Deal in Focus: Kartesia in Desmet Ballestra debt-for-equity swap

Mid-June saw Desmet Ballestra, a global engineer and supplier of plants and equipment for the oil, detergents, oleochemical and biodiesel industries, change hands from previous backer Equistone Partners to a lender-led ownership structure comprising Kartesia and Bayside Capital.

After years of financial struggle with overbearing debt, the company finally recovered from a decline in activity for the biofuel sector from 2009 onwards, bringing back its finances to a viable situation and raising its turnover to €300m.

The debt-for-equity swap led by Kartesia, alongside Bayside, marked a long-awaited return to stability for the company, largely owed to the alternative lender's intervention.

Desmet Ballestra was first taken over by Equistone in 2007. The GP's strategy was straightforward: having merged Belgian agricultural group De Smet with Italian chemicals specialist Ballestra, it was convinced of the growth potential of the newly formed business, counting on the popularity of biofuels at the time.

But the unexpected crisis in the sector in 2009 hit the business. In 2012, Equistone refinanced the group, injecting €15m into the capital structure alongside a senior debt extension.

But ultimately, and with a second major slowdown in activity in the sector in 2013, those measures proved insufficient to restore Desmet Ballestra's equilibrium.

Watershed year
"So what do you do when things don't go as planned?" asks partner Laurent Bouvier, in charge of the deal at Kartesia. "You need to come up with innovative solutions."

It was after the first restructuring led by Equistone in 2012 that Kartesia entered the group, with the intention of progressively acquiring the company's debt, provided by a pool of as many as 30 different banks.

As a result, by 2015 Kartesia and Bayside, a minority shareholder in the company, had acquired most of the debt, holding around 60% between themselves.

"This crystallised a situation in which the company's debt still prevailed too much, and where a classic M&A exit wouldn't have brought enough profit to shareholders," Bouvier says. "Besides, banks weren't ready to stay in the deal without some substantial restructuring; some of them also expressed their wish to leave."

As Kartesia's role in the group grew in importance, the investor's next task was to stabilise it once and for all by reducing debt and strengthening equity. Negotiations with shareholders were "lengthy" according to Bouvier, but a consensus was eventually reached.

Finding middle ground
One of Kartesia's key aims was to accommodate all investors, says Bouvier. "With 30 lenders in 2012, things would have been very complicated," he says.

The lender slowly worked its way towards reducing the pool of historical lenders, bringing it down from 30 to two. "The compromise was then for us to take control of the company," he says.

The result for Kartesia is a renewed commitment with Desmet Ballestra for another seven or eight years. Overall, Kartesia and Bayside acquired a total of €100m in debt from original lenders, the vast majority of which has now been converted into equity. The remaining portion of debt represents a 2-3x EBITDA multiple.

A pool of around 10 investors led by Kartesia now owns the company, while two of the group's historical banks have committed to a four-year bonding line facility. Finally, €7m of new money has been injected into the company to further support growth.

People
Kartesia – Laurent Bouvier (partner).
Bayside Capital – Alice Cavalier-Feuillet (director).

Advisers
Equity – Messier Maris & Associés, Jean-François Cizain (M&A); Ashurst, Yann Gozal, Jean-Pierre Farges, Nadine Gelli, Amanda Bevan, Sonia Bouaffassa, Joseph Gadenne, Charles Peugnet, Thomas Jeannin, Margaux Baratte (legal). 
Vendor – King & Wood Mallesons, Maxence Bloch (legal).
Company – Weil Gotshal & Manges, Cassandre Porges (legal); Paul Hastings, Alexis Terray (legal); Oloryn Partners, Roland de Farcy (M&A). 

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