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Ma presentation nwef final
- 1. Mergers &Mergers & AcquisitionsAcquisitions The Road Map, Mystery & Myth about M&AThe Road Map, Mystery & Myth about M&A 1
- 3. Agenda of Topics 1 M&A landscape 2 Acquisition process 3 M&A failure points 4 Building your M&A team 5 Valuation 6 Post acquisition integration 7 Dealing with human capital 8 Key elements for a successful exit 9 Lessons learned & summary
- 5. My M&A Perspective • Business leader who does M&A • Operator’s perspective of M&A • Owner of P/L after the deal • 80 Buy-side deals • 2 Sell-side deals • Majority of deals were roll-up’s • PAI expert • Not an attorney • Not an investment banker • Not from private equity • Not a tax expert, or accountant • Not just around for the deal Who I am Who I am NOT
- 7. Marriage Acquisition Targeting Dating Engaged Wedding Honeymoon After the Honeymoon Targeting Mutual Non Disclosure Negotiations & Valuations Letter of Intent Due Diligence SPA APA Employment Agreements Schedules Etc. Closing & Post Acquisition Integration Blueprint Acquisition Process
- 8. Timeline Targeting Mutual Non Disclosure Negotiations & Valuations Letter of Intent Due Diligence SPA APA Employment Agreements Schedules Etc. Closing Post Acquisition Integration FastFast Fast or Very Slow Avoid Creating a Contract LOI not SPA Binding vs. Non Binding Fast/Slow 2nd Most Important Step Resource Intensive Outsource components 1 week to 2+months Confidentiality Issue Fast/Medium/Slow Art Deal Maker Fast/Medium Deal Maker Deal Breaker Attorneys Fast & Uneventful Formality Be ready to Walk Be ready to GO!! Blue Print 180-360 Most Important Show me Phase Vital to Employees Vital to Success Fastest: Start to Finish - 120-180 days Best Case Slowest: Years - Negotiations - Valuations, DD, Closing Approval Process: BOD, Shareholders, Private, Public
- 9. M&A Timeline - A different View ClosePre-Close Post Acquisition Investment Bankers Attorneys Buyer’s Team Seller’s Team Accountants Buyer’s BOD Seller’s BOD
- 10. What is M&A? Project Management on Steroids
- 12. Reasons Why M&A Fail Identifiable & avoidable at Due Diligence
- 13. TOP 25 Reason’s Why M&A Fail 1. Excessive Premium1. Excessive Premium 2. Size Issues 3. Lack of Research 4. Diversification 5. Previous Acquisition Experience 6. Unwieldy and Inefficient 7. Poor Cultural Fits7. Poor Cultural Fits 8. Poor Organization Fit8. Poor Organization Fit 9. Poor Strategic Fit9. Poor Strategic Fit 10. Striving for Bigness 11. Faulty Evaluation 12. Poorly Managed Integration12. Poorly Managed Integration 13. Failure to Take Immediate Control 14. Failure to Set the Pace for Integration14. Failure to Set the Pace for Integration 15. Incomplete and Inadequate Due Diligence 16. Ego Clash 17. Merger between Equals17. Merger between Equals 18. Over Leverage 19. Incompatibility of Partners19. Incompatibility of Partners 20. Limited Focus 21. Failure to Get Figures Audited 22. Failure to Get an Objective Evaluation of the Target Company' Condition 23. Failure of Top Management to Follow-Up 24. Mergers between Lame Ducks 25. Lack of Proper Communication Source - Harvard Business Review
- 14. Reason’s Why M&A Fail • Poor due diligence • Too much emphasis on financial DD • Too little emphasis on other elements • Poor integration plan • After thought of acquisition • No consideration for human capital • Employees leave • Recruited by competition • Decline in employee engagement Source - Wayne Wilkinson 12
- 15. The Players & Your Team 4
- 16. The Players • Buyer • Executives & BOD • Seller • Executives & BOD • Attorneys • Accounting firms • M&A teams • Investment bankers • Service providers • Inventory counters • P.A. integrators • Public relations ..................
