Canback & Co Due Diligence Expertise

CANBACK & COMPANYCambridge, Massachusetts

42.365869,-71.093471www.canback.com

+1-617-399-1300

PREDICTIVE ANALYTICS

INTEGRATORS

PREDICTIVE ANALYTICS

INTEGRATORS

M&A DUE DILIGENCE EXPERTISECanback & Company

February 2015

2

Canback & Company is the world’s leading

management consulting firm leveraging

predictive analytics for strategic purposes.

We operate globally with the world’s largest

companies as clients. This has taken us to

54 countries since our founding in 2004.

We also offer analytic services with the

Canback Global Income Distribution Data-

base (C-GIDD) as our flagship product.

3

Pe

rfo

rma

nce

Time1900 1960 1990

Traditional

management

consulting

Predictive

analytics

2015

A new paradigm

with higher

performance

Few, if any, break-

throughs since the

early 1990s

- Conceptually based

problem-solving

- Experience preferred

over hard analysis

- Datasets at the

center of problem-

solving

- Repeatability and

scalability for

efficiency

Canback & Company prefers fundamental analysis of primary data over conceptual frameworks,

achieving greater accuracy in problem solving at a lower cost

“The future is already here, it is just unevenly distributed”

- William Gibson

MANAGEMENT CONSULTING INDUSTRY S-CURVE

4

We have established satellite offices in key international markets: Brazil, China,

Japan, India, Indonesia, Kenya, Mexico, and Nigeria. Our new core office in South

Africa opened this month.

For more information about the various offices please visit our website

Kenya

Boston

Mexico

Brazil

China

Indonesia

Nigeria

Giancarlo Spata Mark Wopicho

Francisco Maciel

Xingxing Liu

Teddy Purnomo

STREAM Insight Ltd

Japan

Shin Ito

OUR GLOBAL OFFICES AND LEADERS

Canback & Co has offices in ten key international markets, allowing us direct access to vital

centers of economic growth. Boston and Johannesburg are core offices, while the other eight are

satellite offices

South Africa

Arshad Abba

India

Aniket Pargaonkar

OUR CAPABILITIES

OfficeManagement

Consulting

Predictive

AnalyticsC-GIDD

Market

Research

Boston

Johannes-

burg

Tokyo

Beijing

Jakarta

Mexico City

Lagos

Nairobi

Pune

Sao Paulo

http://www.canback.com/

http://www.canback.com/

5

M&A due diligence is today our largest practice because of our fast, fact-based and practical

approach

Canback & Co

Management consulting

>65%

M&A due diligence

>35%

Strategydevelopment

30%

Predictive modeling

15%

Commercial databases

15%

Market/industry research

<5%

We have a special expertise in quick

delivery of M&A due diligence,

working with up to 30 team members

to evaluate acquisition opportunities

from a market and functional

perspective

This used to be our core activity and

is still the #1 priority. We work on

market entry, brand development,

consumer segmentation and other

market/marketing efforts in emerging

countries

Boston Johannesburg Tokyo Beijing Jakarta Lagos Mexico City Nairobi Pune Sao Paulo

Predictive models are almost always

part of our management consulting

work. We also build them on a

standalone basis

We pioneered, and are still the

world’s only supplier of GDP and

income data at the subdivision and

city level: C-GIDD

We occasionally conduct standalone

market research for existing clients

where we know the topic

Market Opportunity

AssessmentTarget Evaluation Case StudiesExperience & Approach

6

Mapping the Path to Future Prosperity - Emerging Markets Inclusive Growth Index (2014)

African Cities Growth Index 2013 (2013)

The Shifting Urban Economic Landscape: What Does it Mean for Cities? (2013)

Abuja +12: Shaping the Future of Health in Africa (2013)

Hot Spots - Benchmarking Global City Competitive (2012)

Nigeria - A Nation Divided (2011)

Quarterly Divisional Seminar Series — South Africa (2014)

