KME Running M&A Process for Special Products Division, Beauty Contest Ongoing; Two Private Equity Firms Among Bidders; Company Waiting for Final Lender to Approve BB Facility Extension; Working to Finalize €100M SACE Loan

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Updated Financial Model

German copper products group KME is conducting an M&A process for its Special Products division, which has attracted three bids so far, sources close to the matter told Reorg. The process was halted due to the Covid-19 pandemic but was subsequently restarted in May 2020.

According to sources, the business is targeting a high single-digit multiple valuation based on 2020 EBITDA.

The beauty parade for the disposal of the division is currently ongoing, sources added. Bidders include two private equity firms and a “strategic investor,” sources said.

Meanwhile, KME is waiting for its last lender to approve the extension of its borrowing base facility, sources said. At the start of January, Reorg reported that the company had obtained the approval of over 70% of its lenders. In mid-December, the company said it had received extension commitments from 51% of its lenders. At the time of the second quarter call, management was guiding that the extension would be concluded in November 2020.

KME is also working to finalize a loan guaranteed by the Italian government through its credit export agency SACE. Among the lenders of the SACE facility will be Italy’s state lender Cassa Depositi e Prestiti, or CDP, sources said. The loan should amount to about €100 million, sources added.

According to sources, KME’s current capital structure could be refinanced after the potential completion of the M&A process and the provision of the SACE loan.

According to the offering memorandum for KME’s 2023 notes, the company entered into a borrowing base facility agreement with Deutsche Bank as coordinating mandated lead arranger and UniCredit as mandated lead arranger as well as Commerzbank, Mediobanca, Banca Popolare di Milano Società Cooperative, Intesa Sanpaolo SpA, Banca Nazionale del Lavoro SpA, and Banca Monte dei Paschi di Siena SpA.

KME’s 2023 €300 million bonds are currently quoted at 85, sources said.

The company's capital structure is below:
 
In terms of the group’s current liquidity position, management said in the most recent call with investors that the situation had not changed materially since the end of the third quarter. When asked about additional liquidity requirements due to higher copper prices, management said that there are no special requirements and the group can cope with its factoring, working capital facilities, optimization of stock level and cash on balance sheet.

-- Luca Rossi