Financing: Aegis Group

Simon Zinger

In 2009 global ­marketing powerhouse Aegis Group made ­significantly fewer ­acquisitions than in ­previous years, but 2010 saw the FTSE-listed company come through the lull and ­return to something like its pre-crunch form.

In July 2010 the London-headquartered outfit ­acquired one of Australia’s leading ­marketing and communications companies, the Mitchell Communication Group, for A$363m (£207m). In ­December 2010 it expanded into Russia after acquiring a majority stake in Russian ­independent market research agency Comcon.

The activity has continued into 2011, with the group ­expanding its presence in South Africa in February with the purchase of digital search ­and performance agency ­Clickthinking Online.

It is impressive in what is a fairly stagnant M&A market, but it was part of a concerted effort by the ­company to kickstart its acquisition activity. Towards the end of 2009 as markets ­began to stabilise, it began ­exploring opportunities to strengthen its position while continuing to maintain a ­conservative ­balance sheet.

“There were a few things we needed to take into ­account,” says Aegis general counsel ­Simon Zinger, who worked closely with corporate ­treasurer Peter Pontidas. “First, we have a standard set of financial covenants and that largely sets the benchmark in terms of how much leverage we can take. Second, we had to take into account debt maturities. Then we needed to look at what the growth aspirations of the ­company were, how much we could borrow and what was the best way to go about it.”

He adds: “Our long-term funding was coming up for ­refinancing in 2011. You can’t ­assume that just because a ­facility is up for refinancing it will be renewed, and we always intended to do that before the markets deteriorated.”

The group decided on a strategy that would see it ­raise funds through a mixture of ­convertible bonds and private placements in the US. It ­intended to use the net proceeds to repay short-term debt borrowing under its ­revolving credit facility in order to ­diversify its financing sources, rebalance its mix of borrowings and extend its debt maturity profile. This would ­increase its financial flexibility to enable a return to more ­historical levels of bolt-on ­acquisition spend.

The company hit the US private placement market ­towards the end of 2009, when it placed more than $200m (£124m) in senior unsecured notes. The array of legal ­advisers involved gives some idea of the scope of the project – it was advised by Slaughter and May on English law, White & Case in the US, DLA Piper in the Netherlands, Allen & Gledhill in Singapore and Addisons in Australia.

“White & Case are strong on the private placement side, and also they knew what other borrowers had been doing,” says Zinger. “We also had to make sure the ­private placement transaction didn’t breach the main ­borrowing facility in any way. We had to avoid any conflicts in the documents.
“Next came the convertible bonds. We raised approximately £190m and that took further pressure off existing borrowings. It also gave a war chest for future acquisitions.”

Again, the challenge was working with so many parties in various countries.

“From a legal perspective it’s always challenging, because we have a number of international group companies that form part of almost every deal, so there’s a lot of coordinating corporate documents and legal opinions,” says Zinger.

In August 2010 Slaughters again advised Aegis in its £450m multicurrency ­revolving credit facility, ­allowing it to refinance.

Top tips

  • Obtain an early understanding of the lender’s requirements for due diligence, legal opinions and corporate approvals.
  • Ensure efficiency and common understanding by all parties by agreeing a detailed term sheet ahead of negotiating the main documentation.
  • Consider the international implications of your financing, such as the location of affiliate companies participating in the financing and location of new investors, as this may require a number of legal steps in foreign jurisdictions.
  • When dealing with bonds or shares, consider registration and prospectus requirements (or exemptions) under local securities or listing rules, as this will impact cost and timing.
  • Strive for consistency between existing and new financing documents in terms of warranties, covenants and events of default.
  • Engage your relationship banks to retroactively apply better terms agreed in new financing documents to terms in previously agreed documents.
  • Understand any conditions imposed by the lenders on their commitment to provide funding.
  • Be aware of costs relating to any finders or brokers that may be involved in a private offering scenario.
  • Establish an internal compliance system for monitoring any financial or ­commercial covenants agreed as part of the financing documentation.