Quarterly Divisional Seminar Series — Asia-Pacific (2013)

Africans Open Fuller Wallets to the Future (2014)

The War for Nigeria (2013)

Annual Results Presentation (2013)

Entering the African Beer Market: Uncovering the Strategies to Enable Success (2013)

NYC Jobs Blueprint (2013)

The Future of Retailer Brands (2010)

Canback & Co is often cited in the press, research reports, annual reports, and investor

presentations by some of the largest companies and organizations in the world

7

Canback & Co has built its M&A due diligence track record through a combination of

experience, technical strengths, and in-market capabilities

CANBACK & COMPANY’S M&A DUE DILIGENCE CAPABILITY

Due diligence experience

M&A framework

Quantitative approach

Local research

• Standardized and

highly efficient

processes

• Unique due diligence

approach emphasizing

market potential

• Unique focus on

demand modeling

• Market sizing and

forecasting using

rigorous statistical

models

• In-market research

merged with local

insight

• International

expertise, particularly

in emerging markets

• Independent decision

making

• Completed over 50

due diligence projects

since 2009

Click on image below for a copy of

Market Opportunity


http://www.canback.com/canback_ma.pdf






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Since 2009, we have completed over 50 due diligence projects globally, most of which for

recurring clients

Due Diligence

Project Examples

• $5 billion FMCG acquisition in Brazil

• $2 billion acquisition in the Caribbean

• $8 billion acquisition in Mexico/Brazil

• $12 billion acquisition in the United

States

• JV evaluation in 8 sub-Saharan Africa

countries

• Commercial due diligence for

acquisition in Turkey

CANBACK & COMPANY’S DUE DILIGENCE WORK

U.S.

3%

23%

Europe

Asia

Africa

12%South America

37%

9%C. America and

Caribbean

17%

Project Mix by Geography2009-present

DUE DILIGENCE EXPERIENCE

Since 2009, Canback & Company has completed over 50 due

diligence projects internationally

Over 80% of these projects were engagements for recurring clients

Market Opportunity


9

The Canback & Co commercial due diligence approach involves two phases over the course of

6 to 8 weeks. Sometimes clients commission both phases, sometimes one or the other. Note

that the market opportunity assessment often is done before the kick-off

Timing 3 - 4 weeks 3 - 4 weeks

Objectives Assess market environment and opportunities

Conduct market structure, conduct and

performance analyses

Create "as-is" demand model

Develop commercial strategy

Identify operational improvement opportunities and

quantify synergies

Build "as-is" and "to-be" financial models

Key tasks Analyze macroeconomic environment

Perform SCP analysis

Conduct in-market research

Build "as-is" predictive demand model (10-year

forecast) to quantify market potential

Create commercial strategy for pricing, sales and

marketing, and distribution to capture market potential

Manage due diligence across functional groups

Collaborate with corporate finance team and investment

banking team to build financial models

Deliverables Market analysis and player assessment

Predictive demand model

Operational due diligence report

Post-acquisition strategic blueprint for next 3 years

Valuation and financial models

Phase 1: Market opportunity assessment Phase 2: Target evaluation

M&A COMMERCIAL DUE DILIGENCE TIMELINE

Kick-off

Market Opportunity


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The two phases takes us from understanding the current situation (“as-is”) to finding the future

potential (“to-be”)

M&A commercial due diligence

Market opportunity assessment

Structure-Conduct-

Performance analysis

Market demand forecasting

Target evaluation

Commercial strategy

Functional strategies

Financial modeling

• Develop medium-

and long-term

commercial

strategies

• Identify operational

improvement

opportunities in sales

and marketing, as

well as distribution

• Manage due

diligence

processes across

functions

• Align functional

capability with

commercial strategy

• Collaborate with

clients and

investment banks to

build financial models

• Merge our predictive

demand model

seamlessly with the

financial model

• Combine statistical

analyses and

managerial insights

to assess market

opportunities

• Conduct in-market

research to refine

models and

recommendations

• Use rigorous

statistical methods

to build "as-is" and

"to-be" demand

models

• Leverage our income

distribution database

C-GIDD to quantify

market potential

“As-is" “To-be"

