EY Asean DAS - Divesting for value- Final

Divesting for valueAsean hub

“ Pruning non-core units on a regular basis allows companies to reduce complexity and free up capital for growth businesses. For the divested units, they may be a better fit with other firms that are able to help them achieve their full potential.”

1 Why companies divest 2 How to be

successful 3 EY’s approach to divestments 4 Why EY

1 2 4 8

Contents

Vikram Chakravarty Asia-Pacific Capital Transformation Leader

1Divesting for value |

1Why companies divest• Divestment is a natural progression, as companies get more focused

and push for growth

• It creates value and is a growing trend in Asia-Pacific

Reasons to divest

• Non-core business• Weak competitive position• Unattactiveness of market• Fund future growth

Strategic

86% used funds to invest in future growth

Finance

• Conglomerate discount – unlocking value• Distress situation – pay down debt• Opportunistic sale

For

31% companies financial triggers drove divestment

• Focusing management attention – currently spread thin

• Operational simplicity• Limited synergies

Operational

Divestments can create value and other benefits

1,600 divestments in Asia-Pacific over the last five years

Examples of companies divesting to unlock value

China Property, aviation, beverages, marine services, trading and industrial conglomerate spun off property business

India Consumer products business spun off of their skincare solution company

Malaysia Conglomerate with interest in plantation, property, pharmaceutical, etc. spun off their pharma business

Singapore Food and beverage, publishing and printing conglomerate spun off real estate business

South Korea Leading consumer electronics company spun off a developer and supplier of inorganic materials for electronics, energy, and environment fields

As the global economy settles into its new growth pattern, companies in Asia-Pacific will need to make informed decisions tied to portfolio rebalancing.

Abhay Bangi Operational Transaction Services

EY Global Corporate Divestment Study 2015

Source : EY Global Corporate Divestment Study 2015 – considerations for divestment - Asia-Pacific responses, ex Japan; Capital IQ, EY analysis

2 | Divesting for value

Support for growth drivers insufficient

Deal rushed without considering ways to enhance value

Poorly organized, incomplete or inconsistent dataroom, resulting in excessive buyer demands

One-off stranded and stand-alone costs inaccurate

Price talked-up

Actual results below expectations

2How to be successful• Two-thirds of Asia-Pacific sellers enjoyed positive valuation uptick

• Wide gap between leaders and laggards

• A complex journey that requires thorough planning and astute decision making

Potential value erosion in a divestiture

Management presentations ‘off message’ or not tuned to specific buyer

Management unprepared for data demand

Stand-alone operating model not well defined

TSAs not well negotiated

IM fails to make strategic case

Historical track record unclear

Change management not effective

Appoint M&Aadvisors

IM issued Initial offers Managementpresentation

Dataroom access

SPAreleased

Final offer Exclusivity Completion

Valu

e

IM: Information Memorandum

SPA: Sale and Purchase Agreement

TSA: Transitional Service Agreement


Sellers need to tell a strong, credible value story and weigh the opportunity costs of waiting too long for the right price.

Luke Pais Asean Mergers & Acquisitions Leader

Big divergence between the best and worst performers

Mean 14%

Top quartileBottom quartile

38%

-44%

Art of divestment

“ Top quartile performers are 60% more likely to use strong analytical tools than lower-performing companies” EY Global Corporate Divestment Study

1. For divestments in Asia-Pacific 2010-2014. Based on % change in valuation (EV/EBITDA) from -3 months from announcement date to +3 monthsSource: Capital IQ, EY Analysis

Divestiture, a primary means of optimizing the portfolio and preserving and raising capital value, deserves greater attention.

Joongshik Wang Asean Corporate Finance Strategy Leader

1 Informed decision – what to sell and how to sell (TSAs etc.)

2 Critical to follow through once intent to sell is announced

3 Understand trade-offs between value, speed and risk

4 Have a dedicated team to manage divestment

Change in seller’s valuation1


3EY’s approach to divestmentsComprehensive approach to complex journey covering the entire lifecycle of the transaction

1. Portfolio review 2. Strategy and concept 3. Planning and preparation

Kick-off workshop Separation scoping workshop

Separation planning workshop

Identify deal perimeterDecide on deal structure (Trade sale vs. Carve-out vs. Spin-off)

Identify non-core business

End of preparationProject start

Entanglement analysis

Standalone operating model

Financial bridges

Operational bridges (Draft TSA)

• Business: sales, marketing, customer contracts or channels

• Operational: manufacturing, supply chain

• Functional: finance, HR, IT, legal

• Replicate

• Optimize

• TSA

• Shared corporate costs

• Standalone costs

• One-off separation costs

• Stranded costs

• Activities

• Service levels

• Duration

• Fees

Strategy• Define long-term high level goals

• Financial• Commercial• Ethical

Operating Model• Benchmarking • “Complete” picture

• Standalone • Synergies

Outcomes• Core or Non-Core• Performing well vs. At risk

Options• Invest to maintain or grow• Divest to realize (outside) value• Optimize (within existing model)• Restructure (to design new model)

Strategy

Options

Operating Model

Outcomes

Del

iver

able

Strategic review

Separation scope and concept

Separation plan

Governance Model

Robustness of value story

Deal structure and timelines

Standalone BU capabilities and business services

Asset allocation (including. IP or shared technology)

Clarity & transparency of financial info

Inter-BU compensation model

IT platform and set up

FTE allocation and divisibility of teams

Material contracts agreement

Plan for standalone operations

Review of key separation dimensions

BAU: Business As Usual


The financial Vendor Due Diligence (VDD) is:

• Factual description of the business

• Pro-forma separation financials

Seller Information Documents (SIDs) for:

4. Investor reporting 5. Separation execution Post-closing phase3. Planning and preparation

Q&A sessions with investors

Separation execution kick-off workshop

Follow-upworkshop

Day 1 readiness workshop

SigningGo public, point of no return Closing

Deliver transitional services and roll-off

TSAs

1 2 3

Steering committee Decision making

Workstream Business Operations Functional

Separation management office

Wee

kly

upda

te

Separation plan

Risks & issues

Milestone tracking

1

2

3

Finalize TSA to ensure BAU for BU being separated

Execution of separation implementation plan

Ensuring day 1 readiness and prepare for post-closing support

Finance

IT

HR

Operations

Pro-forma financials

VDD, SIDs Business transfer

Closing accounts

Exit TSAs

Proactively establishing a heightened state of readiness to divest is a best practice.

