SoftBank will get a majority stake in Katerra with a $ 200 million ransom

SoftBank’s new investment will allow Katerra to avoid having to seek bank protection, according to Katerra chief executive Paal Kibsgaard. The company needed SoftBank’s latest investment “to continue as an ongoing company,” it said in a notice to shareholders about Wednesday’s meeting.

As part of the financing package, SoftBank-backed financial services company Greensill Capital agreed to cancel about $ 435 million in Katerra debt in exchange for an approximately 5% stake in the company, he said. Kibsgaard in an interview this Wednesday.

Founded in 2015, Katerra has been trying to compete with established builders by assembling building parts in factories and offering services such as plumbing and architecture under one roof.

But some of the company’s projects were hit by delays and overcosts, while its aggressive growth strategy and high debt burden exhausted its cash reserves. The Covid-19 pandemic, which delayed construction projects in some cities, added another challenge.

SoftBank, the world’s largest technology investor, was one of Katerra’s first sponsors. The bailout is the second time this year that SoftBank has increased its investment in the firm. In May, when the Katerra council approved Mr. Kibsgaard for being CEO, the startup secured an additional $ 200 million investment from SoftBank.

Katerra initially thought the money was enough, Kibsgaard said in the interview, but later realized a more serious restructuring was needed. Kibsgaard, former head of oil services firm Schlumberger Ltd., was hired as general manager with a mandate to fix the company’s finances.

Kibsgaard said in the interview that before becoming CEO, the company discovered financial practices that were not in line with generally accepted accounting principles and began an investigation. The investigation led to the dismissal of people, he said. The irregularities were not significant and did not force the company to reaffirm its results, he said.

In a statement, SoftBank said Kibsgaard “addressed several operational inefficiencies and improved Katerra’s financial trajectory” and remained “committed to the company’s long-term vision and believes the current leadership team has the ability to make that vision a reality. “

Katerra expanded aggressively by acquiring other construction companies and building factories in several cities. Michael Marks, co-founder of Katerra, who served as CEO before Kibsgaard, said in a February 2019 interview that the company expected “cash flow to be neutral by the end of this year.”

In a statement Wednesday, Mr Marks said: “I have a lot of respect for the support we got from SoftBank and I wish them the absolute best and hope it can be useful.”

Kibsgaard said the company took on too many parallel projects and businesses in its early years. “I think we have underestimated the complexity of running large-scale self-production projects, including manufacturing and sourcing materials and managing our own work,” he said.

The company made major job cuts in the United States and plans to end unprofitable subsidiaries and get rid of some of its leases, Kibsgaard said. He said Katerra is on track to earn between $ 1.5 billion and $ 2 billion in revenue this year and expects to see a positive cash flow in 2022.

SoftBank, best known for its $ 100 million Vision Fund, has experienced several high-profile failures. In October 2019, the investment firm agreed to provide a lifeline to WeWork after a failed initial public offering left the office-sharing company in danger of running out of money.

But overall, 2020 has been a good year for SoftBank. It has made several successful investments and its shares have risen more than 50% this year.

—Eliot Brown contributed to this article.

Write to Konrad Putzier to [email protected]