As it navigates a political and economic minefield, the Tunisian government had something to shout about in November with what is widely considered in Tunisian business circles as a historic deal. This was the privatisation of a prized asset that had been confiscated from cronies of the Ben Ali regime.
With a difficult fiscal position following two painful years of weak growth, the government needed something to feel pleased about, as well as a boost to its coffers. And it can claim one victory in the way it handled the privatisation of a prized asset, which had been confiscated from members close to the Ben Ali regime.
Amongst the assets that were under the control of relatives of the former head of state was a 25% stake in Tunisiana, one of the major mobile operators in the country, and stakes in Banque de Tunisie, Carthage Cements and Ennakl.
The last is a 47-year-old business, respected as a solid and well-run company. It has one of the biggest car dealerships in Tunisia representing four brands: Volkswagen, Porsche, Audi and Seat, and a deep distribution network. The group’s financial accounts for 2011, which was a difficult trading year for obvious reasons, show revenues of 250m Tunisian dinars (approx $175m) and profits of 16m TD ($10m).
The company was state-owned until the early 2000s, when it was privatised and effectively went under the control of the son-in-law of former President Ben Ali. Subsequently, 40% of the company was dual-listed on both the Moroccan (10%) and Tunisian Exchanges (30%) leaving 60% still owned by the son in law’s holding. It was this share that was confiscated following the Tunisian revolution.
So what was so special about this deal in particular?
The context of the sale should not be underestimated. The government of Tunisia was badly in need of a good news story, especially as it has come for much criticism for the way it has been running the economy and politics in general.
It also needed to provide a benchmark and have some form of yardstick on which to base the sale of other confiscated assets. Lastly, government coffers were in need of an urgent boost, especially as the treasury was relying on $760m from the sale of these confiscated assets.
So there were a number of determining factors. “First, it showed that this current administration is in no way interested in running business, or what the Americans call ‘Big Government’. This sends the right signals to the investor community, one of a government which is pro-business and free market in spirit,” according to Wassim Ben Yedder, Deputy Managing Director of Amen Capital, lead advisors on the bid.
Second, the administration needed to show the business community that this was no longer business as usual in Tunisia, in that transparency and meritocracy would take precedence over cronyism and nepotism. Given the political dynamics at play, it was doubly important that the bidding process be run without any hiccups and with the highest levels of transparency.
Finally, faced with a deteriorating balance sheet, the government needed a speedy and seamless process. As it happened, the whole procedure took less than four months.
The deal was done in two stages. The first was the technical proposal, which needed the tacit approval of Volkswagen (VW) to ensure they had the right partner to represent their brand. Volkswagen had suggested all Tunisian applicants should find an international partner with whom to bid.
The request for proposals (RFP) attracted some of Tunisia’s biggest industrial groups. Of the five who submitted technical bids, three made it to the second stage. This was the financial bid, a sealed-bid auction.
The three finalists included the Atrous group, which had partnered with Egyptian Automotive & Trading (the Egyptian representatives of VW), the Bouchamaoui group, partnered with the Spanish VW reps Domingo Alonso, and a consortium of two Tunisian behemoths, the Amen Group and Poulina consortium.
Poulina is one of the largest and most respected industrial groups in the country, very active across a number of sectors in Tunisia. It already owned 8% of Ennakl when the group was first listed and had wanted to enter the automobile business for many years. The Amen Group, controlled by PGI-Holding, is another large actor in Tunisia’s private sector. Parenin, one of their subsidiaries, owns the dealership of a number of heavy machinery brands, including Caterpillar, John Deere and Atlas Copco. Poulina and Amen Group have a history of close collaboration; in fact Amen Group owns shares in Poulina and has a seat on the board. The hurdle they would have to overcome was the lack of experience in the automobile industry.
According to Emna Khrouf from Altim, the consulting group who helped with the technical bid, what the consortium lacked in car dealership experience, they more than made up for with their track record in Tunisia, their experience with the Caterpillar dealership, the quality of their management and their financial strength.
The technical proposal, which outlined the strengths of the bidders as well as presenting a strategic outlook to accompany VW’s growth in the Tunisian market, stood out for its commitment to best practice and excellence, values they felt were important to VW. The consortium was based on a 2:1 split and of the 60% being put for sale, the share would split 40:20 in favour of Amen Group.
Once VW had validated the technical bids, it was then a ‘simple’ matter of selling the firm to the highest bidder. The terms were quite clear: the winning bid would have to be at least 5% higher than the second bidder (or else the bidding would have to be opened up again).
The winning bid was for $147m, 6% higher than the second bid of $138m. “Our offer turned out to be the lowest we could have offered to win the bidding,” said Walid Chaouch, Managing Director at Amen Capital. “And although this has not been officially confirmed, I doubt the government would have sold [Ennakl] had the winning bid been below the share price at which the shares were trading before they were suspended.”
The price offered by the winning consortium was 12.85 TD a share, which was a little higher than the share price when the shares had been suspended (12.80TD). Chaouch added that they had factored in a positive economic outlook for Tunisia over the medium term in their financial modelling, which they had conducted in conjunction with PWC, the accountancy and consultancy firm. PWC was in charge of the financial due diligence and the company evaluation.
The deal had a number of legal complexities and evaluating this risk in financial terms was never going to be easy. The Mahbouli law firm – alongside the General Secretary of PGI Holding, Mourad el Aroui – was in charge of the legal due diligence, which had to clarify a number of contentious points.
The whole bidding process was overseen by Selim Lemkecher, who heads business development at PGI Holding, and he was responsible for coordinating all the different parties.
Wassim Ben Yedder highlighted how the deal really showed the strength in depth of the PGI Holding. The group managed to leverage on Parenin’s competencies when doing the due diligence of Ennakl’s car dealership business; and it made use of the group’s financial acumen which it could garner from Amen Capital, its private equity and investment banking arms. The Poulina group offered advice throughout the process, given their vast experience, having grown both organically and through large acquisitions. And, indeed, on contacting the different parties involved on the bid, teamwork (and transparency) was a recurring theme.
The sale was overseen by the Ministry of Finance, who was advised by the Banque d’Affaires de Tunisie, an investment bank, who again was commended by all parties for their diligence and for conducting the process in a transparent and highly professional way. The Ministry was particularly pleased with the success of the transaction and is hopeful this will help kick-start much-needed investments in the country. And the fact that two heavyweights of Tunisian business were investing and betting on Tunisian growth should inspire others to follow suit.
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