Notes for Case 36: Deutsche Bank Securities: Financing the Acquisition of Consolidated Supply S.A.

Notes for Case 36: Deutsche Bank Securities: Financing the Acquisition of Consolidated Supply S.A.

Client: Intercontinental Capital, Ltd. (ICL) - a major European leverage buyout sponsor.

Bid of $1.513 billion = 9.2 times of EBITDA for a large hospital supply distributor Consolidated Supply S.A.

This investment represented a classis opportunity: a complicated extraction of a noncore, captive asset.

Maria Ober (VP of Deutsche Bank Securities) saw the need to structure sensible deals, on the other hand, ICL can bring more business in the future.

Leveraged acquisition financing is profitable, interest income + underwriting fees. ROA exceeds 15% (pretax).

CSSA: subsidiary of a medical supply manufacture AtlantisMed Systems.

Distributor of medical products and supply, 750,000 stocking items, 250,000 customers (no customer exceeded 3% of total revenue). Principal provider to majority of largest hospitals

$2.5 billion sales, headquarter in Luxemburg, 17 distribution centers "just-in-time" delivery.

Management vision: fiscal discipline, improved efficiency, substantial free cash flow,

low capital expenditures 1.1% of revenue.

Growing importance of "one-shop stop" for hospital and medical equipment needs gave CSSA a competitive advantage against smaller firms. 75% of sales derived from repeated sales, good customer relationships.

Downside: EBITDA below competitors due to high SG&A (selling, general and administrative) expenses and international presence in a fragmented and multicultural market place.

Major competitors: Medical and Scientific Supply (MASS), Spa and Hospital Distribution Corp. Unlike competitors, manufacturing only 2% of the firm's sales in 2003.

MASS - manufacturing and private labels product sales, high productivity and low SG&A.

MASS's EBITDA margin 6.6%.

Together 25% of world sales, CSSA 15% and 13% in the US and Europe respectively.

ICL invests $534 million in equity, Deutsche Bank funds debt of $979 million (6 times of...