Situation
In late 1999 ARC Associates identified KKF.net AG ("KKF.net" or the "Company") in Germany as a potential partner for companies looking for ISP and DSL expertise in Germany and by early 2000 had held initial discussions with the Company. At the same time ARC Associates was also giving some assistance to Kohlberg Kravis and Roberts & Co. L.P. ("KKR") in searching for a European DSL strategic partner for Tenovis GmbH & Co. KG ("Tenovis") and, as such, ARC Associates introduced KKF.net to KKR and Tenovis. (KKR had acquired the Private Networks division of Bosch Telecom GmbH, renamed "Tenovis", in March 2000).
ARC Associates believed that the Company would benefit from a KKR investment and support from Tenovis, and that Tenovis would benefit from KKF.net's positioning in DSL access. ARC Associates believed that KKR could achieve a major strategic initiative in European broadband DSL services via a direct investment in KKF.net and a simultaneous commercial agreement and equity agreement between Tenovis and KKF.net.
Approach
ARC Associates pursued both KKF.net and KKR to convince them of the strategic logic of a deal and arranged the initial meetings between both parties. Before and after these meetings ARC Associates reviewed the Company's business model and growth plans with management. ARC Associates also performed a thorough market and competitor analysis and prepared a set of valuation analyses for presentation to and discussion with KKR executives, including advice on how to value and structure Tenovis' in-kind contributions to KKF.net. Following the valuation and other review sessions, ARC Associates assisted KKR in preparing the investment offer letter to KKF.net management. As a follow-up to this letter ARC Associates negotiated with KKF.net management on behalf of KKR to establish the outline terms and conditions of the offer and reach an agreeable deal structure.
Following these initial negotiations, ARC Associates assisted KKR in the final negotiations and participated in the due diligence reviews, including introducing technical consultants.
The Transaction
On 17 August 2000 KKR completed an investment in KKF.net for EUR 50 million, while KKF.net and Tenovis simultaneously signed a distribution and co-operation agreement. As a result of this transaction both KKR and Tenovis became significant shareholders in KKF.net.