Cross-Border M&ACross-Border M&A - warrington.ufl.edu · Post-merger integration Host ......
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Cross-Border M&A Cross-Border M&A Finance Professional Speaker Series March 30, 2007 Jason Kliewer Vice President Benjamin Bukhar Senior Financial Analyst Robert W. Baird Investment Banking www.rwbaird.com
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Transcript of Cross-Border M&ACross-Border M&A - warrington.ufl.edu · Post-merger integration Host ......
Cross-Border M&ACross-Border M&AFinance Professional Speaker Series
March 30, 2007
Jason KliewerVice President
Benjamin BukharSenior Financial Analyst
Robert W. Baird Investment Bankingwww.rwbaird.com
Cross-Border M&A in Context
Cross-Border M&A in Context
2
You’ll Soon Join a Global Workforce
Globalization and technology are breaking down traditional barriers to labor and capital
Entry of China, India, Eastern Europe and other emerging economies initially impacts labor intensive manufacturing and certain service industries
― Vast pools of “unskilled labor”
“Second wave” based on geographic mobility of the function performed
― Impacts both skilled and unskilled workers in “global” sectors
3
Going “Global” – Why and How
Why...
―New markets / customers
― Leverage cost base / economies of scale
― “Learning school” / diversify knowledge base
―Competitive environment
― “First mover” advantage
―Comparative advantage
―Risk shift (volatility – most cyclical production steps to emerging economies)
How...
―Greenfield investment
― Joint ventures / alliances / partnerships
―Cross-border M&A...
4
What is “Cross-Border M&A”?
Cross-border M&A is a transaction involving parties, securities, substantial assets or operations located or regulated in different countries
Transactions often involve more than two countries
―US multinational sells UK subsidiary to French buyer
―UK private equity firm sells investment in Chinese manufacturing assets to Indian buyer backed by US lending partners
5
Cross-Border M&A – Pros & Cons
Pros Cons
Risk of overpaying
Culture clash
Post-merger integration
Host government intervention
― Pricing
― Financing
― Employment guarantees
―Market segmentation
― Favoritism
Quicker entry to market
Competitive advantages
―Customer base
― Technology
― Brand names
―Distribution network
Eliminate local competition
Undervalued due to economic, political and/or foreign exchange conditions?
6
Macro Themes Driving Cross-Border M&A
Global orientation – recognition of both threats and opportunities
More efficient capital flows, improved technology and increased deregulation facilitate global business environment
Growth in emerging economies
7
Forces Driving Cross-Border M&A
_____________________Source: UNCTAD, World Development Report 2000: Cross-Border Mergers and Acquisitions and Development, Figure V.1., p. 154.
Time
Cros
s-Bo
rder
M&A
Act
ivity
Changes in the Global EnvironmentTechnologyRegulatory frameworksCapital market changes
New BusinessOpportunities
and Risks
Firms Undertake M&A to:Access strategic proprietary assetsGain market power and dominanceAchieve synergiesBecome largerDiversify and spread risksExploit financial opportunities
Strategic response by firms to defend and enhance their competitive positions in a changing environment
8
Increasing Complexity of Cross-Border Deals
Cross-border transactions are often more difficult to execute than domestic deals
― Language barrier
―Different legal / regulatory environment
―Need for local expertise
― Financing challenges
― Lack of experience / understanding
―Cultural issues
9
Global M&A($ in trillions)
Global M&A Exceeds $3 Trillion
Global M&A up 35% in 2006
“BRIC” M&A up over 100% in 2006
Since 2000, M&A deal volume in the US and Europe has increased 88% and 133%, respectively, while deal volume in the rest of the world has increased 200% $1.4
$1.1 $1.2
$1.7
$2.4
$3.2
$0.0
$1.0
$2.0
$3.0
$4.0
2001 2002 2003 2004 2005 2006
US Europe ROW
_____________________Source: Securities Data Corporation and Baird M&A Research.
10
$0
$200
$400
$600
$800
$1,000
$1,200
$1,400
2000 2001 2002 2003 2004 2005 20060
2
4
6
8
10
12
14Value # of Deals
Cross-Border M&A Exceeds Previous Record Set in 2000
Cross-border M&A up 35% in 2006
Cross-border M&A accounts for majority of transactions in all Western countries except US
Ten years ago (1996), cross-border M&A totaled just $250 billion (1/5 today’s volume)
Cross-Border M&A($ in billions, # of deals in thousands)
