VLC Jones Day : Conduite et déroulement d'une opération d'acquisition en Australie. Réunion CCEF Australie.
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VLC Jones Day : Conduite et déroulement d'une opération d'acquisition en Australie.
1. Reunion des CCEF – section Australie
Mercredi 23 novembre, 2011
“Conduite et déroulement d‟une opération d‟acquisition en
Australie: example pratique”
2. Background
Asia Pacific is expected to be the most active M&A region in 2011 in the context of a
worldwide rebound of the activity
M&A forecasts
In which region do you expect most buyers to be based in the next 12 months? Key reasons for Australia M&A health
► Robust banking system
Asia Pacific 45% Big 4 Australian banks have filled the
gap left by foreign lenders
► Strong domestic corporate balance sheet
North America 22% ► „Australian‟ characteristics
Strong economy
Low political risks
Central Asia 13% Asian time zone
Anglo-Saxon culture
► Private equity still somehow active
Western Europe 7%
► Strong foreign interest
~40% of deal involved overseas bidders
South and
7% ► Great hunting grounds for Chinese buyers
Central America
(food & beverage, resources) and Japanese
companies (food and beverage)
Africa Chinese seek to secure supply source
3%
Middel East and leverage domestic market
Japanese seek growth outside of
declining domestic market and a
Other 3% benefit from a low cost of capital
Source: Bloomberg 2011 ,M&A outlook, poll over 1,000 financial market professionals
3. Background
Acquisitions are not necessarily the easy answer to growth particularly when
assessed in the context of value creation
Sensitivity of IRR to multiple paid and EBITDA growth
(%) Key facts about acquisitions
► 50-70% of acquisitions do not meet buyers
Theoretical
expectations:
Size and complexity of the operations
Price paid often too high
Low
► Most frequent reasons cited for failures
are:
Cultural fit
Unclear strategic goals
Bad process management
Acquisitions
Problems of integration after the
creating value
acquisition
Multiple ► Synergies can be a myth:
paid Commercial synergies are often
overrated
Difficulty of sharing competences
Acquisitions Synergies realised in year 1 are ~1.5x
destroying value more valuable than synergies realised in
year 3
► Value Line‟s experience on 54 due
High diligences:
27% were a no go due to poor value
Low EBITDA growth High creation prospects
Uncovering fundamental flows in
business plans
Source: Desktop research, VLC analysis and estimates
4. Background
Case study – Names, figures and dates have been disguised
A domestic alcoholic beverage manufacturer, owned by a private
The Target equity fund
A tight „auction process‟ run by a global investment bank
► 5 weeks for indicative offer, at the end of which a number
of parties were shortlisted – limited information available
The Process
► 4 weeks for final binding offer – access to data room;
limited management meetings and site visits
A foreign public global FMCG company
► No experience in the Target‟s segments
The Client ► Limited experience doing business in this region
5. Background
Due Diligence: “duty of a firm’s directors and officers to act prudently in evaluating
associated risk in all transactions”
F
Pre-bid Indicative bids Final bids Post merger
2-4 weeks ~5 weeks ~4 weeks integration
► Flyer ► Information memorandum ► Data Room / M&A ► Determine new
(very high level) (high level) ► Site visits organisational footprint
► Management presentation
► Develop combined P&L
► Line-up advisors Deal structuring
Debt package ► Assess synergies
► Layout key issues to explore in Due Diligence
► Develop integration plan
Financial Due Diligence
► Keep sight of the big picture:
► Manage key areas of the
Business fit? Operational Due Diligence transition (e.g. retention
plan, redundancies)
Geographic fit?
Product / channel fit? Offer negotiation
Cultural fit?
C Legal documentation mark up
B Legal Due Diligence
D Final negotiation/signing
A Commercial Due Diligence E Legal completion
Expression of interest Indicative bid Final Binding Settlement
Bid
Value Line Consulting Jones Day
6. A Commercial Due Diligence
Key question: can we believe Management
Underlying questions
forecast?
1 Are the markets in which the Target operates attractive?
► Size and growth by segment
► Key macro trends (e.g. consumer, regulations, industry
EBITDA structure)
► Key risks
Binding
bids due 2 How is the target positioned within the competitive
landscape?
CAGR
► Competitors‟ profiles and strategies
+26% CAGR ► Target positioning (share evolution, cost, capabilities)
Country A 250%
► Robustness of earnings
Country B 50%
3 Synergy and dis-synergies
-10.5 % CAGR ► Are there any to expect?
4 What are the realistic financial forecasts?
Our methodology
Domestic 12% ► 163 stakeholder interviews
Australia, NZ, USA, Canada, Asia
Domestic
Customers, consumers, competitors, industry
experts, regulators, suppliers,...