CANBACK & COMPANY’S M&A COMMERCIAL DUE DILIGENCE FRAMEWORK

The effort starts with an “as-is” assessment and ends with a “to-be” strategy with financials

Market Opportunity


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The SCP framework is a standard approach for understanding market dynamics. It is used by

corporations and consulting firms all over the world for more than 50 years and is therefore well

tested and recognized

Note: The Structure-Conduct-Performance framework was first developed by Joe S. Bain in the late 1950s and was later popularized through Michael Porter’s Five Forces

Market Opportunity


CONDUCTSTRUCTUREEXTERNAL

CONDITIONSPERFORMANCE

Socioeconomic

conditions

• Economic growth

• Demographic trends

• Socioeconomic class

composition

• Urbanization

Government policies• Fiscal/monetary policy

• Taxes and subsidies

• Regulations

• Investment incentives

• Trade rules

• Antitrust policy

• Corruption

• Ease of doing business

Infrastructure• Information and

communications

technology (ICT)

• Transport and logistics

• Education

Market demand• Category dynamics

• Growth drivers

• Substitutes

• Price elasticity

Industry supply• Level of competition

• Product differentiation

• Brand power

• Barriers to entry

• Efficiency

• Capacity utilization

Value chain economics• Economies of scale / scope

• Supplier economics

• Marketing effectiveness

• Distribution economics

Strategic priorities

• Market breadth

• Geographic reach

• Vertical depth

Commercial activities

• Product portfolio

• Pricing

• Marketing spending

• Route-to-market/channels

• New product development /

innovation

Supply chain activities• Production processes

• Procurement

• R&D priorities

Finance• Financial resources

• Capital spending priorities

Market performance• Market growth

• Price trends

• Share relative to substitutes

• Industry value and profit pools

Player performance• Productivity

• Organizational effectiveness

• Growth

• Relative market shares and trends

• Profitability

• Share of profit pool

STRUCTURE–CONDUCT–PERFORMANCE FRAMEWORK

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An important part of the due diligence effort are the market visits. These typically happen early in

the process. We follow a rigorous protocol to maximize productivity

Canback & Company market visits generate valuable data directly relevant to the acquisition

target. To ensure success, we rely on a detailed market visit protocol that has been tested and

refined over the past ten years

MARKET VISITS

Meet with key

stakeholders

• Meet with local partners, government officials, and competitors

• Use meeting takeaways to refine model and long-term strategy

Determine margins

across value chain

• Quantify margins for various product channels

• Margins used in financial and demand modeling as well as commercial

strategy formation

Collect price points

• Collect price points by channel and product or brand

• Measure price variation between channels and discover realistic prices

facing consumers

Understand discounts

and promotions

• Determine how trade discounts and promotions impact retail prices and

producer margins

• Evaluate effective promotional techniques

Examine RTM and

delivery standards

• Assess RTM strengths and weaknesses

• Evaluate product availability and identify strong distribution partners

Profile competitors • Determine competitive landscape of international and local players

• Identify and quantify competitive trends

Market Opportunity


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A detailed “as-is” demand model is developed with a 10 year horizon. It is broken down by

specified characteristics like geography and channel

• Category data from the client and third

party sources is cleaned and integrated

with C-GIDD

• The category data is combined with

macroeconomic variables in a format

facilitating statistical analyses

• The data is evaluated for normality,

colinearity, linearity in order to specify an

appropriate model

• We always screen for nonsensical outliers

and remove when necessary

Product

demand

Macro variables

Momentum

Price

• A demand model is used to create

projections using varying

statistical techniques including

pooled cross sectional models

and time series

• Models can be granular at the

brand, pack type, channel, and

region level spanning 5 to 10

years

DEMAND MODELING OVERVIEW

PREDICTIVE

DEMAND

MODEL

DATA

VALIDATION &

STRUCTURING

Market Opportunity


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Our target evaluation framework develops a commercial and functional strategies, and quantifies