- 17. Acquisition Team & Due Diligence • Business lead • Financial, tax, compliance • HR DD, compliance • Legal, compliance, environmental & I.P. DD • Operations & integration DD (sales, marketing, operations, distribution, manufacturing, service, post acquisition plan, etc.) • IT, compliance DD • Compliance DD 19
- 18. Managing Information & Documents • RFI process (1, 2a, 2b, 3) • Tools to manage process • Merrill, Vault or like data sites • Insist on a data site & image it at close for both parties • Always end up with file boxes 20
- 19. Key Points through Process & Prior to Close • Confidentiality is a must throughout process! • Equally as important to seller & buyer • Vital for lead to make clear frequently & why • May be necessary to also remind those in the know about trading 24
- 20. McFarland Cascade – Our Team, Our Outcome $200M $215M $230M $251M 6.8x 7.3x 7.8x 8.6x 1st Offer 2nd Offer LOI/1st Release Closing
- 21. Valuation 5
- 22. Valuations & Multiples • Modeling methods • Stand-alone valuations • See-through valuations • EBITA multiples • 3x, 5x, 7x, 10x, 12x • Add-Back’s - seller/buyer perspective • The word “strategic” • Industry influence • New tech valuation vs. bricks & mortar 14
- 23. Oracle’s Approach to Valuation “We estimate the financial impact of any potential acquisition with regards to earnings, operating margin, cash flow and return on invested capital targets before deciding to move forward with an acquisition.” 15 Source - 2009 10K Report
- 24. 1 + 1 = 1 1/2 1 + 1 = 3 1 + 1 = 4 16 The Mystery of the Math • The type of acquisition will drive valuation multiple • Strategic buyer • Financial buyer • Industry consolidation - roll-up • Vertical/Horizontal integration benefits • Internet, science, tech. method • Bricks & mortar
- 26. Creating a Blue Print • Blue print for 180-360 days post close • Function by function action plan • Communicate plan to acquired company • Ops team develops during due diligence process 21
- 27. The Blueprint Framework & 10 Cornerstone “Must Do’s”
- 28. The Day After Strategy • Kick-off meeting as soon after close as possible for acquired meeting • “Day after team” • Phased meeting at acquired company location - Go to their “home field” • Executive mgt. • Senior mgt. • All Employee meeting • Celebration 25
- 29. K/O Meeting Content • Managed message by prior owner/seller (if they stay) • Message by acquiring company – Top executives • Acquiring company overview • What it means to the employees • The next 90 days • What to expect • Value add that acquisition will bring at an employee level through the acquisition • Feel celebratory 27
- 31. Sales & Profitability mapped along Employee Engagement Acquired here
- 33. Day 2 - Example Activities • Training programs start • Top 25 customer visit with integration team • External communication program starts • HR employee meetings & webinars • Finance & IT break-out meetings • Next month’s close • System conversion blue print • Other functional break-out meetings: • Sales, Service, R&D, Mfg. etc. • Cover the blue print 28
- 34. The Next 90 Days • The most vital days • The “show me” phase for acquired employees • Deliver tangible added value at an employee level • Training programs to improve competitiveness • Smooth system conversions • Reason for the change vs. “this is our way” • Investment in areas discovered to be “under capitalized” previously • Keep the acquired employees’ resumes off the street • Keep the competition at bay, because they will swarm the event • “Hug up” the employees
- 35. Dealing with Redundancy Two Very Different Approaches
- 36. Key Elements for a Successful Exit 8
- 37. Key Elements for A successful Exit 1 Aligning owners/shareholders personal, business & individual long term goals 2 Empowering the owner with an in-depth knowledge of their succession or exit options 3 Maximizing the fundamental or underlying value of the business 4 Optimizing tax implications of an exit 5 Maximize what the market is willing to pay for the business
- 38. Exit & Liquidity Options External Exit Channels Financial Buyer Strategic buyer (vertical/horizontal) Internal Channels Recapitalization Family Co-owner(s) Management Employees (ESOP) Pros Greater control over legacy, timing and terms Income and estate tax saving opportunities Limited due diligence and time required to close Cons IRS and tax courts are value authority for family and ESOP transfers Value received often less than actual market value Buyer's financial resources usually limited Pros Generally highest available value Diversification of family's wealth Post-sell financial and leadership resources Cons Time and cost of marketing, due diligence and closing transaction Limited control over post-legacy value