_____________________Source: Securities Data Corporation and Baird M&A Research.
11
Top 10 Cross-Border Transactions
Date Announced Target
Target Nation Acquiror
Acquiror Nation Transaction Value
2/21/2006 Endesa SA Spain E ON AG Germany $81.8
10/28/2004 Shell Transport & Trading Co United Kingdom Royal Dutch Petroleum Co Netherlands 80.3
6/20/2000 Seagram Co Ltd Canada Vivendi SA France 40.8
5/30/2000 Orange plc United Kingdom France Telecom SA France 39.7
1/27/2006 Arcelor SA Luxembourg Mittal Steel Co NV Netherlands / India 39.5
7/24/2000 VoiceStream Wireless Corp United States Deutsche Telekom AG Germany 34.1
10/4/2000 Beijing Mobile, 6 others China China Telecom Hong Kong Ltd Hong Kong 34.0
10/31/2005 O2 plc United Kingdom Telefonica SA Spain 31.8
2/8/2006 BAA plc United Kingdom Airport Development Spain 30.2
11/28/2006 Scottish Power plc United Kingdom Iberdrola SA Spain 26.6
($ in billions)
_____________________Source: Securities Data Corporation and Baird M&A Research.
12
BRIC Cross-Border M&A
117%
126%
143%
32%
Acquisitions of BRIC targets (2006 / 2005; dollar volume)
13
2006 in Review – Highlights of 2006 M&A Activity
The strongest segment of the US M&A market was in the billion-dollar-plus transactions, with a 29.1% increase in the number of deals and a 44.4% increase in deal value
Reflecting the strength of the overall market, 11 of the 12 major industries showed an increase in deal activity, with 6 of the 12 showing double digit increases
Private equity activity continued to be a major driver of US M&A as the number of transactions increased 16.2% and the dollar volume rose 131.0%
Private equity transactions accounted for 31.0% of all US M&A dollar volume
Total private equity capital raised in 2006 was $215.4 billion, a 42.0% increase over 2005 and 4.0x the amount raised in 2003
Valuation multiples also remained at the upper end of their historical levels, with the median LTM EBITDA multiple for the middle market at 9.7x, down slightly from 10.4x in 2005
A record number of take private transactions were announced with a total value of $328 billion, almost 5.0x the total in 2005
14
Deal Drivers
Demand Supply
Corporate Activity
Core strategic / competitive forces
Favorable financing environment
Industry consolidation
Increasingly competitive global market
Buy vs. build decisions
Improved cash flows and stronger balance sheets
Attractive valuations
Improved financial performance and higher corporate earnings
Continued paring of non-strategic / underperforming operations and assets
Private company succession and estate planning issues
Attractive valuations
Increasing pressure from hedge funds and shareholder activists
Early stage companies unable to raise capital to fund growth
Going-private transactions
15
Deal Drivers
Demand Supply
Private Equity Activity
Record levels of cash raised awaiting investment
Strong financing market conditions
Desire to make add-on acquisitions to existing portfolio companies
Growing use of consortium bids increases number of potential targets
Global-orientation / strong domestic competition for assets
Attractive valuation levels
Aging of private equity investment portfolios and reduced holding times
Need to post positive returns in advance of new fundraising
Restrictive IPO market limits options for most small companies
Continued demand from strategic buyers
From Start to FinishFrom Start to Finish
17
Sale Process Timetable – Overview