the acquisition synergy opportunities and financial implications

Financial

modeling

• Work with client and

investment bank as well as

other parties to complete "as-is"

and "to-be" financial models

• Integrate our consumer demand

forecast model and due diligence

improvements into the financial

models

Functional

strategy

• Manage the operational due

diligence process across

functional groups

• Collaborate with client

executives who have functional

expertise to integrate their

recommendations

Commercial

strategy

• Meet with the client to develop a

commercial strategy to capture

post-acquisition medium- and

long-term growth opportunities

• Identify opportunities to enhance

pricing, sales and marketing, and

distribution strategies

The functional due diligence identifies

opportunities in the following areas:

• Sales and Marketing

• Distribution

• Supply Chain and Procurement

• Production

• R&D

• Information Services

• Corporate Affairs

• Taxes

• Human Resources

Develop a commercial strategy to

capture market opportunities

EXPERT VOLUME

ADJUSTMENTS

FINANCE

ASSUMPTIONS

VOLUMETRIC

• Brand mix

• Item mix

FINANCIAL

• Revenue

• EBITDA

CASH FLOW

DUE DILIGENCE TARGET EVALUATION

ACQUISITION

SYNERGIES

SAMPLE ANALYSES

Our due diligence examines

the target’s "as-is"

operational capability and

develops a "to-be" strategy.

Acquisition synergy

opportunities including:

• Organic growth (e.g., new

complementary products

or sales channels)

• Increased customer

penetration/cross-selling

• New market

segments/customers

• Strategy for selecting and

entering new market

segments

• Cost-reduction/margin

improvement

Market Opportunity


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Canback & Co’s main role during the target evaluation phase is to develop the commercial

strategy together our client’s strategists and commercial executives

Suppliers ConsumersProcurement

and inbound

logistics

Production R&D Route to

Market (RTM)

• Sales

• Distribution

Other Support Functions

Human Resources (HR)

Finance

Information and Communication Technology (ICT)

Marketing

• Portfolio

• Volume

and value

projections

DistributorsService

COMMERCIAL STRATEGY DEVELOPMENT

DEVELOP COMMERCIAL STRATEGY

We work with the client team to develop an

integrated commercial strategy that harmonizes

the different value chain components of our

client and the target. Specific questions to

consider are:

• Is there a need to improve current sales and

market strategy to support the change in

product and pricing strategy?

• How can the target restructure the distributor

footprint and relationship to capture the

volume growth?

CAPTURE MARKET OPPORTUNITIES

In the commercial strategy, we identify commercial improvement

opportunities to capture market potential in areas including:

• Product portfolio

• Pricing

• Sales and marketing

GENERATE PREDICTED MARKET VOLUME

The commercial strategy lays out a post-acquisition strategic blueprint

for how to generate the market volume projected by our demand

model as well as volume from potential synergies• Route-to market

• Channel strategy

Market Opportunity


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The functional strategies are mostly developed by our client’s executives. Canback & Co’s role is

to assist with targeted analyses and to help create meaningful presentations. Our client

executives are likely to visit the target’s facilities to inform their functional assessments

Other

Functions

• IT infrastructure and support

• Strategy

• Finance, taxes, corporate affairs integration

Sales and

Marketing

• Promotion and advertising activities

• Marketing operations

• Sales representative training program

• Sales network

FUNCTIONAL STRATEGY SAMPLE TOPICS

Supply Chain

and

Procurement

Production

• Facilities/offices (locations, sizes, functions)

• Production capability

• Manufacturing operations and staff

R&D

• Organizational structure

• Number of employees by location and functional department

• HRM policies (e.g. recruiting, comp levels, comp structure, etc.)