- 40. Closing Comments & Advise - Owners • Put together a professional team for a transaction • M&A attorney • M&A accounting & tax advice • I.B. or M&A advisor • Mgt. team succession plan • Plan for the event in years, not months in advance • Tie up your key employees with CIC agreements • Reward the key employees that made you successful • What is the legacy you want to leave behind by the sale? 30
- 41. Closing Comments - Successful Integration • If you are selling & leaving. You can’t control things after ..... so .... • Two highest failure points are due diligence and integration • PAI blue prints are a vital component of success • Place a high value on the acquired human capital – Understand the financial cost ofUnderstand the financial cost of lost employee engagement orlost employee engagement or unplanned turn-overunplanned turn-over on the transaction; make plans to avoid it!!on the transaction; make plans to avoid it!! – Let them know you understand their concerns – Bring value add at an employee level • A kick-off road show is essential • Communication, communication, communication!!! 32
- 42. Thank youThank youThank youThank you Wayne Wilkinson http://www.linkedin.com/in/waynewilkinson01 wwilkinson01@gmail.com www.wayne-wilkinson.com
Notes de l'éditeur
- Good Morning Thank you for having me as your speaker at the NWEF I have about a 40 slide deck that will take about 50 minutes and then we will open up a panel discussion followed by Q & A
- I have a diverse background as a business leader Started out as an entrepreneur with my own business, which I sold to IKON Office Solutions at age 31 Worked for them (Mid Sized Public Co.) Recruited to lead a division of Toshiba (Fortune 100) in Irvine CA Left for an opportunity to Lead McFarland Cascade (Mid Sized private) Technology, forest & building products industry 82 M&A transactions along the way
- My talk today will cover these 9 aspects of M&A. Scrape the surface of some areas Deeper dive on others
- 1 st Point I want to make is that M&A is a vast landscape One hour is not enough time to scrape the surface of the topic The topic has many moving parts, large teams on both sides and is dynamic with each transaction
- I believe it is important for you to understand my perspective as your Speaker today relative to M&A and the role I have played. Understand that my perspective is from that of a: business leader An operators perspective Someone who owns & operates the P&L post acquisition Seller perspective in the case of my own business and recently that of McFarland Cascade. Walk down who I am not
- With that framework laid, let’s briefly touch on the acquisition process. I had he pleasure of rolling up 55 acquisitions at Toshiba, another 25 at my own company and with IKON. In speaking with hundreds of buyers, the most frequently asked question was “ Can you describe the process to me” …..
- I have always found the simplest way of describing the acquisition process, is to draw the parallel to marriage. Let me walk you through this chart. Joke , That is a picture of me on the top left. Date one person at a time. BTW, the slide deck will be made available to all and I will explain how at the closing
- Next most common question about the process is timeline … how long does it take, and how long does each of these steps take This timeline breaks out events, estimated time frames and activities. Timeframe will vary dramatically based on: Size of the acquisition Sale is private or public Alignment of seller & buyer Attorneys are deal makers, or deal breakers Business leads capabilities to keep teams on track
- One other perspective of the timeline and roles, participants on the buyer / seller side relative to pre-sale, close, and Post acquisition Managing and guiding these teams is a vital role that I will speak to later in the presentation
- Invariably the next most frequent question I get asked is tell me what is M&A all about, describe it to me. In short …. M&A is project management on steroids Every function, job & major process Every aspect of the business Every system, policy, process mapped against a second company Gaps, cultural assessment, compliance issues Strategy to sew the two organizations together Then draw up a strategy to sew the two organizations together
- M&A is vast as I stated earlier, It is also complex and thus, has many failure points and unfortunately too often does not deliver the desired outcome. However, many of those failure points are avoidable.
