International Competitiveness in M&A

©COPYRIGHT 2012. KEN SMITH. ALL RIGHTS RESERVED 1
Firmex Webinar Series
March 20th, 2012
1:00 p.m. to 2:00 p.m.
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media@firmex.com
Ken Smith
Author & Associate Dean, Executive Programs
University of Guelph
MacKinnon Building, Suite 800
University of Guelph, Guelph, ON N1G 2W1
519-824-4120 ext. 52346
kensmith@uoguelph.ca
International Competitiveness in M&A
@Firmex, #FirmexWebinar

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Ken Smith
Ken Smith is a professor of business and a strategy consultant. He has practiced as a strategy
consultant for over 25 years, beginning with McKinsey & Company and later with SECOR
Consulting, Canada’s leading international strategy consultancy, where he has been a Managing
Partner and Chair of the Board. He is now Associate Dean of Executive Education at the
University of Guelph and continues consulting part-time.
Ken’s client work and research interests are focused on business and public policy issues related
to industry restructuring and international development. He published several articles relating to
the corporate governance and public policy issues associated with global industry restructuring,
including his article “Losing (Ownership) Control” in the Harvard Business Review. Earlier, he
developed the first shareholder value-based metric of merger success and introduced the
application of real options to acquisitions in restructuring industries. Much of this work is included
in his new book “The Art of M&A Strategy” with Alexandra Reed Lajoux, McGraw Hill, New York,
2012.
Most recently, Ken has initiated a program of research and education applying this business and
public policy background to issues of hunger and poverty. In collaboration with major international
NGO’s and corporate partners, this work is aimed at understanding those problems in food
industry development in developing countries that may be resolved with new business solutions.
Ken is also active in corporate governance. He is a director of ACCERTA, the Mergers &
Acquisitions Leadership Council. He is also the past-Chair of the Ontario Chapter of the Institute of
Corporate Directors (ICD). Ken holds a B.Sc. in Mathematics from York University, and an M. Sc.
and Ph.D. in Mathematics and an MBA from the University of Toronto. He is also an accredited
director with an ICD.D from the Institute of Corporate Directors.

Losing (Ownership) Control

Undertook research to answer four questions:
1. Are Canadian & US companies competitive in M&A
internationally?
2. What is the impact of increased international M&A activity?
3. Should Canada & the US be more ambitious outside of
North America?
4. Are corporations playing on a level field?

Losing Control

Cross-Border Transactions
Change of Ownership Control
(Top 10 Buyers and Sellers, Total Value of Deals >US$1billion, 2000-2009)
NetOutbound-Inbound(USDmillions)
Source: Bloomberg, SECOR analysis
Notes: Pending deals are for 2009 only,
INT includes deals with multiple
acquirers
-400,000
-300,000
-200,000
-100,000
0
100,000
200,000
300,000
400,000
FRANCE
INT
SPAIN
SW
ITZERLAND
BELG
IUM
G
ERM
ANY
JAPAN
U
AE
CHINA
LU
XEM
BO
URG
AUSTRIA
U
KRAIN
E
CZECH
C
HILE
DENM
ARK
TURKEY
NETHER
LANDS
C
ANADA
BR
ITAIN
U
NITED
STATES

Canada Deal Flow
-47,274
-16,619
372
16,255
6,438
-18,170
-47,056
-53,860
-13,985
4,594
-75,000
-50,000
-25,000
0
25,000
0
25,000
50,000
75,000
100,000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Inbound Outbound
CDN Cross-Border Deal Flow
(Total Value of Deals >US$100million, 2000-2009)
TotalValue(USDmillions)

US Deal Flow
-162,561
-4,458
-15,405
26,093 12,747
-25,657
-18,256
-72,480
-90,277
-9,874
-200,000
-150,000
-100,000
-50,000
0
50,000
0
50,000
100,000
150,000
200,000
250,000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Inbound Outbound Net Deal Flow
US Cross-Border Deal Flow
(Total Value of Deals >US$1billion, 2000-2009)
TotalValue(USDmillions)

Deal Flow vs US/Euro exchange
-162,561
-4,458
-15,405
26,093
12,747
-25,657
-18,256
-72,480
-90,277
-9,874
0.991
1.0611.106
0.957
0.794 0.740
0.846
0.754
0.681 0.721
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
2.0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
-200,000
-150,000
-100,000
-50,000
0
50,000Net Deal Flow Exchange Rate
US Deal Flow v. USD
EurotoUSD

Price Premium vs. Acquiring Firms’
Three-Year Performance
*Price paid per share versus stock trading price 3 months prior to announcement.
Source:Bloomberg, SDC, FP Datagroup

Canada Cross-Border ActivityNetOutbound-Inbound(USDmillions)
-50,000
-25,000
0
25,000
50,000
UNITED
STATES
FRANCE BRITAIN SWITZER
LAND
BRAZIL UAE CHINA NETHER
LANDS
AUS TRALIA INT
CDN Cross Border Acquisitions by Country
(Top 10 partners by cumulative value of inbound deals, Net Value of Deals >US$100million, 2000-
2009)
Outbound
121,353.63
7,550.63 8,477.93 2,500.00 2,313.79 - - 405.33 17,072.85 -
Inbound
133,120.57
54,642.51 53,127.04 21,245.27 17,617.72 12,989.17 8,167.33 6,813.29 6,451.33 6,059.51
Source: Bloomberg, SECOR
analysis
INT includes deals with multiple
acquirers

US Cross-Border ActivityNetOutbound-Inbound(USDmillions)
-50,000
-25,000
0
25,000
50,000
BRITAIN CANADA SWITZER
LAND
NETHER
LANDS
BELGIUM GER MANY FRANCE SPAIN JAPAN BERMUDA
US Cross Border Acquisitions by Country
(Top 10 partners by cumulative value of inbound deals, Net Value of Deals >US$1billion, 2000-2009)
Outbound
156,732.49 133,120.57
9,512.38 39,865.38 2,618.22 59,785.51 29,457.52 5,520.19 24,490.82 -
Inbound
165,397.46 121,353.63
95,274.48 67,486.44 67,162.09 63,991.42 59,122.65 40,020.86 38,082.96 36,880.10

Missed Opportunity or Risky Business?

