Private Company Data: Use Cases
Sunday, 24th June 2012
The availability of data about private companies, particularly in jurisdictions where minimal or no reporting is required by law, can be challenging to obtain. Bureau van Dijk provided FreePint with fresh awareness of what is available and how to access it. The information was so useful, we commissioned two articles for FreePint readers on the topic. This article provides a case study on how to approach research on a privately held US company. When the company is not legally required to disclose information, where can a researcher turn?
Private company data, specifically financial detail, is needed by organisations for a variety of purposes. In the following case study using Cargill, the largest private company in the U.S. some common real-world scenarios are used to illustrate how private company data can be acquired and used.
Founded in 1865, Cargill is a $119.5 billion Minneapolis, Minnesota based company that produces and markets food, agricultural, financial, and industrial products and services. This includes animal nutrition and feed, ingredients, and pet food to commercial producers; trading and processing of commodities, such as grains and oilseeds, cotton, sugar, and steel/ferrous; farmer services, such as grain marketing, crop protection and inputs, agronomy advisory, specialty growing programs, and silo management; and energy trading, and risk and supply chain management services for power, natural gas, coal, emissions/carbon, and petroleum markets. Cargill has location, branches and subsidiaries worldwide, and employs 142,000 people in 66 countries.
Mergers and Acquisitions
One of the most common reasons that a company would need private company data is for the merger or acquisition process. Companies often need to acquire in order to expand markets, diversify services or simply stay competitive.
Cargill was involved in approximately 35 mergers or acquisitions in 2011, as both seller and buyer. In May 2011, they acquired Dutch private company Koninklijke Nedalco B.V., a developer, producer, and seller of natural ethanol for food, non-food, and fuel sectors in the Netherlands and internationally. The due diligence prior to this decision could have involved a deep study of Koninklijke Nedalco’s current and historical financials. This would have been necessary to both set the acquisition price, as well as reveal any red flags that may have had an effect on the actual deal. Since Koninklijke Nedalco was a subsidiary of Royal Cosun, Cargill’s due diligence team could have independently used the Trade Registry of the Chamber of Commerce of the Netherlands to get information about both the parent company’s financial health, as well as several company reports on Koninklijke Nedalco, all for a maximum €9.00.
International Supply Chain
Volatile world economies heighten the risk that long time suppliers may collapse, or potential suppliers may not be the best choice. It is vital that companies undertake supply chain risk assessment in order to monitor for the possibility that a crucial supplier may be in financial trouble, and to take the steps necessary to offset any problems this may cause. A review of the current and historical financial indicators becomes a very important step in this process.
Cargill’s list of international suppliers is extensive. From agricultural products to marine shipping and banking, the company’s partners number in the hundreds. Yet, just one failure within the supply chain can start a domino effect that can have long term implications to Cargill’s workflow. Keeping on top of their supply partners business condition, as well as having the information to accurately estimate the financial condition of a potential partnering opportunity is a critical part of Cargill’s ongoing due diligence.
In February of 2011, Cargill signed an agreement with SkySails GmbH & Co. KG (SkySails) of Hamburg, Germany, to use wind power technology in their shipping. SkySails has developed innovative, patented technology that uses a kite which flies ahead of the vessel and generates enough propulsion to reduce consumption of bunker fuel by up to 35 percent in ideal sailing conditions. The various districts that private company SkySails is registered in is available via theCommon Register Portal of the German Federal States. Calls to these district offices may produce some information. German private companies, though required to file company accounts, have been historically reticent to do so and there is often not much retribution for not filing. However, a search of the Federal Gazette, which is an online archival system of company reports, does show a number of reports filed and available for SkySails through year-end 2010 that would prove helpful to Cargill.
Also, Cargill has several subsidiary locations in Europe that deal with both local and international suppliers:
Cargill Netherlands: Cargill’s trading office sources locally grown grains and soft seeds from European suppliers and farmers, both for European processing plants and for export to grain markets outside Europe, particularly the Middle East and Africa.
Cargill at Witham St Hughs, UK: The UK commercial divisions of Cargill’s European refined oils and grain and oilseed supply chain businesses are located here. This site is also the base for IT and Finance functions, including the European Financial Services Centre which processes financial transactions for many European businesses.
AKV Langholt (Andelskartoffelmelsfabrikken Vendsyssel) is a Danish manufacturer of Potato Starch. AKV Langholt operates a Joint Venture with Cargill for the production of modified potato starch for non food applications.
