Summary Mergers, acquisitions and corporate restructuring

PRELIMINARY EVALUATION

What is a Management Presentation? 33

The management presentation is key to maintaining and preferably enhancing the interest shown by a purchaser

following a review of the information memorandum.

Key guidelines for the preparation of a management presentation include:

 the key selling points contained in the information memorandum should be repeated and reinforced;

 do not assume purchasers have always read the information memorandum. Accordingly key factual information on

the business should also be repeated. If nothing else this provides a framework for the asking of appropriate

questions by the purchaser; and

 the presentation should be made as bespoke as possible for each purchaser especially in the context of trade

buyers. Particular attractions of the business to each purchaser such as cost savings, product fit and customer

synergies should be highlighted.

Due diligence

Objectives/results of a due diligence process:

Due diligence project organisation

Corporate Finance / Lead Advisor: Co-ordination of process and lead in negotiations:

Due diligence performed by buyer/its advisors  Pension funds and trusts

 Bonus programs and social contributions

Legal Due Diligence  Incentive schemes for management, employee

 Litigations and law cases

 Liabilities, warranty claims stock ownership plan (ESOP)

 Expense reimbursement policy

 Licenses, patents, trademarks

 Relevant contracts and agreements Financial Due Diligence

 Competition law  Illustration of „Key Value Drivers“

 Competition law matters  Analysis of balance sheet

 Actuarial matters  Analysis of Profit and loss statements

 Analysis of budget and business plan projections

 Investment plans

 Cash flow analysis

 Correspondence with auditors (e.g. management

letters)

Human Resources Tax Due Diligence & Transaction Structure

 Organisational chart and key People  Fiscal assessments in the past

 Track record / qualifications of the management  Deferred taxes

 Constitution of workforce (Age, qualification/skills,  Fiscal optimisation of transaction structure

assignments)  Dividend policy

 Agreements with trade union. (e.g. collective  Double taxation

bargaining agreements)

 Working conditions, work ethics, attractiveness of IT / MIS

 Internal controlling, Management information

employer

 Employment situation system (Frequency, expediency, automation)

 Quality of IT

 Compatibility

Pension and other benefits 34

 

Licenses Capital expenditures in the past

 

Proprietary developments Analysis of current service level agreements.

Technical Due Diligence

 Product pipeline Real Estate

 Innovations, research & development  Rate of utilisation

 Quality of products  Required space

 R&D expenditures  Locations

 Success in R&D (efficiency)  Market value of properties

 Protection of intellectual property  Development and expansion plans

 Lifecycle of products Environmental Due Diligence

 Quality control  Exposure to toxic elements

Operational Due Diligence  Medical risks

 Plants and facilities  Waste management

 Production processes  Production restraints

 Inventory and purchase  Old environmental damages, contaminations

 Supply management  Claims from environmental issues

 Working capital management Treasury & Risk Management

Market Due Diligence  Insurances

 Product margins  Currency risks

 Market environment, competitors  Cash management

 Customers and suppliers  Dunning process, trade receivables, doubtful debts

 Market size and market share  Credit facilities and financing structure

 Market/growth potential

 Scalability of production

 Commercial due diligence.

Investment professionals at the center of a complex transaction process

Managing due diligence:

 Business (commercial) diligence:

 Industry attractiveness Other responsibilities

 Competitive situation  Buyout fund partners/ investment committee

 Target strength and stability  Selling the deal

 Exit paths  Selling agent/bank

 Business plan  Auction/transaction process

 Legal  Data requests/data rooms

 Pending litigation diligence - Legal landmines  Legal counsel (own, seller’s)

 Accounting diligence  Negotiation, transaction contracts

 Audit - Accounting landmines  Target’s management

 Environmental diligence  Building relationships

 Environmental liability  Data requests/interviews

 Asset appraisal  Funding sources/ lenders

 Value of assets - Real estate - PP&E  Securing financing - Selling the deal

What is a Data Room?

 The objective of the data room is to ensure that final offers are made on the basis of full disclosure of all relevant

information.

 A data room should contain all key financial, commercial and legal information on the company including detailed

management accounts, copies of all contracts, particulars of all employees and properties and where appropriate,

a vendor due diligence report.

 The data room is typically provided to purchasers in an on-line format via a secure, third party on-line data room

provider with password protected internet access. The major advantage of an on-line data room is that it is

accessible simultaneously by multiple users. This makes the due diligence process much more efficient especially

where there are a number of overseas acquirers involved. An on-line data room also provides valuable feedback

to you in terms of the information on which respective purchasers have focused, the number of representatives of

the purchaser who have viewed the data room and the amount of time they have spent reviewing the contents.

