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Case study: private equity acquisition - CHAMP and Penrice Soda Products

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Abstract

In late 2000, IMC Global ran an auction process to divest its Australian subsidiary Penrice Soda Products.

Deloitte initially assisted in carrying out commercial due diligence with management meetings and site visits to assist CHAMP in their decision to bid for the business.

Penrice Soda Products is the only producer of soda ash in Australia and at the time sold 85% of Australia's supply. Soda ash is one of the key ingredients in the manufacture of glass. In addition, Penrice produces other by-products such as bicarbonate, which is used in a range of products including detergents and bath salts.

Penrice's operations broadly consist of a limestone quarry, salt fields, and a large manufacturing plant, all based around Adelaide in South Australia.

Challenge

CHAMP needed to gain an understanding of the soda ash industry both globally and here in Australia, including key competitors, market pressures and Penrice's position in the market.

CHAMP required detailed financial due diligence covering Penrice's accounting, taxation and information technology and forecasts.

CHAMP required these issues to be addressed to assist them with their negotiations, transaction execution, and investment committee approval and to assist with the sale and purchase agreement documentation.

The team need to be sufficiently flexible to deal with the transaction delays, but to move quickly to carry out due diligence.

Approach

Deloitte assisted with initial commercial due diligence and then completed a detailed industry analysis and financial due diligence.

Deloitte completed detailed industry and market research on the Australian and global soda ash market, including an assessment of the key issues that influence demand and supply, competitor analysis and the regulatory environment.

As is typical in the private equity industry, in addition to preparing a financial due diligence report, Deloitte also assisted CHAMP with transaction execution issues such as determining sustainable working capital levels and capital expenditure requirements and identifying any key issues that had or may have had an impact on historical and forecast cash flows.

Deloitte's close communication with CHAMP and regular update of issues and provision of a detailed industry and due diligence reports assisted CHAMP in their negotiations and transaction execution.

Solution

Deloitte assisted CHAMP from initial commercial due diligence through to transaction completion, providing industry analysis and due diligence on accounting, taxation and information technology.

CHAMP completed the acquisition of Penrice Soda Products in October 2001.

Deloitte's assistance put CHAMP in a strong negotiating position providing them with a clear understanding of the key issues facing the business, CHAMP and the management team.

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