Case Study - Project Herman

(Financing the P&P Acquisition in Germany)

In connection with the acquisition of the P&P Group (see “Project Jam”) Mega Bank Plc have now asked
the legal advisers to advise on the structuring of the financing of the acquisition in the different jurisdictions
involved. You are a lawyer at Allen & Overy LLP in Frankfurt and have been asked to give your input on the
acquisition of the German group companies and the funds flow in Germany.1

The facts are as follows:

• Total funds required for the entire acquisition are at EUR 565,000,000 of which 520,000,000 are bank
debt; the equity portion amounts to EUR 45,000,000.
• Total funds required in Germany are EUR 130,080,000 (excluding the transaction cost allocated to the
German acquisition).
• The purchase price for the German part of the group on a debt/cash-free basis has been calculated at
EUR 50,080,000;
• The transaction cost allocated to the German acquisition is EUR 3,120,000.
• Contrary to what had originally been envisaged, it has now been agreed that under the working capital
facility P&P Manufacturing AG will draw an amount of EUR 15,000,000 already at financial close.
• The German group also requires to repay and replace the ICL from P&P Holding B.V. made to P&P
Beteiligungs GmbH amounting to EUR 50,000,000. The new ICL loan will be made to Germany
AcquisCo GmbH by New LuxCo, a Luxembourg company pertaining to the Investor Group.
• The finance lease amounting to EUR 15,000,000 will survive the transaction.
• Finally, it has been agreed to also repay EBD owed by P&P Werk Mainz GmbH in an amount of EUR
10,000,000 by increasing the overall loan amount by EUR 10,000,000.

In the meantime, and further to some tough negotiation rounds it has turned out that the Banks are not
comfortable providing the extent of senior financing in support of the deal. The Investor has approached
Mezzpower Bank Ltd., a London based mezzanine bank, and subsequently the parties have agreed on
introducing an additional layer of debt in addition to the senior debt and the equity; the agreed split between
senior and junior debt is 3:1. This ratio shall be applied for each country involved.

• Mezzpower Bank Ltd. has agreed to support the international acquisition with a mezzanine loan of
roughly 24,66% of the total bank debt required for the deal2, namely a loan of EUR 128,250,000; for
Germany the resulting amount of mezzanine loan is roughly EUR 31,600,000.
• New LuxCo will make available a shareholder loan of EUR 50,000,000 to Germany AcquisCo GmbH.

In addition, and where necessary, please refer to the facts outlined in Project Jam.

1
Please revert to the structure chart of the German part of the Group post acquisition for Project Jam.
2
Total bank debt required is EUR 520,000,000 (see Project Jam).

Dr. Peter Stenz

Acquisition Finance II
Institute for Law & Finance 2024
Tasks:
1. Please develop a Sources & Uses chart for the German part of the acquisition.

2. Please develop the most suitable funding structure for Germany using senior and mezzanine funds as
well as equity, identify the borrowing entities, and decide on the allocation of the funds taking into
account the following facts:

(a) The calculated purchase price for the German group companies amounts to EUR
50,080,000 on a debt free/cash free basis.

(b) Debt to be refinanced in Germany amounts to EUR 80,000,000, namely:

(i) EUR 50,000,000 owed by P&P Beteiligungs GmbH to P&P Holding B.V.; and

(ii) EUR 30,000,000 to P&P Manufacturing AG for the repayment of EBD.

(c) Mega Bank Plc consents to P&P Manufacturing AG utilising the working capital facility in
an amount of EUR 15,000,000 at financial close.

(d) The portion of transaction cost applicable to Germany is EUR 3,120,000.

3. Instead of LuxCo lending the ICL of EUR 50,000,000 to Germany AcquisCo GmbH, Goldfingers have
suggested to lend that amount from LuxCo directly to P&P Beteiligungs GmbH. Do you agree?

4. Goldfingers have also suggested increasing the ICL from LuxCo to P&P Beteiligungs GmbH amounting
to EUR 50,000,000 by EUR 10,000,000 in order to allow P&P Beteiligungs GmbH to on-lend that
amount to P&P Werk Mainz GmbH for them to repay existing bank debt. Do you support this
suggestion?

You are a lawyer at A&O LLP in Frankfurt and have been asked to give your input on what options are
available. Any ideas?

Dr. Peter Stenz

Acquisition Finance II
Institute for Law & Finance 2024