M&A Interview Case: Should SteelTech Buy BoltWerk?

SteelTech AG is a mid-sized industrials company with €1.2 billion in annual revenue and an EBITDA margin of 22%. It focuses on manufacturing large-scale machinery for infrastructure and energy projects, primarily serving public-sector and utility clients in the DACH region and Central Europe. SteelTech is now looking to broaden its product portfolio and reduce its dependence on infrastructure-related revenues.

BoltWerk GmbH is a smaller competitor with €250 million in revenue and an EBITDA margin of 18%. The company specializes in precision fasteners and mechanical components, selling mostly to Tier-1 automotive suppliers and industrial OEMs. BoltWerk has grown organically at around 5% per year and maintains long-term contracts with key clients.

To evaluate the strategic implications, it is helpful to assess both the potential benefits and the associated risks of the deal.

1. Strategic Benefits

• Diversification of customer base: The acquisition would allow SteelTech to reduce its reliance on public-sector and infrastructure clients by entering the automotive and OEM supplier markets served by BoltWerk.
• Product portfolio expansion: BoltWerk’s precision components complement SteelTech’s larger machinery portfolio. This could open up cross-selling opportunities and fill existing product gaps.
• Stable revenue streams: BoltWerk’s long-term supply contracts and steady 5% organic growth could contribute to more stable and predictable cash flows for the combined business.
• Engineering reputation: BoltWerk’s strong reputation for high-quality engineering may enhance SteelTech’s positioning in new market segments.

2. Strategic Risks

• Limited overlap in customer segments: SteelTech’s and BoltWerk’s client bases are fundamentally different. Synergies may be limited without meaningful integration of sales channels or product development.
• Integration complexity: Combining companies with different operating models, product types, and cultures could create execution risks, particularly if SteelTech lacks experience in the automotive supply chain.
• Focus dilution: Moving into smaller components and new industries may distract SteelTech from its core competencies in large-scale infrastructure machinery.
• Geographic overlap without expansion: Both companies are concentrated in the DACH region. The acquisition may not significantly expand SteelTech’s geographic footprint unless followed by further growth initiatives.

To estimate a reasonable valuation range for BoltWerk, the two most common approaches would be the comparable company analysis (market multiples) and the discounted cash flow (DCF) method.

1. Market Multiples Method

This method involves identifying comparable companies or recent M&A transactions in the same industry. A relevant valuation multiple, such as EV/EBITDA, is applied to BoltWerk’s financials (e.g. its EBITDA) to estimate the company’s value. 

• Pros: Quick to apply, reflects current market valuations and investor sentiment
• Cons: Can be imprecise if the peer group is not truly comparable; doesn’t reflect company-specific performance or risk factors

2. Discounted Cash Flow (DCF) Method

The DCF method values the company by forecasting its future free cash flows and discounting them back to present value using a discount rate that reflects the company’s risk profile (typically the WACC). It also includes estimating a terminal value to reflect cash flows beyond the forecast period.

• Pros: Allows for a tailored, company-specific valuation based on long-term potential
• Cons: Highly sensitive to input assumptions (growth, margins, WACC); requires detailed and reliable financial projections

In this case, the market multiples approach is the more practical starting point. It allows for a fast, objective valuation based on current market benchmarks and the limited financial data available. 

A DCF could be used later in the process to supplement the analysis, particularly if SteelTech gains access to more detailed forecasts and wants to test different long-term scenarios or integration assumptions.

Comparable companies in the industrial components sector trade at EV/EBITDA multiples between 8x and 10x.

To apply the market multiples method, the first step is to calculate BoltWerk’s EBITDA and then apply the relevant EV/EBITDA multiples from comparable companies.

1. Estimate EBITDA

BoltWerk has €250 million in annual revenue and an EBITDA margin of 18%.

2. Apply the Market Multiples

The peer group trades at EV/EBITDA multiples between 8x and 10x. Apply this range to the EBITDA you have calculated. 

Based on the market multiples method, a reasonable standalone enterprise value range for BoltWerk is €360 to €450 million. This serves as a benchmark before considering synergies, control premiums, or deal-specific adjustments.

SteelTech expects to realize €10 million in annual cost synergies by integrating procurement, production, and support functions. These synergies are expected to be fully realized by the end of Year 2 after the acquisition. No revenue synergies have been quantified at this stage.

