A technology led acquisition to transform business results

THE BRIEF

In mid 2005 Magma met with Oleg Deripaska and members of his private equity vehicle Basic Element and its daughter businesses, Russian Machines and Gaz Group. 
A broad range of potential topics were discussed and one particular issue facing Gaz Group was highlighted. The need for Gaz to replace its ageing Gazelle product range. Gazelle represented the bulk of Gaz Group’s sales but was under increasing competitive pressure from newer western market entrants that were being imported 
to Russia in ever-increasing volumes. Gaz needed a solution – fast.

OUR SOLUTION

Magma formed a strategy-working group to define potential options for Gaz Group. An analysis of market dynamics demonstrated that Gaz did not have sufficient time to complete an all-new product development cycle for their principal product range before excessive erosion of their market share.

Magma’s solution was to find a way to get GAZ competitive product in short cycle. Magma reviewed the product availability and competitiveness together with the willingness to enter into various forms of venture for all medium commercial vehicle manufacturers. The opportunity to use the recently launched LDV Maxus Van range stood out as the best solution and appeared feasible. Magma reviewed the options with the client and achieved approval to make an approach. Magma made its initial approach in December 2005 and discovered that LDV were already in discussions with Sun Capital Partners regarding a sale and purchase.

The LDV acquisition represented a launch transaction for the newly formed European arm of Sun Capital and was timed to complete quickly. At first sight it looked like the opportunity had disappeared. Magma looked at the Sun acquisition and the likely cycle of the business during the first months of 2006 and formed a hypothesis that Sun would face a pinch point in April 2006. Magma then engaged with Sun and started monthly review meetings. At the same time, Magma started a deep product review and tested due diligence of the Maxus van range versus its leading competition using Magma’s Ultramotive Product Development Division, in order to shorten any potential acquisition timeline. At the April meeting Sun indicated they were prepared to discuss some form of transaction.

Magma detailed out an acquisition plan for the client and suggested N M Rothschild as Investment Banking advisors. Magma completed a full due diligence of the businesses, operations and personnel. In parallel Magma developed a full business plan for the target and a pro forma business analysis and ten-year plan for the combined enterprise, which NMR then used to develop the acquisition financials.

A key feature of the plan was the creation of an export plan for the Maxus for the Russian Federation, followed by a localisation plan involving development also of a new generation of vehicles for the Gaz group leveraging the Maxus technology.

In July, having completed successful due diligence, Magma and NMR presented the acquisition plan to the GAZ Group Board of Directors and achieved approval. GAZ Group also retained Magma personnel to develop an International Division for the company and to handle the post acquisition Integration.

RESULTS

GAZ Group acquired LDV in August 2006 through its newly established GAZ International. Magma set about the post acquisition Integration and development of LDV. In 2007 LDV returned to profit, was awarded 'Transport Company of the Year' in competition with names such as Virgin Atlantic and was awarded 'Supplier of the Year' by the Post Office. Maxus was launched at the Moscow Motor Show in 2007 and exports to Russia commenced in the first half of 2008. A Russian CEO was appointed early 2008 to complete the integration into the Light Truck Division of Gaz Group.

"GAZ Group president Erik Eberhardson said: "We are very excited about this transaction, which represents an important strategic move, expanding our market presence and bringing market leading management talent into the group. We believe that this deal will act as a catalyst for further international growth."

 Mark Miller, Industrial editor, the guardian, 01/08/2006

Mark Milner, industrial editor, The Guardian, Tuesday 1 August 2006