Why should a company consider M&A? Companies look to M&A to enhance financial returns through either the generation of synergies (either cost or revenues), or to expand or alter strategic focus into new market or new technologies
• • ENHANCED FINANCIAL RETURNS
• •
• NEW STRATEGIC FOCUS
• •
No fundamental change to business model Financial / operational benefits derived from combination of assets Ø Revenue synergies typically come from cross selling Ø Cost synergies derived from removing duplicative operations (particularly if high fixed costs base) Accelerates growth relative to organic profile Can be to prevent a competitor obtaining a strategic benefit
Fundamental change to existing business through acquisition of new technologies or entry into new markets New tech. can enable a company to remain or move into the most attractive part of the value-chain New markets can also increase company performance but are differentiated by the benefits of the portfolio effect
CoachingAssembly. All rights reserved. Any unauthorised copying, duplication, reproduction, re-selling, distribution or other commercial use will constitute an infringement of copyright
1
What different types of M&A are there? DECRIPTION
BOLT-ON
SIGNIFICANT EXPANSION
STEP-OUT
MERGER
JOINTVENTURE
BENEFITS / CONCERNS
• • •
Size of target small compared to acquirer Target will be fully integrated Overlap or complementary business
• •
Limited financial risk No disruption to existing business
• •
Material deal with real integration risks Complementary / expansion along value chain / a new leg (new market)
• • •
Significant synergies Can change acquirer profile Financial / execution risks
•
Acquisition outside current areas of operations Often material deal relative to size of acquirer
•
Can be defensive move against market trends
•
Significant repositioning in the market place vs. competitors (size & offering)
• • •
Objective not achievable alone Usually backed by strong synergy case Exit mechanism need care consideration
• • • •
Similar sized companies / low premium Combined ownership control Synergies
•
Arrangement of parties contributing assets or equity Both parties involved in the economics and governance
•
CoachingAssembly. All rights reserved. Any unauthorised copying, duplication, reproduction, re-selling, distribution or other commercial use will constitute an infringement of copyright
2
How to successfully undertake M&A
RIGOROUS DEAL IDENTIFICATION PROCESS
GET THE NEGOTIATION TACTICS RIGHT AND CLOSE OUT QUICKLY
FORM CLEAR VIEW ON STRATEGIC VALUE
CORRECTLY STRUCTURE THE DEAL
DETAILE DUE DILIGENCE PROCESS FOCUSING ON SALIENT POINTS
IMPLEMENT INTEGRATION PLAN FROM DAY ONE
ENSURE CLEAR INTEGRATION PLAN BEFORE SIGNING
COMMUNICATE CLEARLY WITH ALL STAKEHOLDERS
CoachingAssembly. All rights reserved. Any unauthorised copying, duplication, reproduction, re-selling, distribution or other commercial use will constitute an infringement of copyright
3
Typical execution issues
INTEGRATION
LEGACY LIABILITIES
OVERSTRETCHING
TAX ISSUES
MISSING DUE DILIGENCE
COMMMUNICATION WITH THE SELLER
SYNERGIES
MARKET COMMUNICATION
CoachingAssembly. All rights reserved. Any unauthorised copying, duplication, reproduction, re-selling, distribution or other commercial use will constitute an infringement of copyright
4
How do different stakeholders think about M&A?
SHAREHOLDERS AND ANALYSTS
CUSTOMERS & SUPPLIERS
BOARD & MGMT
POLITICAL & REGULATORY
EMPLOYEES & UNIONS
PRESS
CoachingAssembly. All rights reserved. Any unauthorised copying, duplication, reproduction, re-selling, distribution or other commercial use will constitute an infringement of copyright
5
The market’s typical questions to the board and mgmt
STRATEGIC RATIONALE
VALUATION
FINANCIAL RATIONALE
FINANCIAL CAPACITY
SYNERGIES AND INTEGRATION RISKS
CoachingAssembly. All rights reserved. Any unauthorised copying, duplication, reproduction, re-selling, distribution or other commercial use will constitute an infringement of copyright
6