To incorporate the expected cost synergies, the most practical approach is to adjust BoltWerk’s EBITDA upward and apply the same valuation multiple used in the standalone case. This results in a synergy-adjusted valuation, which reflects the value of the business including expected cost savings.

1. Adjust EBITDA

BoltWerk’s standalone EBITDA is €45 million.

Adding €10 million in fully realized cost synergies brings the total to €55 million pro forma EBITDA.

2. Apply the Market Multiple

Using the same peer group multiple range of 8x to 10x, the valuation needs to be adjusted to the new pro forma EBITDA. 

With synergies, BoltWerk could be worth €440 to €550 million to SteelTech.

To assess whether €550 million is a fair price, it’s important to consider where it sits in relation to the previously established valuation range and how the expected synergies are factored into the price.

• The offer lies at the very top of the synergy-adjusted valuation range of €440 million to €550 million. This means the price fully reflects the value of the expected cost synergies and assumes flawless execution.
• Paying the full synergy-adjusted value leaves no upside for SteelTech and shifts all execution risk onto the buyer. In typical M&A deals, the acquirer aims to capture part of the synergy value as a return for taking on integration and performance risk. 

Conclusion: While €550 million is within a justifiable range, it is likely too high from SteelTech’s perspective. Unless competitive pressure forces a higher bid, the company should negotiate a lower price that allows it to benefit from at least part of the expected synergies.

SteelTech has €200 million in excess cash and access to an undrawn €100 million credit facility. Its current leverage is moderate, with a net debt/EBITDA ratio of 1.5x. Management prefers to maintain an investment-grade credit profile and retain flexibility for future growth investments.

SteelTech has several financing options available, including cash, debt, and a combination of both. The appropriate funding mix should balance cost, risk, and strategic flexibility – especially given SteelTech’s goal of maintaining an investment-grade profile and preserving room for future investments.

1. Cash Component

• SteelTech has €200 million in excess cash, which could fund a large part of the deal.
• Using cash avoids interest expense and shareholder dilution.
• However, using the full amount would significantly reduce financial flexibility for operations or future investments.

2. Debt Component

• SteelTech has access to a €100 million undrawn credit facility and maintains moderate leverage (net debt/EBITDA of 1.5x).
• This provides room to raise additional debt without breaching the investment-grade credit profile.
• Still, relying too heavily on debt could constrain future strategic moves or trigger credit rating pressure.

SteelTech is in a strong position to fund the acquisition through a combination of cash and debt. The key is to retain enough liquidity post-transaction to remain financially flexible while avoiding unnecessary shareholder dilution or credit rating pressure.

The acquisition would affect SteelTech’s balance sheet in several ways, depending on the financing mix, and would temporarily reduce its financial flexibility.

1. Leverage and Liquidity

• If SteelTech uses a mix of €200 million in cash and €100–150 million in debt, its cash reserves would decline significantly, reducing short-term liquidity.
• Additional debt would increase the net debt/EBITDA ratio, likely pushing it closer to or slightly above 2x, depending on final terms.
• While still manageable, this would tighten the company’s headroom for further borrowing.

2. Credit Profile and Covenants

• The increased leverage and reduced cash buffer may trigger closer scrutiny from rating agencies, especially if SteelTech wants to preserve an investment-grade rating.
• The company may also need to renegotiate debt covenants or limit future spending temporarily to stay within financial thresholds.

3. Strategic Flexibility

• With less liquidity and a higher debt load, SteelTech would have reduced capacity for additional M&A, R&D investments, or major capital expenditures in the near term.
• That said, if synergies materialize and cash flows remain stable, flexibility could gradually improve post-integration.

Based on the available information, the acquisition appears strategically sound and financially viable, if the deal can be secured at the right price. However, further analysis would be required before making a final recommendation.

• Strategic fit: BoltWerk expands SteelTech’s reach into complementary products and new customer segments, aligning well with the company’s diversification goals.
• Valuation: A price in the €450–500 million range seems reasonable when factoring in expected cost synergies.
• Financing: SteelTech is in a position to fund the deal through a mix of cash and debt, though leverage and liquidity would need to be monitored closely post-transaction.
• Risks: Key risks include integration challenges, full realization of synergies, and temporary reduction in financial flexibility.

Before proceeding, SteelTech should conduct further due diligence (including financial validation, operational review, and legal checks) to confirm key assumptions and assess execution risks.