Solidiance is a corporate strategy consulting firm headquartered in Singapore with 12 offices covering SEA, China, India, and the GCC countries. Solidiance wanted to strengthen its presence in China, with a view to reaching critical mass in this major Asian market. Going through an acquisition was clearly the way to go, as pure organic growth would have taken too long and too much management time. Solidiance wanted to minimize the financial constraints and the integration risks as well as keeping the process simple and reducing management distraction. Equiteq, who had been advising Solidiance for two years, was requested to help achieve these objectives.
The client's situation
Since its inception 10 years ago, Solidiance had been growing from strength to strength, reaching a headcount of 120. Solidiance’s growth had been fuelled by its ability to support CEOs on make-or-break deals, define new business models and accelerate growth in Asia, focusing on Industrial Applications, Green Technology, Healthcare and Technology. However, while their coverage of SEA, India and the GCC countries was satisfactory, the management team wanted to improve their presence in China in view of the huge potential represented by this country.
Given the cultural challenges that the integration of a purely local small-size Chinese firm might pose, it was decided that a “hybrid” firm would be more suitable, i.e. a company deeply rooted in the local economy and run by a local team, but created by foreigners who’d been active in China for decades, and operated by international standards. In this respect, Technomic was an ideal case, with two American founders who were known to Solidiance management.
However, the corporate structure of the business was fairly complex for a relatively small company, with a Singapore-based holding, and both a representative office and a “WOFE” (i.e. ‘Wholly-Owned Foreign Enterprise’) in Shanghai. Given Solidiance’s existing presence in China, it was decided that the deal structure would be based on an asset deal between the two Singapore-based companies, i.e. Solidiance’s HQ company and Technomic’s holding company, whereby the business assets and liabilities of Technomic (including the WOFE shares) would be transferred to Solidiance, before subsequent transfer of client contracts, employment contracts, etc., from the Technomic WOFE to Solidiance’s Shanghai subsidiary.
Shareholder exit goals & deal rationale between buyer & seller
For the sellers, the objective was to ensure the continuity of the development of the firm, despite the planned retirement (within two years) of one of the founders, the other founder joins the Solidiance group to ensure both smooth integration and expansion in China.
For Solidiance, the objective was to reach critical mass in a large, strategic Asian market like China – a must for a firm where the motto was to focus on the region.
How did Equiteq deliver value to the client?
• Equiteq streamlined the process and kept it as simple as possible to meet the short deadline of both parties, despite the complex structure of the business.
• This was achieved by putting together a deal structure that was reasonably straightforward and transparent, but geared towards business objectives. For example, the earn-out mechanism was based on sales targets and client base transfer rather than bottom line.
• The due diligence process was also focused more on business issues (e.g. client contracts, HR) than financial, tax or legal issues, which were essentially covered by “blanket” warranties and representations coupled with a general indemnification clause backed by the deferred payments.
• The result was a transaction process that was quick, smooth, and where all energies were directed more towards business objectives than deal technicalities.
Read the press release on this deal here.