This information provides you with an indication of the appetite of individual purchasers to do a deal and any areas

of particular concern or interest.

Exercise

15 = money they give

24, 2 = equity 

15 / 24,2 = 62 % of the shares not good because they will become the majority holding control

15 / (24,2 + 10 (equity injected)) = 43.9 % of the shares

 Dilution effect (lower percentage with the equity injection)

What is a Due Diligence check list? Example on slides.

What drives the transaction value?

What is a Termsheet and a SPA? Example on slides. A transaction with proper preparation generally leads to a lower

number of submitted initial offers, but to a higher final transaction value False.

LECTURE 10

STRATEGIC ALLIANCES AS AN ALTERNATIVE TO M&A

Business alliances (as are M&As) are vehicles for implementing business strategies. They are not themselves

business strategies. Business alliances may be informal agreements or highly complex legal structures.

When the relative strategic importance of a possible alliance is low for one partner and high for another, the partner for

whom the alliance is more important may aim to limit its partnership with the other partner to specific opportunities.

Alternative forms of business alliances (including legal and informal relationships):

– Joint ventures

– Strategic alliances

– Equity partnerships

– Licensing

– Franchising

– Network alliances

Motivations for Forming Alliances

 Risk sharing

Sharing proprietary knowledge

o Management skills and resources

o

 Gaining access to new markets

Using another firm’s distribution channels

o

 Globalization

Gaining access to foreign markets where laws prohibit 100% foreign ownership or where cultural

o differences are substantial (e.g., China)

 Cost reduction

Purchaser/supplier relationships (e.g., Fiat Group’s suppliers – see article)

o Joint Manufacturing (e.g., major city newspapers)

o

 Prelude to acquisition or exit

Business Alliance Critical Success Factor

 Measureable Synergy (e.g., economies of scale/scope; access to new products, distribution channels, and

proprietary know-how)

 Risk reduction (e.g., Verizon and Vodafone share network costs to form Verizon Wireless)

 Cooperation (e.g, MCIWorldcom and Telefonica de Espana)

− Greatest when partners share similar cultures

 Clarity of purpose, roles, and responsibilities

 Win-win situation

 Compatible time frames for partners

 Support from the top

 Similar financial expectations

What drives the need for alliances? The Fiat-Chrysler suppliers case

Un piede in Europa e un altro in Nord America. E poi ancora una presenza in America Latina e – almeno – un'altra in

Cina, destinata a consolidare la posizione di primo mercato mondiale dell'auto. In pratica, un profilo globale. È quello

che Fiat-Chrysler chiederà d'ora in avanti ai suoi fornitori: sul piatto «ci sono 85 miliardi di dollari all'anno», annuncia il

responsabile acquisti del Lingotto e vice presidente dell'Unione industriale di Torino, Gianni Coda; ma in cambio

«chiederemo alla nostra supply chain una presenza flessibile e competitiva in tutti i mercati».

Il manager in questi mesi è impegnato in prima persona nel processo che porterà a unificare il parco fornitori di Fiat e

quello di Chrysler; per la componentistica italiana, con le sue 2.200 imprese e i 45 miliardi di valore aggiunto,

l'operazione Fiat-Chrysler suona come un esame di maturità: «Noi siamo pronti a sostenere le imprese interessante

ad accompagnarci negli Stati Uniti», assicura Coda. … Ma la sfida è impegnativa: le due supply chain al momento

sono sovrapposte già al 50%, rappresentato in larga parte da quelle multinazionali della fornitura che lavorano per

tutte le principali case automobilistiche, dunque per le piccole e medie imprese italiane la partita si gioca sulla metà

che resta. … Una porta stretta, che però consentirà a chi la supera di voltare pagina: chi entra oggi nel parco fornitori

ha ottime chance, spiega l'ingegnere, di «rimanerci per tutta la durata del piano industriale, che prevede due cicli per

ogni piattaforma», vale a dire almeno 10-12 anni.

«Nonostante il momento sia delicato, vediamo segnali di fermento – dice ancora Coda –: la crisi ha accelerato i

processi di internazionalizzazione e di cooperazione tra le aziende». Al punto che ora anche l'America, da sempre una

meta problematica per l'automotive italiano, sembra più vicina: «Siamo noi i primi a segnalare ai nostri fornitori partner

ideali per joint venture, o aziende americane in difficoltà che meritano di essere acquisite», prosegue Coda. Che sfata

un luogo comune: «Le dimensioni, di per sé, non sono un problema. Tutto dipende dalla tipologia di prodotti che si

offre e dal know how: si può assumere un profilo globale anche senza es