- A recent CFO pole listed the following as the most common reasons why M&A fail What is interested is in my opinion the three I circled are avoidable with a proper due diligence approach and team.
- A second source the Harvard Business Review listed the top 25 reasons why M&A fails: Many of the same items on the list Some common themes Culture Poor due diligence Poor access to information Valuation
- 3 rd Source – Wayne’s World of 82 deals Identified these 3 core failure points: Poor Due Diligence execution Poor Integration Plan No or little consideration for Human Capital
- So what is the foundation that needs to be built in order to avoiding a bad deal. Much like running a great business, you need to put together a top notch team for an M&A transaction This is your baby, you only get one chance to do this right.
- The players are numerous when you add them up on both sides and it can be intimidating to a typical owner operator. It is complex much like a spider web. And yes, it is expensive & costs mount quickly. Once things start moving there needs to be a clear leader ….. A CONDUCTOR … on each side and someone controlling the teams activity. Without a conductor organizing all the activity, there will not only be confusion, but you will drive up your professional services bills.
- Team make up, look and shape will vary by company size, private, public etc. but in a simple form it should have the following elements always covered. Must have an operations/integration team as part of the process Must have a very clear and obvious conductor as a point person.
- One of the greatest complexities in M&A is managing information. Requesting it is an art not a science Getting it in a timely manner Managing it & referencing it as a team Waves of requests are like waves washing ashore on a beach ---- RFI 1, 2, 3 Have to have a sound process for all three areas As a seller, never want to withhold information, especially if it is specifically requested. Daunting task for a seller and a buyer
- Confidentiality is a must Cannot emphasize how vital this is Only bring people in as necessary to the process Having them sign a non disclosure document is not overkill. Deal with CIC if not already in place when they are brought in the loop Equally as important to the buyer & seller. Can impact value & even kill it.
- A great team can dramatically change the outcome of a transaction and create significant enterprise value. Use the McFarland Cascade sale as an example. Walk through the sales timeline. We sold to a public company, so many of these facts are public
- Let’s talk money. This is why everyone woke up at an ungodly hour. They all want to know how to get a 9 multiple
- I can’t possibly do justice to describing modeling in a talk other than to say that it is vital to have a sound model as buyer, if you are doing roll-up, the discipline necessary in increased and your variance to the model is tighter in my opinion. See-through valuation scenario at Toshiba Comment on Multiples Always comical process of sorting through add-backs Industry influence on multiples
- Oracle made the following statement in the 2009 10K report which summarizes their discipline in evaluating the impact of an acquisition 4 means of measurement Earnings Operating Margin Cash flow Return on Invested Capital
- Unfortunately too many CEO’s make he following statement ……. This acquisition is about making 1 + 1 = 3 or 4 …… then in their next breath they announce lay-offs related to the acquisition. I will address this shortly, but don’t say that unless your actions are consistent. Tragically, the statement 1+1 = 3 or 4 is the most over used statement by executives who’s behavior rarely supports the statement.
