Austria’s Kapsch TrafficCom surpassed its transformation goals and completed a critical debt restructuring with support from EY-Parthenon.
The better the question
Multiple challenges meant Kapsch TrafficCom had to reduce costs and restructure its debts fast.
Johann Kapsch laid the foundations of the Kapsch Group in 1892 when he set up a precision engineering workshop in Vienna, to build Morse telegraph devices and telephone equipment. Now headed by Georg Kapsch, the fourth generation to lead the family business, the organization has continuously adapted its offering to meet changing technologies and customer demands.
Today its subsidiary, Kapsch TrafficCom, is a global leader in technology solutions that keep traffic moving while protecting the environment. Its portfolio includes sophisticated electronic tolling systems and AI-powered intelligent transport management platforms that can predict congestion before it happens, allowing for a reduction in emissions and helping cities better plan traffic patterns. The business employs more than 4,000 people in over 25 countries and has implemented successful projects around the world.
As urbanization continues to rise, with more than two-thirds of the global population due to live in urban areas by 20501, demand for advanced systems like Kapsch TrafficCom’s – that keep transport moving, helping to increase productivity and ease air pollution – is set to escalate. However, in the early 2020s, Kapsch TrafficCom was itself in danger of grinding to a halt.
Despite delivering a 3% revenue increase to €520 million, following earlier reorganizations, and earnings before interest and taxes (EBIT) of €11 million in the 2021/22 financial year, the organization’s operations remained tailored to previous higher revenue levels. Project postponements driven by the COVID-19 pandemic, significant-order cancellations, high fixed costs and high leverage squeezed profits and cash flow and left the business struggling to service its debts.
Intense pressure from lenders required Kapsch TrafficCom to present a business strategy that would deliver greater efficiency and profitability. The CEO, Georg Kapsch, looked to external advisors for help. “After years of extremely strong growth, we realized that we needed to bundle and harmonize our many decentralized projects more effectively,” he says. Kapsch chose the EY-Parthenon team, led by Ben Trask, due to the immediate chemistry between the two teams and as a result of the effort they put into drafting a bespoke solution to his company’s challenges.
EY-Parthenon’s first step was to carry out an independent business review to assess Kapsch TrafficCom’s situation and outlook. This confirmed the company needed to make urgent strategic, operational and financing changes to generate positive earnings and meet its debt obligations.
EY-Parthenon worked closely with the management team to develop a performance improvement program that would both establish a basis for financial restructuring with creditors and also achieve the ambitious target of a €35 million improvement in EBIT within 12 months, through cost reductions and revenue growth initiatives.
This program, for which EY-Parthenon scrutinized every aspect of the business, included:
At the same time, EY-Parthenon teams advised Kapsch TrafficCom on financial restructuring, so the business could manage its debt obligations. They investigated two different avenues to improve the chance of a successful outcome. In addition to focusing on the preferred route of bank debt restructuring, they also pursued opportunities for refinancing, such as initiating new contracts for coming debt instruments and all-in debt refinancing of Kapsch TrafficCom’s whole capital structure.
As part of this complex procedure, the EY-Parthenon team supported the engagement and coordination of multiple creditors. Their transparent and collaborative approach helped build stakeholder confidence in the process. “We had regular contact with existing creditors to understand their perspectives and position,” Ben Trask, EY-Parthenon Partner, Turnaround and Restructuring, Ernst & Young Parthenon Management Consulting GmbH. “As we ran parallel refinancing processes, we also had frequent discussions with possible refinancing parties about a potential transaction. Regular dialogues with legal counsel and advisors on all sides was also essential.”2
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Read moreKapsch TrafficCom’s turnaround program far exceeded its initial transformation targets of €35 million. Within one year, the company delivered a remarkable €60 million EBIT improvement. This improvement is well above average in the industry. Comparable turnarounds typically achieve around half of this figure, making these results even more significant. In another milestone, with the EY-Parthenon team’s help, the company successfully agreed a debt restructuring with its existing lenders, bringing new money and capital structure stability to the business.
Regular honest communication – and mutual trust – between Kapsch TrafficCom and EY-Parthenon were fundamental to the dual success. “In our discussions with the management team we were never the ‘yes person’. We always sought to prioritize the company’s long-term interests, even if that meant disagreeing,” says Trask.
Georg Kapsch acknowledges the value of such honest and robust communication. “The customer may have the final decision but he is not always right. It is the advisor's role to challenge the client and convince them with well-founded arguments. This approach significantly advanced our collaboration with EY-Parthenon and led to our successful outcomes,” he says3.
In our discussions with the management team we were never the ‘yes person’. We always sought to prioritize the company’s long-term interests.
Failure to successfully restructure this business not only risked the loss of almost 4,000 jobs, but the closure of the business risked destabilizing the entire transportation technology sector in Europe. This would have resulted in a loss of specialized knowledge and could have caused significant economic ripple effects in the wider supply chain.
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