M&A Reasons, Sessions 5-6, PDF

THE REASONS TO DO M&A Sessions 5-6 Rachele Anconetani  3 Does M&A Pay Off? DOES M&A PAY OFF? Drivers of Success Conduct pursued by actors involved Outcome Structure of the M&A Deal DOES M&A...

THE REASONS TO DO M&A Sessions 5-6 Rachele Anconetani  3 Does M&A Pay Off? DOES M&A PAY OFF? Drivers of Success Conduct pursued by actors involved Outcome Structure of the M&A Deal DOES M&A PAY OFF? a) Structure of the M&A Deal The operation enhances the company's performance (for example, revenue, profit margins)? If so, are these benefits sustainable and long-lasting? Have the synergies and the necessary investments to achieve Economics of the opportunity them been analyzed? Does the transaction allow the firm to: enter new markets? win over competitors? expand the product portfolio? improve the purchasing power of the firm? access a Strategy (SWOT analysis) specific brand or distinctive know-how? protect the current product quality? What are the needed interactions between the bidder and the Culture and Organization of the target company to unfold the strategic opportunities? Are there cultural risks or conflicts? How difficult is integrating corporate new Entity cultures? Can there be negative consequences on the brand value? Is Brand & Intangibles the company's know-how enriched following the operation? Is the transaction compliant with regulatory requirements? Are there regulatory Law (Risk & Opportunities) barriers or complex authorization processes that create uncertainty? What are the legal steps the company should pursue, and how long do they take? Does the transaction intake any ethical risks? Ethics Source: https://mwmblog.com/2019/12/01/the-failed-merger-of-mercedes-chrysler/ DOES M&A PAY OFF? b) Conduct pursued by actors involved 1 2 Definition of the strategic criteria to identify the targets and the relevant actors involved in the M&A Search for Partners process. Objectives: 1) «Choose the right battle field»; 2) «Find your best buddy» An investigation or audit of a potential investment. Due diligence serves to confirm Due Diligence all material facts regarding the transaction. The negotiation phase often is the most complex aspect of the acquisition process. In this phase, the actual purchase price and Negotiation the underlying agreements are determined. Law and Regulation The agreements made during the negotiation phase are translated into formal documents. Check that every decision is Management legitimate and enforceable between the parties. The deal design defines the technical aspects of the transactions and identifies the Deal Design best solutions for achieving the strategic objective. The objective is to set the structure, the payment methods, the guarantees, etc. 3 PMI involves the management of the integration processes after the M&A transaction. In this phase, the Post Merger Integration objective is to unfold the expected synergy value by rationalizing the processes, fully exploiting available resources, and managing excess ones. 3) «it is not about making the right deal, it is about making the deal right!» DOES M&A PAY OFF? b) Conduct pursued by actors involved – 3 pillars 1 Direction - “Choose the right battlefield” Where you are fishing is more important than how you are fishing 2 Fit - “Find your best buddy” Successful M&A requires substantial synergies 3 Cooperation - “It’s not about making the right deal: it’s about making the deal right” Integration is critical to extract value from deals DOES M&A PAY OFF? b) Conduct pursued by actors involved – 3 pillars 1 Direction - “Choose the right battlefield” Growth is essential for survival and shareholder performance… Source: McKinsey & Co DOES M&A PAY OFF? b) Conduct pursued by actors involved – 3 pillars 1 Direction - “Choose the right battlefield” …Three cylinders drive growth (illustrative)… Source: McKinsey & Co DOES M&A PAY OFF? b) Conduct pursued by actors involved – 3 pillars 1 Direction - “Choose the right battlefield” …McKinsey Analysis of more than 700 big companies confirmed that “Where to compete” is the first key success factor… Source: McKinsey & Co DOES M&A PAY OFF? b) Conduct pursued by actors involved – 3 pillars 1 Direction - “Choose the right battlefield” …In the last 40 years, the third quartile of pharmaceutical companies has made more than double returns than the top quartile of airline companies… Source: McKinsey & Co DOES M&A PAY OFF? b) Conduct pursued by actors involved – 3 pillars 2 Fit - “Find your best buddy” Performance improvements must be substantial to create value from acquisitions… Source: McKinsey & Co DOES M&A PAY OFF? b) Conduct pursued by actors involved – 3 pillars 3 Cooperation - “It’s not about making the right deal: it’s about making the deal right” Source: McKinsey & Co  DOES M&A PAY OFF? c) Outcome Immediately detectable in transactions involving listed companies and in any case valid for any successful transaction. The increase in value reflects the expectations of a higher company's Creation of Market Value performance and assets value as a result of the M&A transaction. A successful operation should improve the selection of funding sources available for the company, increasing the income prospects. In the Financial Stability medium to long term, the transaction should guarantee stable and higher cash flows than that before the M&A. M&A transactions can rebalance the players' powers in the competitive arena and towards Strategic and Competitive different categories of stakeholders. Advantages The transaction allows for more efficient use of available resources. These benefits unfold once the deal is closed and depend on the effectiveness of Organizational Benefits the PMI plans. These benefits show their positive effects only in the medium term. Transparent communication of the underlying M&A reasons can unlock this value. Moreover, the management must be effective in exploiting the available intangible resources. Enhanced Brand and Intangibles DOES M&A PAY OFF? Example 1: GE & Alstom General Electric represents a dramatic example of how a poor strategy and timing in external growth could seriously jeopardize the going concern assumption. Why did the transaction make sense on paper? What did it go wrong? DOES M&A PAY OFF? Example 2: The Carlyle Experience Carlyle has a strong track record of successfully enhancing value by investing in (largescale) growth initiatives…Where does the value creation come from? Source: Carlyle  [Food for Thoughts] DOES M&A PAY OFF? Example 2: The Carlyle Experience – Irca  [Food for Thoughts] DOES M&A PAY OFF? Example 2: The Carlyle Experience – Irca  4 Wrapping Up  Please download and install the Slido app on all computers you use How is called the restructuring activity where the parent company ceases to exist and there is a creation of a new legal entity? ⓘ Start presenting to display the poll results on this slide. WRAPPING UP Correct option: Split-up (see session 4 – key definitions in M&A)  Please download and install the Slido app on all computers you use Which is the scenario that may verify during a proxy fight between shareholders? ⓘ Start presenting to display the poll results on this slide. WRAPPING UP Correct option: Buyer/Shareholder seeks to persuade shareholders to use their votes to install new management. (see session 4 – key definitions in M&A)