Schouw & Co. — M&A Activity 2017

Mar 20, 2017

Schouw & Co. acquires Borg Automotive

Investor presentation

20 March 2017 CEO Jens Bjerg Sørensen | IR Kasper Okkels

Borg Automotive, a leading remanufacturing company

Borg Automotive at a glance

• Borg Automotive is a remanufacturing company founded in 1979 by Søren Toft-Jensen
• The company specialises in the production and sales of remanufactured parts for the automotive industry like alternators, starters, brake calipers
• Borg is Europe's leading independent auto remanufacturer with broadest product range and sales in almost all European countries
• Customers (+100) are wholesalers, distributors and OES/OEM's; largest ~10% of sales
• Headquarter in Silkeborg with production sites in Poland and UK, and a R&D facility in Belgium
• The group consists of Borg Automotive (Denmark/Poland) and Car Part Industries (UK/Belgium), which was acquired in 2011
• FTEs: ~1,400

Notes: Negative EBIT in 2014/15 is related to transfer of brake caliper production to Poland, various restructuring in UK and significant loss on a single customer

Remanufacturing in Europe to grow ~8%

Notes: 1) The remanufacturing of automotive components yields some 88% materials savings compared to using a new product, with an associated 53% decrease in CO2 emitted and 56% lower energy requirement (EU Commission, 2015)

Acquisition makes good business sense

Rationale, conglomerate level

• Current capital structure provides room for significant investment on top of current investment programs
• Span of control target of 5-7 businesses enables new value enhancing platform investments
• Continue value-creation of the conglomerate by pursuing attractive buy-and-build opportunities
• A new platform investment is key in 'the next step' of Schouw & Co.

Rationale, business level

• Borg Automotive fulfils all investment criteria
• Leading position leading position in Europe
• B2B processing of remanufacturing auto parts servicing global wholesalers, buying groups and OES/OEMs
• Internationally focused sales throughout Europe with production in Poland and UK
• Strong management highly skilled management team willing to step-change the company
• Active ownership significant opportunity for transformation through active ownership
• Borg Automotive is well-run and among the best-in-class to deliver growth and profitability
• Well positioned with solid presence in attractive markets and all major product categories
• Industry growth of ~8% is unique
• Significant opportunities to drive further growth in a fragmented industry, organically and through M&A

Notes: *) Borg Automotive' s accounting principles will be changed following the acquisition to adapt to IFRS. Pro-forma FY2016 revenue and EBIT before any effect of PPA

Transaction details

Valuation

▪ Enterprise Value is DKK ~1,150m

For 100% of the shares incl. estimate of the fair value of the minority interest

▪ Financial estimates 2017 (Jan-Dec)

Sales1	DKK ~1,050m
EBITDA	DKK ~170m
EBIT2	DKK ~160m

• Transaction multiples Sales ~1.1x EBITDA ~6.8x EBIT² ~7.2x
• Recognised in Schouw & Co. 2017 Q2-Q4

Revenue	DKK ~800m
EBIT2	DKK 110-130m

Transaction

• Complex transaction due to previous ownership structure where 'Borg Fonden' owned a minority in one of the two entities in the transaction scope
• Schouw & Co. has an option (and an obligation) to obtain full ownership within a relatively short period of time
• Following a string of transactions Schouw & Co. will own 85% of the combined Borg Automotive Group and Søren Toft-Jensen will own the remaining 15%
• Due to the purchase obligation of the 15% ownership stake, Schouw & Co. will recognize a liability in the balance sheet at fair value, i.e. treat the option as a debt-like item rather than a non-controlling interest (NCI)
• Any communication on purchase price of the company incorporates the fair present value of the minority share and hence assumes a valuation comparable to 100% of the shares

Borg Holding

100% 100%

Borg Automotive

Car Parts Industries

Notes: 1) New accounting principles lifts revenue and is not comparable to existing practice; 2) Before effect from PPA; 3) Illustrative only