Setting CC Group up for a new phase of growth
CC Group is the leading German waste slag and filter dust operator for waste incineration plants, celebrating its 50th anniversary in September 2019. Novum acquired the company together with management in 2017/18 in a rather difficult situation: the prior main shareholder had a vision of a conglomerate of waste management businesses and ventured into scrap trading, construction material trading and others – the efforts were largely unsuccessful and eventually drained cash from the core business, which was also left with insufficient management resources.
Following their investment Novum, together with management, started to refocus the business on its core activities: slag, dust and minerals collection, extraction of metals and cost-efficient disposal. The corporate structure was streamlined, the working capital and cash position normalised and a smarter approach to slag disposal was introduced. Profitability rose and shall be further enhanced through improved metal extraction processes, driven partly by operational excellence but also by investment into existing sorting facilities and the installation of ‘Stratego’, a new metal sorting facility delivering both superior metal quality and very “clean” mineral slag.
However, missing piece in the puzzle for Novum to achieve its aspirations for this investment was a streamlined financing structure allowing further organic growth from a profitable base and the ability to pursue M&A activity. The latter could involve add-on acquisitions of smaller players or even mergers with equally large players to grow the business to c. €15m EBITDA before an exit in the next three to five years.
In this context, Kartesia was able to play to its strengths to offer a suitable financing solution. Approached by DC Advisory, who were advising Novum Capital, the deal team around Thomas Pöhler identified a Super-Senior RCF / Unitranche structure suitable for KSO I.
A cautious approach to opening leverage was required for a recap-transaction allowing Novum to take a considerable amount of its investment off the table at a time when the ultimate proof of concept for ‘Stratego’ was still outstanding. A major part of the commercial due diligence was conducted by Kartesia through research and expert interviews to complement discussions with the management team – a competence gained through numerous off-track, proprietary primary and secondary transactions, that sets Kartesia apart from its peers in the (lower) mid-market debt space in its target markets.
The deal structure supports Novum’s aim to allow for organic and acquisitive growth in a fragmented market: Kartesia arranged a €51m financing package comprising €33m term loans including a committed €5m Capex facility to fund potential investment projects or acquisitions. These elements are side-lined by €13m operating lines provided on a super-senior basis by Deutsche Bank.
The two twists to the deal structure are, first, a committed top-up line that will allow Novum a further dividend payment one year after deal completion subject to the achievement of CC Group’s business plan, which foresees circa 50% of growth in EBITDA year on year. Secondly, an uncommitted line was added into the documentation to support potential add-on acquisitions through swift and uncomplicated financing top-ups.
Both the approach to due diligence and deal structure, especially with regard to the top-up line and the super-senior Unitranche terms negotiated with Deutsche Bank, were appreciated by DC Advisory as “a committed and pragmatic approach to conclude a financing that not only repays some equity, but also supports the strategy of the firm and the operational financing needs”. Novum and the management team were delighted to, finally, “have a sophisticated financing package in place that perfectly addresses our industry-specific needs and strengthens our market position as the leading independent speciality waste management company for incineration slag and filter dust”.
Thomas Pöhler, Director at Kartesia heading the direct lending efforts in the DACH region, is “delighted to accompany the management team and Novum Capital on their journey to further strengthen CC Group’s market position within Germany over the coming years.” He believes that “the company embodies all of the characteristics we look for in an investment, namely an excellent and committed management team, a leading position in a stable market and a sustainable competitive advantage that is used to better serve its client base.”
Further deployment of capital into CC Group is on the horizon as the recap top-up tranche will likely be drawn next May. Also, a potential add-on acquisition, likely to change industry dynamics in favour of CC Group, is being explored by Novum and management. Kartesia will do its best to make this happen and add further value to what is considered by the deal team a very suitable first investment for KSO I.