Deal Flow by Sector – Canada
-75,000
-50,000
-25,000
0
25,000
50,000
Basic
Materials
Commu
nications
Con sumer
Cyclical
Con sumer
Non-cyclical
Diver sified Energy Financial Govern
ment
Industrial Tech nology Utilities N/A
CDN Acquisitions by Industry Sector
(Total Value of Deals >US$100million, 2000-2009)

Deal Flow by Sector – US
-180,000
-150,000
-120,000
-90,000
-60,000
-30,000
0
30,000
60,000
Basic MaterialsComm unicationsCon sumer, CyclicalCon sumer, Non-cyclicalDivers ified Energy Financial Industrial Tech nology Utilities N/A
US Acquisitions by Industry Sector

Economic Impact of Net Loss
of Control
At a company
level
■ Loss of
headquarter
jobs
■ Professional
services
At an industry
level
■ Loss of
consolidators
■ Weakening of
industry
clusters
At a community/
country level
■ Loss of
community
leaders &
donations
■ Reduced
attractiveness
as a financial
center
1
2
3

“... could have been a contender”

Cross-border deal volume
2000 – 2010

M&A Value Creation – Canada
60.0%
68.0%
54.5%
Domestic Continental Overseas
Percent Successful
(Canada 3 YR Post Deal Acquisition Performance Relative to
Industry Indices 2000-2009)

U.S. Deal Performance
45.3% 44.8% 44.0%
Percent Successful
(US 3 YR Post Deal Acquisition Performance Relative to Industry
Indices 2000-2009)

Key messages

Value Creation in M&A
3. Manage to Completion
• Accelerate transition
and act on strategic
potential
1. Focus on Deal Logic
• Identify path to
long-term
strategic value
2. Align Organization
and Culture
• Integrate
structure,
process, systems
and culture
CEOs: Improve Deal Performance
(esp. US Companies)

1.4066 1.2674
1.1449
Average Return
(CDN 3 YR Relative to Industry Indices, Total
Value of Deals >US$1billion, 2000-2009)
Boards: Take the Long View –
Buyers are Creating Value
1.1650
1.1998 1.3456
Average Return
(EU 3 YR Relative to Industry Indices, Total
Value of Deals >US$1billion, 2000-2009)

Policy Makers: Level the
Playing Field
• Drive market opening, but don’t take a long lead
• Ensure domestic regulation (competition
policy, securities law, . . .) is designed in
international context
• Support global growth

For discussion:
Canadian and US companies are not competitive in
International M&A
■ Why not?
■ What should be done?
■ What are the roles of:
 Business leaders
 Boards
 Regulators?

Questions & Answers

The Art of M&A Strategy
by Kenneth Smith and Alexandra Reed Lajoux
Rapid globalization, technological advances, and dramatic
changes in public policy have made industry restructuring
the “new normal.” In order to compete, M&A must be part
of your overall business strategy.
Written by practicing experts in the field of mergers,
acquisitions, and divestitures, The Art of M&A series of
professional guides is the number-one resource for
anyone seeking practical, hands-on advice for planning
for and executing successful deals.
Now, The Art of M&A Strategy breaks new ground by
providing the tools and techniques to design a business
strategy using M&A as a key element. It takes you
through all the steps for making optimum use of M&A for
corporate success.

Book Winners!
• Shane Handsaeme, Athabasca Oil Sands Corp
• Sebastian Storfner, Corporate Finance Partners
• John Henberger, Henberger Group Inc
• Jim Jeffries, M&A Leadership Council
• Phillip McGoohan, Oak Hill Business Partners
Congratulations! We will be following up shortly
to get your mailing address.

Thank You
Our next webinar is April 17th, 1pm Eastern
Trends in Technology M&A
with a review of overall Q1 Activity
Featuring Cyrus Lam, Managing Director, KMPG New York.
www.Firmex.com/company/events
Today’s Recorded Webinar, Slides will be made available in a follow-up
email shortly.

Appendix

0
2
4
6
8
10
12
14
16
18
0 0.55 0.65 0.75 0.85 0.95 1.05 1.15 1.25 1.35 1.45 >1.5
Three-Year Total Return Relative to Industry Index
Success of US Deals in the 1990s
Mean = 0.99
 = 0.30
>1 = 44.3%
Source:Bloomberg, SDC, FP Datagroup

Investment banks with >5 $1 billion deals (listed
alphabetically)
Performance by Advisor for Major US Acquisitions
Acquirer Total Return vs. Industry (%)
Bank of America
Chase Manhattan
CIBC
Citi
Credit Suisse
Deutshe Bank
Donaldson Lufkin*
Dresdner Kleinwort**
Evercore Partner
Goldman Sachs
JP Morgan
Lazard
Merrill Lynch
Morgan Stanley
Thomas Weisel
UBS
Wachovia***
*Acquired by Credit Suisse in 2000, but still uses the Donaldson
brand name
**Rebranded under Commerzbank in September 2009
***Absorbed by Wells Fargo during recent recession
16% 14% 14% 13%
10%
1% 1% 1%
-3% -4% -5%
-8%
-25%-26%
-35%

International Competitiveness in M&A

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