• Incentive plans and employment contracts

• Supply chain model

• Facilities/offices (locations, sizes, functions)

• Product vendor management

Distribution

Human

Resources /

Organization

• R&D process

• New product development

ENHANCE EXISTING

FUNCTIONAL CAPABILITY

After the commercial strategy

is developed, a sound

functional strategy is crucial to

ensure successful

implementation of the

commercial strategy.

We are experienced in

managing this process

across functional teams and

identifying functional

improvements.

• Route-to-market structure

• Distributor footprint and operations

• Fleet mix

Market Opportunity


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The financial modeling is typically done by our client’s finance experts, with Canback & Co

providing inputs and being a sounding board

FINANCIAL MODELING OVERVIEW

DEMAND MODEL OUTPUT

• The demand model output can be used to

project financial results down to the SKU level

for the target company’s products using

volume and price forecasts

• This SKU level outputs aggregate to a

company level income statement that can be

used for valuation

• We have built numerous discounted cash flow

models using our demand modeling output as

the basis for revenue projections

SKU LEVEL P&L FOR TARGET COMPANY

TARGET COMPANY DCF

Market Opportunity


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Canback & Co frequently works with other professional services firms in small and large teams

to deliver on due diligence engagements

Due diligence steering committee

Investment bank(s)Accounting

due diligenceOperational

due diligence team

Canback & Co Client team

Legal due diligence

DUE DILIGENCE TEAM STRUCTURES

• The project team membership varies by acquisition

• Size can range from 5 to 50 members

• Operate financial model

• Functional expertise

• Provide internal data, data

from target

• Set goals / priorities

• SCP analysis before project

kickoff – includes market

visit

• Demand modeling

• Project management during

target assessment phase

• Identify acquisition

targets

• Provide guidance on

DCF details, valuation

• Provide WACC

estimates

Market Opportunity


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Case study 1: In early 2013, Canback & Co completed a due diligence project in Southeast

Asia. We conducted a thorough assessment of local players and partnership opportunities for

our client

M&A due

diligence

framework

Southeast

Asia due

diligence effort

Client: Global beverages client

Target: Large beverage player in Southeast Asia

Context: Client is looking to strengthen position in the beverage market through partnership with a large local player. We were

engaged to conduct a thorough analysis of the local market and assess JV potential through conducting commercial due diligence

SCP

• Assessment of political and economic risks, demographics

• Analyze market by category, brand, and player share

• With a team of 4, the entire project ran for 8 weeks, including 1 week of

in-market research

• Worked on the ground and remotely with local researchers who

assisted with translation and in-market visits

Demand modeling

• Model demand at the regional level, over a 10 year time horizon

• Modeling done at the SKU level and includes value and volume

• Demand is forecasted on both an “as is” (organic market growth) and

“to be” (organic growth with strategic initiatives) scenario

Commercial due diligence

• Collaborated closely with client’s management team based in Southeast

Asia

• Assessed multiple local players and profiled most attractive player for

potential partnerships

• Analyzed partnership opportunities for client and target local player to

jointly improve market positions, value chain performance, and

profitability

• Identified specific partnership opportunities for client and local player

such as portfolio improvement, new category rollout and value chain

improvements

Value chain analysis

Target

Evaluation

Market

opportunity

assessment

Due diligence team room

Market Opportunity


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Case study 2: In early 2014, Canback & Co completed a lengthy due diligence project in West

Africa, assisting our client with negotiation and valuation of a joint venture

M&A due

diligence

framework

Target

Evaluation

Market

opportunity

assessment

West Africa

due diligence

effort

Client: Global FMCG client based in Africa

Target: Distribution company

Context: Client is looking to enter a West African market. JV partner – distribution company – has been identified and parties

have engaged in substantial talks. Our key tasks were to quantify future demand, value the venture, and negotiate distribution fees

