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CFO and Art Of Mergers and Acquisitions

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CFO and Art Of Mergers and Acquisitions

  1. 1. M&As CFO’ M&A : CFO’s and the art of M&A d th t f Sanjay Uppal Group Chief Financial Officer Emirates NBD 15 – 17 September 2008 The Grand Copthorne Waterfront Hotel Singapore
  2. 2. Introduction M&As as a corporate strategy Prospecting : Identifying targets Transaction Execution After the deal Ready to h R d t shop again? i ? 1
  3. 3. In spite of the current financial turmoil, global M&A deal volume remains strong compared to historic levels Year-on-year Value*, USD billions No. of deals Comments $2,644 $2 644 5,000 • Global M&A activity is still 2,500 strong – Deal volumes are still 4,000 significantly higher than those g y g 2,000 $1,857 $1,857 seen in 2005 $1,813 3,000 • Deals driven by operational rather than financial agenda 1,500 , $ , $1,427 2,000 – Private equity contribution has shrunk, with only 7% of deals 1,000 $955 $955 in H1 2008 accounted for by 1,000 Private Equity q y $602 $610 • Significant and very fast 500 0 growing contribution from 2000 2001 2002 2003 2004 2005 2006 2007 2008 emerging markets, particularly H1 H1 H1 H1 H1 H1 H1 H1 H1 China, China India & the GCC * Announced deals (not withdrawn), includes deals above $25 million only Source: Dealogic; McKinsey analysis 2
  4. 4. M&A activity in Asia – 2008 Despite turmoil in global financial markets, M&As in Asia expected to surpass record value of 2007 Approx US$ 300m worth of deals announced in Asia by August 2008 Total transactions in 2008 expected to exceed US$ 460m recorded in 2007 China, India & Singapore most active playgrounds for yg transactions 3
  5. 5. CFOs in global organizations are playing a larger role in shaping M&A strategy Example Description CFO directly • Business development team reporting to CFO drives M&A responsible for agenda and execution M&A strategy & execution • CFO, along with CEO & Head of Strategy responsible for g M&A agenda • CFO played a very strong role in the merger with Compaq • Corporate development group responsible for M&A activity & reports directly to CFO • Built strong in house transaction capabilities including valuation for smaller deals CFO plays • CFO key member of capital allocation committee, which indirect role shapes M&A strategy through shaping g p g strategy •I d Independent M&A department reporting directly to CEO d t d t t ti di tl t • CFO influences M&A activity through the Board Source: McKinsey proprietary survey 4
  6. 6. M&As make significant contributions to relative growth – but most acquisitions tend to destroy relative value A strong and well executed M&A strategy can . . . but most acquisitions fail to create value help companies realize growth . . . Explanatory power for differences in Improvement in share price from T – 2 years to company growth*, R², percent T + 2 years, adjusted for returns on MSCI World Index***, % Innovation** Market 23% growth Success 38% 39% 61% Failure 39% Inorganic activity * Based on the time series growth regression of 54 large companies across a broad range of sectors ** Remainder including disruptive innovation and noise in regression analysis *** Based on analysis around 1229 large deals executed before 2005 Source: SDC, Hoovers, Company reports, Analyst reports, McKinsey analysis 5
  7. 7. Key stages of an acquisition Pre-transaction Execution Process Post-transaction Target Transaction Post Corporate M&A identifica Launch merger Capability Execution building strategy strategy tion mgmt Process Success of the Transaction depends on success at every stage 6
  8. 8. Introduction M&As as a corporate strategy Prospecting : Identifying targets Transaction Execution After the deal Ready to h R d t shop again? i ? 7
  9. 9. Corporate Strategy : Key Dimensions • Vertical / Horizontal Organic expansion • Resource allocation • Exit strategy Divestit • Non-core ures businesses • Growth leap Acquisit • Vertical / Horizontal ions integration 8
  10. 10. M&A strategy integral to Corporate strategy Pre-transaction Valuation & Post-transaction synergies Due diligence Target Transaction Post Corporate M&A identifica Execution Launch merger Capability strategy strategy tion Process mgmt building Structuring- g Negotiation • Ability to use M&A successfully as growth route –Strong baseline p g performance –Distinctive capabilities to add value • Clear M&A strategy –Focused to achieve core corporate objectives 9
  11. 11. M&A as a corporate strategy M&A : As an effective corporate strategy Build vs. Buy : Striking the right balance Align acquisition parameters with corporate goals Leverage financial assets through M&A Prepare the foundation for a successful acquisition Pitfalls & rebalancing the risk-reward ratio 10
  12. 12. Motivations Cost-reducing & revenue enhancing synergies Diversification Strategic Focus : Horizontal & vertical integration Financial purchase Valuing considerations other than cash 11
  13. 13. Introduction M&As as a corporate strategy Prospecting : Identifying targets Transaction Execution After the deal Ready to h R d t shop again? i ? 12
  14. 14. Target identification : Bringing focus Pre-transaction Valuation & Post-transaction synergies Due diligence Target Transaction Post Corporate M&A identifica Execution Launch merger Capability strategy strategy tion Process mgmt building Structuring- g Negotiation • Clear target identification –Focused to achieve core corporate objectives • Know what you want 13
  15. 15. Target identification : A disciplined approach Corporate Aspiration Target : Fitment Criteria Affordability $$$ 14
