Deal in Focus: EQT’s EEW exit is largest ever Sino-German trade sale

EQT's sale of waste incinerator business EEW last week marked the largest purchase of a German company by a Chinese buyer, and picks up on a growing trend of Asian interest in the country.

When EQT announced its plan to sell Helmstedt-based EEW in August last year, there was no shortage of potential buyers. Among the partakers in the bidding process were Finnish energy company Fortum; German power plant operator Steag, which operates public utilities in several cities; as well as other bidders from China. In the end, Beijing Enterprises outbid the runner-up by a marginal sum.

Founded in 1873, EEW with its 1,050 employees operates waste incinerators that produce electricity, district heating and process steam for industrial use. The burnt waste itself, turned into slags, can be used in road building. The company operates 18 plants in Germany, Luxembourg and the Netherlands. It generated revenues of €539m in 2014.

EQT acquired a 51% stake in EEW in March 2013 from energy group E.ON, which kept the remaining shares. In April 2015, EQT bought the remaining 49% after E.ON announced its group restructuring programme.

Efficiency as value driver
The Swedish GP went into the deal with a clear strategy and stuck to it throughout, as EQT partner Matthias Fackler explains: "Our main driver was to create a company that runs top class plants." He claims EEW is now a market leader in terms of technical and operational benchmarks, and is run more efficiently than three years ago.

He points to maintenance as one driver for this: "When we bought EEW three years ago, each one of the 20 plants was run and maintained individually. Today there is a central team. We have sub teams for the plant's larger components, with more expertise. One team for example is only looking after the boilers and is constantly optimising them."

In terms of distribution, EQT has upped EEW's game as well: "When we bought the company, there were barely any waste imports from the UK. Now we receive substantial quantities from there."

Apart from improving efficiency and distribution, EEW also bought two new sites. The one in Stavenhagen produces energy for food manufacturer Pfanni, the Andernach-based plant serves the steel production unit of Thyssen Krupp. Two facilities were sold by EQT prior to the trade sale.

We also benefited from the market developments because waste fees, the price of waste, rose a lot in the past 18 months" – Matthias Fackler, EQT

Asked about the timing of the exit, after less than three years of ownership, Fackler states a number of reasons. The GP was approached by several potential buyers and their strategy was implemented faster than they expected. The positive developments of waste prices further boosted the asset's value: "We also benefited from the market developments because waste fees, the price of waste, rose a lot in the past 18 months."

Chinese appetite
Chinese businesses were keen on the asset because they need the expertise, Fackler explains: "China is going to build several hundred incineration plants in the years to come. EEW built most of its facilities itself, so the company has know-how and a level of efficiency that the new Chinese owner can profit from in the future."

According to Bloomberg Intelligence, China is mainly relying on landfill for waste disposal at the moment and is going to more than double its incineration capacities by 2025.

EQT claims the transaction represents the largest Chinese direct investment in a German company to date, but it is not the only mega-deal by Chinese investors in recent months.

In early January, the China National Chemical Corporation announced its buyout of German plastics and rubber manufacturer KraussMaffei Group, a deal worth around $1bn. Only a few days prior to the EEW deal, Chinese appliances maker Midea Group announced it would raise its shares in Augsburg-based robotics developer Kuka from around 5% to 10.2%, making it the second-biggest shareholder.

Advisers
Vendor – Morgan Stanley (Corporate finance); EY (Corporate finance); Roland Berger (Commercial due diligence); Clifford Chance (Legal).
Equity – UBS (Corporate finance); Lazard (Corporate finance).

Further reading

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