Key Event TimingApril
May
June
June
July / August
August / September
September
Due diligence and preparation of marketing materials
Contact buyers and distribute marketing materials
Receive first round bids and select second stage participants
Management presentations and due diligence
Final bids and selection of final participant
Confirmatory diligence and signing
Closing
Preparation Marketing Execution Signing and Closing
April 2007S M T W T F S1 2 3 4 5 6 78 9 10 11 12 13 14
15 16 17 18 19 20 2122 23 24 25 26 27 2829 30
May 2007S M T W T F S
1 2 3 4 56 7 8 9 10 11 12
13 14 15 16 17 18 1920 21 22 23 24 25 2627 28 29 30 31
June 2007 July 2007S M T W T F S S M T W T F S
1 2 1 2 3 4 5 6 73 4 5 6 7 8 9 8 9 10 11 12 13 14
10 11 12 13 14 15 16 15 16 17 18 19 20 2117 18 19 20 21 22 23 22 23 24 25 26 27 2824 25 26 27 28 29 30 29 30 31
August 2007 September 2007S M T W T F S S M T W T F S
1 2 3 4 15 6 7 8 9 10 11 2 3 4 5 6 7 8
12 13 14 15 16 17 18 9 10 11 12 13 14 1519 20 21 22 23 24 25 16 17 18 19 20 21 2226 27 28 29 30 31 23 24 25 26 27 28 29
30
18
Sale Process – Preparation Stage
Key Event TimingApril 2
Week of April 2
Weeks of April 16 and April 23
Week of April 23
Week of April 30
Organizational meeting in London
Commence due diligence
Drafting conference calls
Finalize list of potential buyers
Finalize offering memorandum and executive summary
Preparation Marketing Execution Signing and Closing
April 2007S M T W T F S1 2 3 4 5 6 78 9 10 11 12 13 14
15 16 17 18 19 20 2122 23 24 25 26 27 2829 30
May 2007S M T W T F S
1 2 3 4 56 7 8 9 10 11 12
13 14 15 16 17 18 1920 21 22 23 24 25 2627 28 29 30 31
June 2007 July 2007S M T W T F S S M T W T F S
1 2 1 2 3 4 5 6 73 4 5 6 7 8 9 8 9 10 11 12 13 14
10 11 12 13 14 15 16 15 16 17 18 19 20 2117 18 19 20 21 22 23 22 23 24 25 26 27 2824 25 26 27 28 29 30 29 30 31
August 2007 September 2007S M T W T F S S M T W T F S
1 2 3 4 15 6 7 8 9 10 11 2 3 4 5 6 7 8
12 13 14 15 16 17 18 9 10 11 12 13 14 1519 20 21 22 23 24 25 16 17 18 19 20 21 2226 27 28 29 30 31 23 24 25 26 27 28 29
30
19
Sale Process – Marketing Stage
Key Event TimingWeek of April 30
Week of May 7
Weeks of May 7 and May 14
Weeks of May 7 through May 28
Week of May 21
Week of May 21
Week of May 28
Contact potential buyers and distribute teaser
Negotiate confidentiality agreements
Distribute offering memorandum to potential buyers
Address buyer questions
Commence preparation of management presentation
Finalize online data room
Counsel distributes draft purchase agreement
Preparation Marketing Execution Signing and Closing
April 2007S M T W T F S1 2 3 4 5 6 78 9 10 11 12 13 14
15 16 17 18 19 20 2122 23 24 25 26 27 2829 30
May 2007S M T W T F S
1 2 3 4 56 7 8 9 10 11 12
13 14 15 16 17 18 1920 21 22 23 24 25 2627 28 29 30 31
June 2007 July 2007S M T W T F S S M T W T F S
1 2 1 2 3 4 5 6 73 4 5 6 7 8 9 8 9 10 11 12 13 14
10 11 12 13 14 15 16 15 16 17 18 19 20 2117 18 19 20 21 22 23 22 23 24 25 26 27 2824 25 26 27 28 29 30 29 30 31
August 2007 September 2007S M T W T F S S M T W T F S
1 2 3 4 15 6 7 8 9 10 11 2 3 4 5 6 7 8
12 13 14 15 16 17 18 9 10 11 12 13 14 1519 20 21 22 23 24 25 16 17 18 19 20 21 2226 27 28 29 30 31 23 24 25 26 27 28 29
30
20
Sale Process – Execution Stage
Key Event TimingJune 5
Week of June 4
Week of June 11
Weeks of June 18 and June 25
Weeks of June 25 through July 16
Week of July 2
Week of July 23
Week of July 30
Indications of interest / first round bids due