- So let’s discuss the secret sauce. In my opinion what separates an average acquisition and ensures success & greatness is a solid Post acquisition plan
- Creating a PAI plan is no different than creating a blue print to build a home. The plans usually go out a minimum of 180 days, usually 360 days, some are longer Involve function by function action plans A process that starts during due diligence Strong and continuous communication from the top executive on down is the most vital component of an PAI plan
- This is likely an eye chart from your perspective but the method behind this chart which dates back to my IKON days, we also used at Toshiba and during a presentation of this material in Orange County a consultant from Mackenzie said they used the identical process. Not sure if it IKON’s or Mackenzie’s I.P. but it is tried and tested. Outlines the Integrations “Must Do’s Workstreams by Function Outlines deliverable by Function
- A team must be planning the day after strategy long before the close Using my Toshiba roll-up’s as an example, I will walk you through some of the typical Day after scenario’s. The event needs to feel and be celebratory. While being informative is vital, make it a celebration at the end. Typically companies pay millions for a business, spend a little on celebrating the sale with the employees of the new company … it not only will go a long way, it will help avoid US vs. THEM right out of the GATE!!! Home Field 3 meetings in one day
- So what is covered in the meeting …. Bullet 1 Bullet 2 Bullet 3 At length to Bullet 4 At length to Bullet 5 Vital to answer the question to each employee … “What does this mean to me” End with story about Toshiba Lap tops for all the service technicians Sales training for all the sales workforce
- The People, the often undervalued and forgotten part of the equation. This is possibly where my “operators perspective” will differ more from that of my Private Equity friends in approach but not outcome Executing well in this area is what separates the men from the boys.
- So let’s look at a graph that plots sale/profitability along side employee engagement. Company is acquired in year 3 after being on a growing trend with good engagement. Company lays off a bunch of employees as a result of integration into a new acquired organization and engagement of the rest of the workforce declines rapidly. Competition grabs employees that they wanted to keep Others leave as they are dissatisfied with direction A very common outcome and one that is never in a valuation model.
- This is I think the single most important chart in this presentation. I used this chart in every kick-off meeting as the acquiring company executive. It is vital in my opinion to do so, in order for every employee to know that you as a leader understand how they feel. Because at the end of the day, all any employee wants to know is what does it mean to them. You have to relate to that point and this chart does that …. Let me walk you though it.
- So Day one is a kick-off meeting, a celebration. Examples of Day 2 activities are as follows: Extra emphasis on the customer visits and why they are so vital Seamless to Customers Employees
- The first 90 days are the most vital period of integration. The goal is to get all the workforce into the green ASAP and have employee engagement remain high or higher than it was before. This is the SHOW me PHASE Need to deliver tangible value add to employees Keep employees resumes off the street Hug them up phase
- So let’s talk about the elephant in the room There are definitely two schools of thought on this issue: Option 1 - tear off the Band-Aid approach make the cuts right Leverage the savings from day 1 Move forward and worry about the fall out from a people perspective as we go Risks Related to OPTION 1 Option 2 – A different approach not as commonly used Acquire all the human capital Manage the business to a set of KPI’s Manage expectation to improve operation Provide opportunity for growth & improvement Thin the workforce if necessary through performance improvement after a successful integration At Toshiba we hired 100% of the workforce on day 1, communicated that (excluding owners who sold with exit intentions)
- For the business owners in the crowd, what are the key elements for a successful exit. What key tenants that secure an effective outcome.
- A planned exit occurs in years, not months. The plan needs to examine these 5 elements and others You need to put together an internal and external team that will examine and prepare a plan for you to maximize your situation Addresses goals Tax Sale options internal, external And more
- This is just one of the elements from the 5 on the prior page. In my opinion while a deep dive on this element is essential, it often becomes the sole focus of the plan & strategy and too little emphasis is on the other elements like tax, succession planning etc.
- My closing comments and lessons learned along the way as both an acquirer and seller.
- To the owners in the audience that might be considering selling in the future put together an A team. This is your baby, get the best team you can to represent you. WALK DOWN CHART Big emphasis on the last bullet along with the story about the grocery store Also, know that in advance and choose your buyer wisely if your legacy maters to you!!!!!
- You can’t control what happens after you sell, if you are selling and leaving so Get over it!!! I recommend you don’t pay attention because the buyer will make different decisions that you would have
- Thank you for your time this morning. I hope you enjoyed my perspectives on M&A I will make the slide deck available by slideshare on my linkedin site Feel free to email me if you have any questions that don’t get answered today Move to the panel discussion followed by Q&A