DC DWEK | News - Considering Flotation ? | DC Dwek Corporate Finance, based in London, is an international corporate finance firm, which works in partnership with its clients to deliver creative corporate finance solutions. We act as a catalyst to complete successful transactions through teamwork and independent advice.

Introduction

Whilst 2008 has been a volatile year for the financial markets, DC Dwek Corporate Finance has had an active year. We have completed the disposal of two media businesses for Sky to the full satisfaction of the shareholder, management team and the financial purchaser.

We have also formed a consortium for Subsea Infrastructure that won a tender for a mobile water desalination project. The client is the Government of Cyprus. DC Dwek arranged the financing for Subsea Infrastructure. A local company Silnir Cyprus has been incorporated. David Dwek is a Director of both companies.

Finally, Gilat Satcom, an international telecom operator was successfully de-listed in July 2008 following its flotation on AIM in 2005. The company was turned around with a new CEO and controlling shareholder. David Dwek was a non-executive Director of Gilat Satcom during its public listing in London.

A Review of the Corporate Finance Environment

The “Credit Crunch” began in mid-2007 and became more intensive in 2008. This has led to deleveraging, refinancing, nationalisation and even bankruptcy among financial institutions around the world.

The reasons have been well documented, but are principally related to significant over-exposure by financial groups particularly, in the over inflated US and international property sectors. This has led to enormous write downs, a loss of confidence and a resulting lack of capital.

Banks have consequently reduced their lending to the corporate and to the financial sectors and have imposed more onerous lending terms. In particular, lending between banks has been curtailed.

Recent internationally coordinated bail-outs and interest rate reductions have restored some stability to the markets, although the fear of global recession has maintained the relatively high levels of market volatility.

The effects on the corporate finance sector are significant and can be summarised as

The importance of deleveraging corporate balance sheets;
The requirement to raise equity as soon as it becomes available from private and/or public markets;
Creative solutions including joint ventures to complete transactions; and
The sale of assets in order to improve liquidity at often reduced prices.

Companies are required to become much more flexible and innovative in order to complete transactions in this challenging environment.

There is still funding available for the right deals and there are increasing numbers of distressed sellers providing transformational opportunities for businesses.

DC Dwek Corporate Finance activities in 2007- 2008

BSkyB - Sale Process of two businesses

Headland Media is involved in the in-store media business including bespoke music and screen services as well as the provision of news and DVD services to the cruise, merchant ship and hotel markets,. British Sky Broadcasting (Sky) purchased these two separate businesses as part of its acquisition of 365 Media Group (“365”) in early 2007.

Whilst the two businesses had been profitable for many years, they did not form part of Sky’s future strategy.

DC Dwek Corporate Finance commenced the sale process by engaging the management team and ensuring that their objectives were aligned with those of the selling shareholder. We offered the two companies either as a combined entity or alternatively as two separate businesses. In particular, the management team was excited to develop the two businesses as a combined entity due to the significant marketing and operational synergies available.

The preliminary information was analysed and a valuation range agreed based on the prospective cash flows of the business and multiple analysis of comparable companies in the sector. Once all parties agreed on the information memorandum, we approached around 50 potential purchasers. These included both trade purchasers for either the in-store media and/or the news businesses. We also approached the private equity community in the UK and Europe due to the cash generating potential and the opportunity of leveraging the balance sheets.
After the review of the preliminary information provided, interested parties were requested to provide a non binding indicative offer for the businesses. This allowed us to gauge the level of interest and to invite these parties to presentations with the management team.

We narrowed the group down to six parties and a more detailed management presentation was prepared with further financial breakdowns. This enabled the potential purchasers to discuss their objectives with the management team and to assess the fit into alternate business models.

Further information was provided and the interested bidders submitted revised offers. Once the revised bids were received, it was apparent that both trade and private equity interest remained.

Our objective was to complete the process as rapidly as possible, but to retain competitive tension. Three parties were left with significant interest and further discussions with management took place, analysing more detailed monthly and quarterly financial data. A final round of indicative bids was received and one bidder was eliminated.

A draft version of the Sale and Purchase Agreement (SPA) was dispatched and negotiations commenced. One party was selected, an exclusive period agreed and detailed negotiations commenced. Time pressure was maintained to ensure that the transaction finished rapidly. Although final negotiations were tense, a deal was finally agreed that satisfied the management team, the selling shareholder and the purchaser, the private equity firm controlled by Peter Dubens.

In conclusion, the transaction was successful due to strong teamwork between the selling shareholder, the management team and the advisor to peacefully resolve issues as rapidly and positively as possible. Negotiations were often tense with the advisor ensuring that momentum was maintained until the deal was finalised.
Sky commented: “Your sound advice and transaction management skills enabled us to achieve a great result for both Sky and the management team.”

Headland Media summarised the process as follows : “David represented all the stakeholders with great skill, persistence and enthusiasm. His tenacity and negotiating skills were paramount in concluding a deal for the management team in the face of a collapsing credit market.”

Subsea Infrastructure –
Financing for a Mobile Desalination Plant

Subsea Infrastructure is a marine engineering firm involved in the subsea pipelines and engineering for sectors such as undersea cables, oil and gas, the water desalination sector. The company has used this expertise to develop a rapidly deployable large scale mobile desalination solution. This has been successfully deployed in Cyprus and there are increasing opportunities to provide water solutions in many areas of the world where water is an increasingly finite resource.
In September 2007, Subsea Infrastructure formed a consortium with a desalination equipment manufacturer and a Cypriot local partner to tender for 20,000 cubic meter per day (20 million litres per day) mobile desalination plant in Limassol. The equipment can be removed to an alternate location or placed onto a barge at the end of the contract. The total capital expenditure requirement is in the order of €20m.

The tender procedure followed EU procurement rules and was very detailed. Bank guarantees and strict expertise from the main contractor and the subcontractors were required.

Our consortium was awarded the contract in December 2007 with signing taking place in February 2008. The equipment was installed during a 9 month period which represents the fastest execution of a large scale desalination plant to date.

A number of local and international banks were approached for the debt financing of the project. This represented an attractive opportunity for the banks as the cash flow was stable with revenues guaranteed by the Cypriot Government once the plant became operational. The Bank of Scotland provided the debt finance for the project.

The construction was completed according to the delivery schedule and following the commencement of the water delivery in December 2008, the Government will purchase the water produced at a fixed price for duration of the three year contract.

Taking into account the global climate change and the increasing water stress, the company plans to continue building mobile onshore and offshore desalination plants.

Gilat Satcom - Non Executive Director

Gilat Satcom is a broadband and voice satellite service provider focusing on the emerging markets. The company was listed on AIM in 2005.

Following a change of major shareholder and CEO in 2007, a strong recovery took place in the business. However, the volume of shares traded on the AIM market was very low as well as the company valuation and a decision was taken by the Board to take the company private.

This was successfully completed in July 2008. David Dwek was a non executive director of Gilat Satcom whilst the Company was listed on AIM and contributed to focus the management team and the shareholders on the key strategic and financial issues for the development of the business.

Conclusion

Turbulent financial markets require creative corporate finance solutions and often rapid execution when exciting opportunities arise.

The views expressed in this newsletter are those of DC Dwek Corporate Finance Limited and are provided for information purposes only.