tell the whole story
In € k 2008 2009 2010 2011 2012 2013F
SAles 43.797 31.952 49.416 42.119 41.514 30.000
Material costs 30.502 20.230 33.613 26.603 26.993 20.400
Gross profit 14.632 11.102 16.672 15.348 14.521 9.600
in % 32,4% 35,7% 33,4% 36,9% 35,0% 32,0%
Personnel 8.277 7.653 8.698 9.377 9.598 6.000
EBITDA 1.953 -266 3.649 1.329 628 -2.000
in % 4,3% -0,9% 7,3% 3,2% 1,5% -6,7%
Depreciation 505 405 543 539 617 500
EBIT 1.449 -671 3.106 790 12 -2.500
Date of analysis Feb 2013
When did the crisis start?
Which reasons could there be?
QUESTION
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65. © FaMAS GmbH 2014
Further Analysis to the history show management mistakes:
Facts/ Starting Situation
2009 Drop in sales due to global financial crisis
2010 Largest customer (Solar) comprises more than 50% of sales
2011 Largest customer loses 50% of its own sales
2012 Further drop of sales in solar customer
2012 Another top A customer becomes insolvent and stops paying for shipped products
2013 January: Order Book declined by 35% compare to previous year
2013 Bank cancels loan agreement and forces company into administration
Background
2010 Management does not see a distress with large customer concentration
2011 Crisis in solar industry was obvious (insolency of large players) but Management
does not down-size the operation
2012 Credit insurance was cancelled for top A customer, but Management continued
giving him credit (desparate action) and does not down-size operation
2013 Start to look for new capital was started too late and new investor did not help
solve the situation with the bank
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66. © FaMAS GmbH 2014
Result of the transaction
• Foreign Investor purchases assets from bank at less than EUR 9,5
Mio at a current book/market value of (EUR 21 Mio) - a discount of
50%
• Bank finances EUR 6 Mio for the property at 5.5% annual interest
• All previous owners lose their shares and values
• Investor invests further EUR 1 Mio in cash-flow
• 40% off employees lose their job (planned cuts stipulated in
purchase agreement)
• Turnaround plan with further measure to improve profitability is
implemented
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67. © FaMAS GmbH 2014
Agenda
Introduction to FaMAS ()
Specifics about Investments in Turnaround ()
Turnaround Investments for foreign Investors ()
Investment Process in Turnaround Companies ()
– Sourcing
– Screening
– Due Diligence & Negotiations
– Post Transaction Issues
Turnaround Investment Financing Options ()
Case Example ()
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68. © FaMAS GmbH 2014
Management-Team
Restructuring, Finances, Controlling, Distribution
Career: Messer Griesheim, AgfaPhoto, Expedia, Anvis
Industries: Chemical industries, Tourism, Automobile, Electronics
Education: BA. Business Administration (Germany, UK), MBA (Ottawa, Canada)
Languages: German, English, French, Turkish, Italian, Spanish
F. Baltaci
Founding Partner
Company Analysis, Risk Management and Profitability Improvement
Career: McKinsey 2001 - 2008
Industries: Banking, Insurance, Pharma, IT
Education: Master of Business Administration (Austria)
Dr. International Management St. Gallen (Switzerland)
Languages: German, English, Spanish
Dr. K. Kukovetz
Associate Partner
Restructuring, Working Capital, Purchasing
Career: Droege Consulting
Industries: Plastic, Automotive Supplier, Chemical Industry
Education: Business studies, multiple publications (2 Books a. oth.) about purchasing
Languages: German, English
C. Gabath
Associate Partner
Financing, Company Development and Risk Management
Career: Hochtief, Geocapital, McKinsey,
Industries: Manufacturing, Telecommunication, Banking, Insurance, IT
Education: Dr. rer. pol (Finance), MSc. (London Business School)
Languages: German, English, Russian
Dr. D. Saldanha
Founder
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69. © FaMAS GmbH 2014 Company Profile Page 68
Management-Team & Network
Jürgen Wilms
Former Senior Director McKinsey, Director Bain
Head of the McKinsey Restructuring Group
Herbert Sternberg
Former bank manger and former chairman (Bankhaus Märklin, American Express Bank,
Allgemeine Deutsche Direktbank)
Industries: universal banks, particularly bank turnarounds
Senior Advisors
Network of external Management Partners
Access to more than 500 experienced interim-managers and specialist consultants for
nearly all industries
International network with several hundred specialists in all important countries
Quick hire solutions through established recruitment companies
Network of external financing partners
Immediate access to hundreds of banks, funds, private investors and specialized finance
partners in Europe and abroad with total funds in excess of several billion EUR
Established personal relationship which was developed over many years
External
Network

70. © FaMAS GmbH 2014
FaMAS Private Investors are located in more than 90
countries
Angola
Australia
Austria
Azerbaijan
Bangladesh
Belarus
Belgium
Brazil
British Virgin
Islands
Bulgaria
Cameroon
Canada
China
Cote d'Ivoire
Croatia
Cyprus
Czech Republic
Denmark
Egypt
Estonia
Ethiopia
Finland
France
Georgia
Ghana
Gibraltar
Greece
Haiti
Hawaii
Hong Kong
Hungary
Iceland
India
Indonesia
Iraq
Ireland
Israel
Italy
Japan
Jordan
Kazakhstan
Kenya
Kingdom of
Bahrain
Kingdom of
Saudi Arabia
Kuwait
Kyrgyzstan
Lebanon
Libya
Liechtenstein
Lithuania
Luxembourg
Macedonia
Malaysia
Malta
Marocco
Mexico
Monaco
Netherlands
Nigeria
Norway
Oman
Pakistan
Philippines
Poland
Portugal
Qatar
Romania
Russian
Federation
Scotland
Senegal
Singapore
Slovakia
Slovenia
South Africa
South Korea
Spain
Sri Lanka
Sweden
Switzerland
Taiwan
Thailand
Tunisia
Turkey
UK
Ukraine
United Arab
Emirates
USA
Uzbekistan
Vietnam
Seite 69

71. © FaMAS GmbH 2014
Contact details/References
FaMAS GmbH
Leopoldstrasse 244
80807 Munich
Germany
Email: d.saldanha@famas.de
Web: www.famas.de
Tel: +49 (0)89 660 61 541
Fax:: +49 (0)89 660 61 542
References
Dresdner Bank Commerzbank Mobilcom Swisscom Airbites Ergo Versicherungsgruppe
Zürich Versicherung Hochtief Höchst Celanese Hypovereinsbank Raiffeisenbank Schweiz
WestLB NordLB HSH Nordbank Messer Eutectic Castolin Messer Griesheim Expedia
AgfaPhoto SkyMaster Electronic Anvis Group Sandoz etc…
Munich 2014 Page 70