  16. 16. Affordability Determine appetite Re-establish strategic perspective Set limits : CFO plays a key role Hurdle rates for IRR Time within which it should be accretive to EPS Financial di i li i f d Fi i l discipline is fundamental t l Acquisition financing : Never too early to plan Resist temptation to overstretch 15
  17. 17. Background check on potential targets Reputational due diligence Legal & regulatory risks Information gathering 16
  18. 18. Taking the next step Public vs. Private deal Making contact with target The initial proposal : Presenting the win-win offer 17
  19. 19. EmiratesNBD merger : Launch of the process 18
  20. 20. Introduction M&As as a corporate strategy Prospecting : Identifying targets Transaction Execution After the deal Ready to h R d t shop again? i ? 19
  21. 21. Executing the transaction Pre-transaction Post-transaction Transaction Target Execution Post Corporate M&A identifica Process Launch merger Capability strategy strategy tion t t t t mgmt building b ilding • Ability to execute deal successfully –Right deal team in place (with relevant skill sets & experience) • Good first hand understanding of key transaction principles –e.g. valuation : must be prepared to walk away if the price is too high 20
  22. 22. Deal Organization & Interested Parties o Equity & Debt Investors Shareholder o Analysts & Media s & other stakeholders o Suppliers / Customers S li C t o General Public o Securities Regulator Regulators o Business Regulator o Stock Exchange o Jurisdictions External Advisors o Lead Advisor o Fairness Opinion o Legal o Financial Fi i l Internal Deal Team o Board o Management o CFO o Core Deal Team 21
  23. 23. Due Diligence Assembling the acquisition team : Internal & external Understanding the motivation of the transaction Due diligence : Legal, Financial, Commercial, market surveys… Qualitative research on management team of target Analyze targets historical performance Anticipate dis-synergies (loss of customers, contracts, staff, etc) Tax i li ti T implications Special consideration to balance sheet items Review management projects & synergy benefits Identifying potential deal breakers 22
  24. 24. Valuation & Negotiations Components of price & price-value equation Comparables, Comparables currency & other considerations Making the offer Structuring the terms Tailor-make terms for each deal E.g. earn-outs, management retention, non- g , g , compete clause, restructuring 23
  25. 25. Communicating with all stakeholders . . . and articulated issues & our approach for d ti l t d i hf We developed our Stakeholder map. . . each stakeholder group Internal External Others Stake- Their Our Message Channels holders issues objective j Staff Shareholders General Public Shareholders Value Increase Safe / Press / Enhanced Website Transaction Customers Service/ Competitive Larger bank, Press / Boards Customers Advisors Ad i Pricing distribution.. Website UAE regulators Accountants Staff Job Security/ Attract and Better Intranet Career Retain best opportunities webcasts, Foreign Outlook talent in diversified newsletters regulators Legal Advisors organisation Analysts Regulators Transparency/ Compliance/ Other Advisors Meeting Blueprint Best Practice Media Ratings g agencies Suppliers 24
  26. 26. Communicating with staff 25
  27. 27. Multiple channels leveraged to ensure impact Outgoing communication Dialogue Channels / tools Channels/tools News Letters Steering committee meetings Press Releases Team meetings Media Interviews AGMs / EGMs E-Mails Shareholder dialogue Intranet Press Conferences Internet Press Interviews P I t i One-on-one meetings Informal Meetings Call Centres Intranet – “Ask the CEO” 26
  28. 28. Emirates NBD merger timeline 7 March March – June 12 July 5 Sept 17 Sept 16 Oct Merger Valuation / Legal / Merger EBI EGM Executive ENBD Announced Due Diligence / g Terms Committee Lists on Negotiations Announced Appointed DFM (Press conference) Trading Suspended Trading Suspended Trading Suspended (7-15 Oct) ( 13 March 2 July 1 Aug 6 Sept 26 Sept Joint Steering Merger Merger NBD EGM First Board committee terms Offer Meeting of established agreed launched ENBD 27
  29. 29. Introduction M&As as a corporate strategy Prospecting : Identifying targets Transaction Execution After the deal Ready to h R d t shop again? i ? 28
  30. 30. Realising the vision Valuation & synergies Due Pre-transaction diligence Post-transaction Transaction Execution Target Process Post Corporate M&A Structuring- Capability identifica Launch merger strategy strategy tion mgmt building Negotiation g Focus shifts to well executed post merger management Prioritization of high value & high risk areas Delivering the value 29
  31. 31. Making it work New B d N Brand Re-defining Vision, Mission & Values Organisation structures & model Delivering Synergies Analysts / Media communication Investor Relations HR policies p Integration : Plans & updates Financial Announcements Shareholders Team building Impact of external events ... 30
  32. 32. Integration Deriving expected value Dedicated team in place before transaction closes Plan, Plan, Plan Timing is critical Communication 31
  33. 33. Introduction M&As as a corporate strategy Prospecting : Identifying targets Transaction Execution After the deal Ready to h R d t shop again ? i 32
  34. 34. Till next time….. Each deal is a lesson – Improve your chances next time Make M&A part of corporate growth cycle Stay tuned to opportunities – Create opportunities ! Don’t hesitate to ask for help End is not concluding the transaction – it is delivering the value Never stop shopping ! 33

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