FIVE LAW firms were involved in the complex merger of Australian Electronic Manufacturing Service (AEMS) and Longreach Ltd’s repair and manufacturing businesses.
According to Phillips Fox, which acted for the senior debt provider St George Bank Corporate Finance, the high number of law firms involved was due to the unusually complex funding arrangements. Finance was raised in three different ways: equity investment and senior and mezzanine debt funding from separate providers.
Rothschilds provided the mezzanine debt and Allen Capital Equity took an equity stake in the joint venture between AEMS’s Hartec Manufacturing and Longreach.
Clayton Utz acted for Pacific Equity Partners, which has a controlling stake in AEMS; ABL acted for Rothschilds; Minter Ellison acted for Allen Capital and Henry Davis York acted for Longreach.
Senior associate Ben Burney led Phillips Fox’s team, assisted by senior associate Adam Fuller.
Burney said the total amount invested in the merger was “in the region” of $45 million, with senior debt making up $30 million and mezzanine debt providing $10 million.
He said the use of mezzanine debt funding from a separate investor was unusual in Australia. This approach allows debt to be raised from a secondary provider who charges a premium, but also carries a higher risk as the senior debt provider will receive a return on their investment first.
With the number of legal teams working on the merger, Burney said the “intercreditor issues” and negotiations were particularly complex. “Each of the parties to the transaction [had] a real interest in the final form intercreditor document.”
Burney said mezzanine debt funding is finding favour in Australia.
“[Mezzanine debt funding] is becoming a much more widely used product in the Australian market. I think it is going to be a product we are going to be advising more and more on.”
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