Select second stage participants
Provide online data room access
Management presentations
Address information requests
Distribute purchase agreement
Receive second rounds bids
Select final participant
Preparation Marketing Execution Signing and Closing
April 2007S M T W T F S1 2 3 4 5 6 78 9 10 11 12 13 14
15 16 17 18 19 20 2122 23 24 25 26 27 2829 30
May 2007S M T W T F S
1 2 3 4 56 7 8 9 10 11 12
13 14 15 16 17 18 1920 21 22 23 24 25 2627 28 29 30 31
June 2007 July 2007S M T W T F S S M T W T F S
1 2 1 2 3 4 5 6 73 4 5 6 7 8 9 8 9 10 11 12 13 14
10 11 12 13 14 15 16 15 16 17 18 19 20 2117 18 19 20 21 22 23 22 23 24 25 26 27 2824 25 26 27 28 29 30 29 30 31
August 2007 September 2007S M T W T F S S M T W T F S
1 2 3 4 15 6 7 8 9 10 11 2 3 4 5 6 7 8
12 13 14 15 16 17 18 9 10 11 12 13 14 1519 20 21 22 23 24 25 16 17 18 19 20 21 2226 27 28 29 30 31 23 24 25 26 27 28 29
30
21
Sale Process – Signing and Closing Stage
Key Event TimingWeeks of August 6 through August 27
Weeks of August 27 and September 4
Week of September 4
Weeks of September 4 through September 24
September 28
Extensive buyer diligence
Negotiate purchase agreement with selected buyer(s)
Approve and execute definitive purchase agreement
Obtain necessary regulatory approval
Close transaction
Preparation Marketing Execution Signing and Closing
April 2007S M T W T F S1 2 3 4 5 6 78 9 10 11 12 13 14
15 16 17 18 19 20 2122 23 24 25 26 27 2829 30
May 2007S M T W T F S
1 2 3 4 56 7 8 9 10 11 12
13 14 15 16 17 18 1920 21 22 23 24 25 2627 28 29 30 31
June 2007 July 2007S M T W T F S S M T W T F S
1 2 1 2 3 4 5 6 73 4 5 6 7 8 9 8 9 10 11 12 13 14
10 11 12 13 14 15 16 15 16 17 18 19 20 2117 18 19 20 21 22 23 22 23 24 25 26 27 2824 25 26 27 28 29 30 29 30 31
August 2007 September 2007S M T W T F S S M T W T F S
1 2 3 4 15 6 7 8 9 10 11 2 3 4 5 6 7 8
12 13 14 15 16 17 18 9 10 11 12 13 14 1519 20 21 22 23 24 25 16 17 18 19 20 21 2226 27 28 29 30 31 23 24 25 26 27 28 29
30
22
Managing the Deal Team
Seller Buyer
Principal― Company― Financial Sponsor
Investment BankerCounselAuditorAccounting Vendor Due DiligenceCommercial Vendor Due DiligencePension AdvisorEnvironmental Due DiligenceTax AdvisorData Room Provider
Principal― Company― Financial Sponsor
Investment BankerCounselLending PartnerAccounting AdvisorCommercial AdvisorPension AdvisorEnvironmental AdvisorTax Advisor
PrincipalPrincipalPrincipal
InvestmentBanker
InvestmentInvestmentBankerBanker
CounselCounselCounsel
PrincipalPrincipalPrincipalInvestment
BankerInvestmentInvestment
BankerBankerCounselCounselCounsel
23
Process Dynamics
Due Diligence Competitive Tension
Structured process
Global competitive landscape
Time constraints
Cultural issues
Local experts
Identify key issues
Needs of financing sources
Cultural issues
24
Navigating the Minefield
Management Contracts
(Management vs. Owners)
Legal Prior Acquisitions
(Indemnification)Change of Control Clauses
Employees
Environmental
PensionTax
Consideration (Cash vs. Shares)
Flow of Funds
Authority
Customers
Suppliers
Regulations
IT
Copyrights / Patents /
Proprietary Information
Working Capital
AdjustmentAnti-trust Requirements
Contingent Liabilities GAAP vs.
IFRS
Reps, Warranties
and Indemnities
“Add Backs”
Closing Mechanism
Valuation
25
Case Studies
PROJECTSKI
PROJECTRETRO
PROJECTANDRETTI
PROJECTROCK
PROJECTBULLS
PROJECTWINDMILL
PROJECTSMART
PROJECT HITCH-HIKER
PROJECTTEAL
Questions?Questions?
