Demanding deals done by good teams.
Teamwork is everything when buying secured receivables. The EOS experts from the International Contracts department and the Transaction Center NPL secured successfully conclude complex deals.
The weather’s great and the Elbphilharmonie concert hall sparkles in the sunlight, but it is only rarely that Karel Smerak can enjoy the view from his office at EOS headquarters in Hamburg, Germany. For once, the weather in Northern Germany is not to blame. Next to the latest issue of the ‚Economist‘, dozens of business cards collected on a recent trip are arranged on his desk. ‘On average I am away from the office for three weeks each month’, says Mr Smerak, one of the two directors of the Transaction Center NPL Secured Eastern Europe.
Croatia, Romania, Bulgaria, Hungary, Poland: The Czech citizen establishes direct contacts with local banks, transaction advisors and property appraisers. Mr Smerak hardly ever misses a business forum or conference. He reserves five days each month for relationship management. His objective is to keep his ear close to the ground, to know when a new secured portfolio of non-performing loans (NPLs) will come onto the market for purchase – ideally before the competition gets wind of it.
Mr Smerak spends even more travel time – about two weeks a month – working on current acquisitions of secured portfolios. He is regularly accompanied by colleagues from the International Contracts department. One of these is Konstantin Pistorius. ‘We work together during the entire purchase process and often for a long time afterwards’, says the Senior Consultant. ‘In this process we do more than just analyse the contracts from a legal perspective. We are also involved, for example, when EOS is negotiating with sellers and co-investors. That’s how we contribute to bringing transactions to a successful closing’. Minimising risk and ensuring that EOS can comply with its contractual obligations are also part of the job. The inter-disciplinary cooperation generally starts when a non-disclosure agreement has been concluded between the seller and EOS. At that time, disclosure of initial information about the portfolio and the formal expression of interest on the part of EOS are already taken care of. A non-binding phase often follows in which the seller shares more detailed information about the portfolio with select investors. ‘The quality of this data is one of the decisive aspects’, says Mr Smerak.
Good standing established.
On this basis, investors make offers from which the seller chooses the most attractive. ‘The price is not the only factor in the process’, says Mr Pistorius. The reputation of the investor is also important. Will he protect the seller’s good name? Can he comply with contractual commitments? ‘We have established a very good standing’, says Mr Smerak. If the offer made by EOS is among the best, which is usually the case, the sales process enters its binding phase. ‘This is when our work really starts’, says Mr Pistorius. In order to be in a position to gauge the value of the collateral which consists mostly of real estate, EOS involves local appraisers. The next step is for colleagues from the EOS Secured Portfolio Valuation department to take a very close look at the collateral. The experts then model cash flows, develop scenarios for the realisation of the portfolio and use these factors to derive a bid price. It is also important to find local lawyers with a deep knowledge of the applicable legal system, coordinate consultants, explore the optimal acquisition structure and finally to work on the seller’s draft purchase contract. If everything goes according to plan, EOS ultimately signs the contract.
Secured NPL transactions demand real teamwork and stamina as several months may elapse between the offer and the closing of a transaction. On average, Mr Smerak deals with 15 projects simultaneously, two or three of which can be in the critical phase at the same time. So he is constantly on the go. ‘Maintaining direct contact with sellers and advisers is very important’, he says. In the future he will also get to enjoy the view of the Elbphilharmonie concert hall only on rare occasions.
This was the challenge: Profitable, water-tight deals.
The different legal systems in the countries of Eastern Europe represent a challenge when purchasing secured NPL portfolios. The experts at EOS have more on their hands than simply completing transactions. As applicable laws and regulations vary among the countries, the experts at the headquarters in Hamburg, Germany, build on local know-how. They work closely with local advisors and with the twelve EOS subsidiaries in the Eastern European region.
European banks are increasingly selling secured non-performing loans. EOS is prepared for this business. The new Secured Portfolio Valuation department at the headquarters in Hamburg, Germany, will strengthen the Group’s position as an investor in the secured segment. ‘In recent years, we have helped EOS companies in many countries with transactions. Now our international colleagues have an entire team of specialised portfolio valuers at their disposal’, says Sebastian Pollmer, Head of Secured Portfolio Valuation.
One of the key tasks of his team is to assess the quality and value of the property that is held as loan collateral in the portfolios. The objective is to determine fair prices for the packages and to remain competitive. Because: ‘In future we want to reinforce this segment in the EOS Group and expand into new markets’, explains Mr Pollmer.