M&A Acquisition Target Identification M&A Due Diligence
Š 2011 Sutherland Global Services Inc., All rights reserved. Privileged and confidential information of Sutherland Global Services Inc.
www.sutherlandglobal.com January 11, 2013
1
Acquisition Target Identification in the medical supplies industry in Canada Client • The client was one of the leading distributors of packaging and facility supplies, with operations primarily in the United States and Canada
Client Ask • The client wanted SGS to assist them in performing an attractiveness-assessment of three different segments, viz. safety supplies, medical supplies and wide format printing supplies and also help identify acquisition targets (distributors)
Sutherland’s Solution • • •
SGS undertook desk research to gain an in-depth understanding of each sub-segment and future potential in Canada SGS also conducted desk research to identify leading distributors in the industry and their financial and other related information SGS also conducted primary research with industry participants to validate the information gathered from desk research and to understand the trends prevailing in the market, and also undertook an extensive telephonic primary research with manufacturers, distributors, retailers and other industry experts • SGS also interviewed the top management in the target companies to study the company in detail and identify their willingness for the venture
•Benefits to the Client • Through SGS Research’s analysis covering the overview of the industry, market size, growth drivers, supply chain dynamics, major players and future outlook, the client was able to gauge the opportunity in the industry • The research also helped the client understand the practices followed in the distribution space in the industry in the country and understand prospects in the sector based on parameters such as distributor intensity, competition, margins and regulations • The client also benefitted from the comparison of short-listed target distributors on pre-defined parameters such as revenues, geographical operations, operational excellence and possible synergies, to explore target businesses
© 2011 Sutherland Global Services Inc., All rights reserved. Privileged and confidential information of Sutherland Global Services Inc.
www.sutherlandglobal.com January 11, 2013
2
Value Chain of Medical Supplies in Canada consists of 3-4 intermediaries
~25-30%
Group Purchasing Organization ~30-35%
~60-65%
National Wholesaler/ Distributor
Long-Term Care
~5%
Canadian Manufacturer
E N D
~10-15%
Company Specific Distributor
~95%
Foreign Manufacturer (Imports)
Hospitals
Regional/ Tier II Distributor
~5-10%
Manufacturer’s Sales Office
C U S T O M E R S
Laboratories
Medical Practitioners/ Physicians At Home (Retail) Customers
Pharmacists
XX% - % of medical supplies volume going through each channel , indicative from primary research, hence there could be a deviation of 5-10% Source: SGS Analysis, primary research
Š 2011 Sutherland Global Services Inc., All rights reserved. Privileged and confidential information of Sutherland Global Services Inc.
www.sutherlandglobal.com January 11, 2013
3
Operations of medical supplies distribution market New Manufacturer Medical Supply Distribution Process Local Manufacturer
Local Manuf. markets its products to distri.
U.S. Manufacturer
South Asian Manufacturer Distributor prefers manuf. sales office
Distributors markets itself usually to U.S. Manuf.
Opens up a sales Office in Canada
Prerequisite for a Medical Supplies Distributor to Operate in Canada • All distributors must have a valid license to distribute the medical supplies products. • Though the license is easy to obtain but it is mandatory for all distributors in the medical supplies industry • Each product that the distributor supplies has to meet through Health Canada regulation and has to comply to ISO 13485 • Distributors also have to abide by the regional rules and regulations. • Different provinces have varied regulations for the medical supplies. For e.g. Quebec, a French province has to have everything written in French on the medical supplies packages
Distributor
Distributor Pays the Import duties if orders are in bulk
Imports products from Manufacturers’ Country
Distributes to Health Institutions/ GPOs
Method of Distribution • Usually the end-customers order medical supplies on “On-Demand” basis with very short lead times. • Distribution depends on the order size and the distance of customer from the warehouse. • If customer is in regional periphery, then they get into an agreement wherein institution’s trucks/ vans carry distributor’s supplies and their logo and in return distributor gives them rebates/discounts • In farther regions, they use logistics companies such as FedEx, etc. based on their distribution contracts with them
Source: SGS Analysis, primary research
© 2011 Sutherland Global Services Inc., All rights reserved. Privileged and confidential information of Sutherland Global Services Inc.
www.sutherlandglobal.com January 11, 2013
4
Comparatively higher revenues along with geographical reach makes XX and XXX most attractive acquisition targets Acquisition Criteria
Target Companies
Geographic Presence
Size of the Company ON ON
QC QC
XX
√
XXX
√
XXXX
√
√
XXXXX
√
√
BCBC
ABAB
MN MN
√ √
Synergies with Client
NLNL
√
NSNS
Operational Excellence
Final Rating
Rating Rating
√
3.75 3.75
√
3.25 3.25
3.00 3.00
√
√
2.75 2.75
XXXXXX
√
2.25 2.25
XXXXXXX
√
2.00 2.00
Ratings Source: SGS Analysis
Low 1
Low- Medium Medium 2
3
Medium-High High 4
5
© 2011 Sutherland Global Services Inc., All rights reserved. Privileged and confidential information of Sutherland Global Services Inc.
www.sutherlandglobal.com January 11, 2013
5