Subsidiary and Operating Units
Setting up a subsidiary in another country comes with many issues to address. Foremost among those the company classification. This is dictated by the available structures within the country. For example, an overseas subsidiary established in the UK is often classified as a limited liability company whose shares are wholly owned by the overseas parent. However, that subsidiary is subject to the taxes and laws of the country in which it is set-up, no matter where the parent company resides. It would then be helpful to study comparable private companies that have set-up subsidiaries in the country, and to understand how that subsidiary’s financials must be kept and reported, and in what form.
The number of Cargill subsidiaries or operating units numbers well above 200. Almost every country in Western Europe hosts at least one Cargill subsidiary, including Italy, Spain, and France and the UK. In the Netherlands, Cargill operates several subsidiaries, including Seara Food Europe Holding B.V. A “BV” is a private company with limited liability, much like the LLC in the United States, the Ltd in the UK, or the GmbH in Germany. Company records are still required to be filed with the Netherlands Chamber of Commerce Trade Registry for Seara Food, even though a subsidiary of a private U.S. company. As a matter of fact, Cargill B.V. in the Netherlands is one of Cargill’s largest subsidiaries with over 2,000 employees and the major distributor in Europe. This subsidiary also has several company records filed with the Trade Registry, and reports over $8 billion in revenue.
The availability of private company information can also be a detriment to companies, possibly revealing strategies they would rather keep hidden. Though not a private company, Google recently made the news when its tax structure strategy was discovered via the public’s access to its UK subsidiary company accounts. Its international corporate structure is such that the company was able to avoid paying UK corporate taxes. By studying Google UK Limited’s accounts, it was determined that none of the search engine's advertising revenues from British customers were accounted for in the business, despite operations in London and Manchester. Instead, its main operation was listed as "the provision of marketing services to Google Ireland Limited and the provision of research and development services to [US parent company] Google Inc.” Google was deferring revenues from customers in Britain, to another Google subsidiary in Ireland, where the corporate tax rate is much lower. Google is not the only company taking part in this strategy, or scheme as some would say. Many multinational companies with intellectual property transfer revenues to their subsidiary in a country with the most advantageous tax structures. There are many “anti-avoidance” proponents in the UK, as one could imagine, which do not agree with this practice. Google, of course, retorted that they employ 800 in the UK and pay enough in other taxes. So whether one agrees or not, this is an example of the transparency afforded to the public with access to either a private or public companies financial accounts.
Strategic Alliances and Joint Ventures
Many companies seek to expand their market or capabilities by teaming up with another company that either complements or supplements their products and services. If the partner is in another country, the differences in culture and business structure must be understood.
In 2008, Cargill opened a €65-million rapeseed crush plant in the port of Montoir in western France. This was part of a joint-venture with Sofiprotéol SA, which manages sustainable investment funds intended to support the development of businesses. A full record of Sofiprotéol’s financial statement through year-end 2010 is available at Les Greffes des Tribunaux de Commerce for €9.33. A complete report of all filed reports is available here as well. An over view of a potential joint venture or alliance partner’s financial record in the earliest preliminary or interest stage can quickly determine the direction the deal may go, and save a tremendous amount of time and money.
In all financial diligence, the researcher must take into account that the data reported, and the various formats represented, pertain to each jurisdiction’s particular regulations and timing requirements. Also, due to the different formats and detail required for reporting, there is sometimes a great deal of effort needed by the researcher to be able to truly compare the data and come to useful conclusions. Unless the researcher understands how Dutch accounts are filed, she can't understand how to make sense of the data in them. There are a couple of solutions to this issue:
Become very familiar with the jurisdictions from which the researcher plans to extract data
Use a subscription- based service that specialises in the “normalisation” of information. This enables the researcher to make true comparisons based on data that fits into like categories, as opposed to purchasing single reports from various jurisdictions.
As the cases illustrate, the business reasons to access private company data are numerous. The fact that there is data publically available for many Western European and UK based headquarters and subsidiaries will give a head start to any diligence project. That many countries in Western Europe make access to filed accounts a simple process can both encourage and expedite the flow of business. The transparency of company records means that deals may get done more quickly, or not started at all. Either way, time and money can be saved.
- Private company information outside the U.S.: Western Europe, UK and Ireland
Monday, 18th June 2012
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