Visits of on-premise and off-premise venues
► In depth research and analysis
► Site visits, management meetings, Q&A process
► Commissioning of consumer research
Focus groups
2008(F) 2009(F) 2010(F) 2011(F) 2012(F) 2013(F) 2014(F)
Quantitative research
► Appointment of politics and PR specialised firm
7. A Commercial Due Diligence
Sources of
Management’s assumptions Value Line findings
value creation
► Market growth sustained ► Market growth 200-300 bps lower than
management
► Regulatory changes won‟t pass
Organic growth ► Regulatory changes will go ahead
► Regulations would have little effect anyway ► Severe impact of one of the proposed
regulations
► All new products will do a killing in retail ► A number of the new products are performing
New product poorly
► Significant on-premise opportunity
development ► On-premise „locked-in‟ by the majors
► Significant synergies ► No synergies
Operational ► Procurement and cost saving opportunities ► Most costs have been taken out by private
improvement equity owner
► Slow take-up of product α
Country A ► Rapid take-up of product α
► Product and brand β unknown
Growth ► Significant opportunity for product β
► Significant cost and distribution disadvantage
► Large, attractive market for Target ► Totally different market/product/consumer
Country B ► Significant cost disadvantage
growth
Value Line Consulting Management
8. B Legal Due Diligence
Legal Due Diligence
► Platform
Physical Data Room
Electronic Data room
► Scope
Business
Costs
Time
9. B Legal Due Diligence
Legal Due Diligence
► Traditional area of check
Corporate (registration and compliance)
Key contracts ( main provisions, terms, change of control)
Autorisation licences (intuitu personae, change of control)
Employment (Executive contract remuneration, staff entitlements)
Intellectual property
Real estate
Litigation
Tax
Legal Environment (Change of policy, law)
Environment issue and compliance
Business principle review (Code of conduct; Responsible drinking; Health Warning;
Environmental Code of conduct policy; sustainability)
10. B Legal Due Diligence
Legal Due Diligence Goals
► Legal Risks Assessment
No Deal
Risks mitigation
Price reduction
► Consequences regarding legal documentation
Condition Precedent (CP)
–Risk protection before signing
Warranties/ indemnity clauses
–Risk mitigation – after signing
► Post acquisition improvement (recommendation)
–IP registration (renewal)
–Employment rationalisation
–Key contract changes/ amendments
11. C Legal Documentation
Legal Documentation
► Share Purchase Agreement (SPA)
Standards clauses
Key clauses
► Mark up
Vendor‟s guidelines
Negotiation Strategy
12. C Legal Documentation
Legal Documentation
Clauses
► 1. DEFINITIONS AND INTERPRETATION
► 2. CONDITIONS
► 3. SALE AND PURCHASE SCHEDULES
► 4. PURCHASE PRICE SCHEDULE 1 NOTICES
► 5. PRE CLOSING
SCHEDULE 2 WARRANTIES
► 6. CLOSING
► 7. WARRANTIES AND LIMITATIONS ON CLAIMS SCHEDULE 3 PURCHASER WARRANTIES AND
VENDOR COVENANTOR WARRANTIES
► 8. CLAIM PROCEDURE
► 9. TAX INDEMNITY SCHEDULE 4 CLOSING ACCOUNTS
► 10. PURCHASER AND COVENANTOR WARRANTIES SCHEDULE 5 DUE DILIGENCE INDEX
► 11. TERMINATION
SCHEDULE 6 DE-BRANDING PRINCIPLES
► 12. COMPANY NAME AND DE-BRANDING
SCHEDULE 7 DISCLOSURE LETTER
► 13. TRANSITIONAL ARRANGEMENTS
SCHEDULE 8 ESCROW AGREEMENT
► 14. EMPLOYEES
► 15. ENVIRONMENTAL SCHEDULE 9 EMPLOYEE ENTITLEMENTS
► 16. RESTRICTIVE COVENANTS SCHEDULE 10 TRANSITION AGREEMENTS
► 17. CONFIDENTIALITY
► 18. NOTICES
► 19. GENERAL
13. D Legal Documentation/ Signing
Legal Documentation Signing
► Timing
► Power of attorney
► Deposit/ escrow arrangement
Fund tracking
► Documentation exchange
14. E Legal Completion/ Closing
Legal Completion/ Closing
► Satisfaction of Condition Precedent
► Corporate documentation
Share transfer forms
Share certificates
Resolution regarding change of directors, address, etc.
► Transition agreements?
► Delivery of inventory, stock, document etc.
► Funds settlement
► Closing accounts and post closing price adjustment
► Post closing obligation (Stamping, Debranching, etc.)
15. F Post Merger Integration
Let’s hypothetically assume the deal was closed. Where to from now?
1 Manage key areas of transition – e.g. people retention
2 Re-assess synergies and dis-synergies – with real numbers
3 Determine new organisational footprint – e.g. manufacturing
and supply chain rationalisation
4 Develop mitigation plan to regulatory changes
5 Develop 5 year strategic plan
6 Develop integration plan
16. “Toute ressemblance avec des personnes, situations ou
sociétés existantes ou ayant existées serait bien
évidemment fortuite”