SCP

• Assessment of political and economic risks, demographics

• Analyze market by category, brand, and player share

• Walk the ground to understand consumer behavior, establish prices,

and frame competitor conduct

• Analytical framing of market using Canback toolbox

Demand modeling

• Model demand for current and new product recommendations over a 10

year time horizon and 3 phases

• Modeling done at the SKU level and includes value and volume

• Demand is forecasted on both an “as is” (organic market growth) and

“to be” (organic growth with strategic initiatives) scenario

Commercial due diligence

• Route to market challenges and distribution gaps were identified due to

nature of JV partner business

• Proposal of a new sales and service model was introduced to minimize

partner shortcomings and maximize value

Financial modeling

• Demand projections and costs were input into Canback financial model

to determine payback period and valuation

• Financials led to a need for distribution fee renegotiation

• Canback team present during final negotiations to offer strategic advice

and update financial model

RTM evaluation

Due diligence meeting

Market Opportunity


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Canback & Company contact information

C-GIDD BRAZIL MEXICO CHINA

Canback Analytics LLC

210 Broadway, Suite 303

Cambridge MA 02139

http://cgidd.com

Bobo Shen

Tel: +1-617-399-1300 Ext. 210

Email: [email protected]

Canback do Brasil

Rua Com. Miguel Calfat 128

1101 Vila Olimpia

São Paulo - SP 04537-080

Giancarlo Spata

Tel: +55-11-3846 9668 or 8187 7801


Canback Mexico

Bosque de Ciruelos 160-7

Bosques de las Lomas

11700 México, D.F.

Francisco Maciel Morfin

Tel: +52-155-4354-9806


Canback China

Suite 903B, Rongxin Tower

S. Square, Beijing W. Station

Beijing, 100055

Dr Xingxing Liu

Tel: +86-10-8399 3522 or 3523


–––––––––––––––––––––––––––––––––BOSTON HEADQUARTERS––––––––––––––––––––––––––––––––– JOHANNESBURG

Canback & Company LLC

210 Broadway, Suite 303

Cambridge MA 02139-1944

Geo: 42.365869,-71.093471

Tel: +1-617-399-1300

Fax: +1-617-553-4500

Web: http://canback.com

Dr Staffan Canback

Managing Director

Tel: +1-617-399-1300 Ext. 201

Cell: +1-617-818-4963


Jonathan Mayes

Engagement Manager

Tel: +1-617-399-1300 Ext. 203

Cell: +1-412-901-8213


Jesse Logan

Vice President

Tel: +1-617-399-1300 Ext. 202

Cell: +1-781-640-7458


Irina Blinova

Office Manager

Tel: +1-617-399-1300 Ext. 205

Cell:


Canback SA (Pty) Ltd

Morvest Building, 1st floor

118 14th Road

Noordwyk

Midrand

1685

Geo: −25.9570, 28.1308

Arshad Abba

Country Manager – South Africa

Tel: +27-11-231-1362

Cell: +27-83-786 2450


INDIA SOUTHEAST ASIA JAPAN WEST AFRICA

Canback Research

c/o ValueNotes Database Pvt Ltd

1 Bhuvaneshwar Society

Abhimanshree Road

Pashan, Pune 411 008

Maharashtra

Aniket Pargaonkar

Tel: +91-20-5601-0423 or 24


Canback Southeast Asia

Jl. Tiang Bendera 5 no. 2A

DKI Jakarta 11230

Teddy Purnomo

Tel: +62-812-8743 7578


Canback Japan

Ginza Wall Building UCF 5F

6-13-16 Ginza

Chuo-ku, Tokyo 104-0061

Shin Ito

Tel: +81-3-6338-0002


STREAM Insight

7A, Ikorodu Road

Maryland

Lagos

Adewale Opawale

Tel: +234-710-30 51 40


Canback & Co Due Diligence Expertise

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Transcript of Canback & Co Due Diligence Expertise