Karambir Anand Operational Transaction Services

Tax

IT

Operations

Seller‘s M&A team

BU management

Local BU or country or site management

EY team

Detailed view of business for buyers Separation management office (SMO) set-up for business transfer


Successful sellers use a combination of data and project management tools

EY proprietary divestment tools helping create value for sellers

Data management Project management

Managing and manipulating large quantities of data Effective project management framework

ePlaybook• Dynamic project management• Real time management • Custom to-do lists• Alerts and status reports

Data room management• Design and management• Gather and checking• Preparation (gap filling)• Q&A

CarveX• Carve-out financial statements• Scenario planning in offline environment• Unlimited data capacity• Bridge regulatory and deal financials

CarveXDivestPro• Step-by-step divestment guide• Issue identification• Templates• Tips and tricks

DivestPro

Financial modelling• Business planning• Synergy modelling• Pro forma adjustments• Closing accounts or mechanisms

Separation planning and implementation• Detailed separation plan• Issue or resolution log• Project management tools• TSA and SLA templates• Q&A

Leading companies view divestments as a fundamental part of their capital strategy, especially to fund growth.

Paul Hammes

EY Global Divestiture Advisory Services Leader

Source: EY Global Corporate Divestment Study


Paying close attention to tax implications is essential, as they are complex and can add considerable value to a transaction.

Russell Aubrey Asean Transaction Tax Leader

Portfolio review Portfolio was reviewed carefully in order to maximize the valuation of SpinCo while maintaining RemainCo’s strategic focus

Strategy and concept

Decisions related to planning, operational & strategic value drivers were made well in advance of the IPO date

Planning and preparation

Enhanced go-to-market strategies in 60+ countries with no impact to pricing

Investor reporting

Accurate estimation of one-time, stranded and stand-alone costing

Tax There was simultaneous implementation of customized tax structure into the business unit

Separation execution

Company within a company created 3 months prior to IPO

The de-layering of the organization reduced G&A by 20% from allocated basis

“The spin-off leaves us better positioned to focus on our core business by unlocking the value in SpinCo” — RemainCo CEO

Case Study: How EY helped a Big Pharma client maximize value through divestment

224

3 months pre divestment (Seller)

3 months post divestment (Seller + SpinCo)

183

20%

“We will continue serving our customers in ways that make a meaningful difference to their businesses and strengthen our position as the world leader in animal health”— SpinCo CEO

Market Cap change for Big Pharma (USD Bn)

Source: Capital IQ, EY Analysis


4Why EYOur sector-focused divestiture advisory services (DAS) professionals have served on many carve-out sales, spin-offs to existing shareholders, IPOs and contributions to joint ventures for domestic and global clients, including Fortune 500, private equity portfolio companies and privately held businesses.

EY divestment value proposition

Our divestiture related thought leaderships

#1 in divestiture advisory globally*

Dedicated team globally including ASEAN

Global Corporate Divestment Study 2015A survey with 800 executives on questions relating to portfolio review and divestment strategies and provides insights on how to maximize divestment success Roadmap to carve-out sale successIllustrates the critical steps to getting a deal signed in six months

Capital Confidence BarometerProvides a view of executives confidence on real and sustained economic recovery and how it impacts their growth strategy Exit Readiness WorkshopIllustrates the importance of exit readiness workshops, workshops purpose, agenda and its outputs from each workshops

Functional specialists Integrated service offering across transaction lifecycle

Outcomes focused jump-start approach

Industry specialists

Business

Operational• Supply chain• Manufacturing

Functional• HR• IT• Finance

• Financial services

• Oil and gas• Resources

• Consumer goods

• Life sciences and healthcare

*Source: Blueframe 2014


EY has buy- and sell-side experience. We carry dedicated divestiture teams who understand the needs of potential buyers (private equity, strategic - public and private).

Purandar Rao Singapore Transaction Advisory Services Leader

Select EY global divestment advisory credentials

Transaction type Countries by region Workstreams

Sample engagements

Carv

e-ou

t & s

ale

Carv

e-ou

t & ta

x fr

ee s

pin

# of

cou

ntrie

s im

pact

ed

Nor

th A

mer

ica

Cent

ral a

nd S

outh

A

mer

ica

Euro

pe,

Mid

dle

East

, Ind

ia

and

Afr

ica

Asi

a-Pa

cific

Carv

e-ou

t fina

ncia

l st

atem

ents

pr

epar

atio

n

Stan

d A

lone

on

e-tim

e/TS

A c

osts

Ope

ratio

nal

sepa

ratio

n an

d st

and-

up o

f New

Co

PMO

Big Pharma spin off and IPO of its animal health unit √ 70 3 17 37 13 √ √ √

Multinational consumer goods company spin off of its pharmaceutical unit √ 41 2 3 28 8 √ √ √ √

Leading BioPharma’s partial IPO of its Nutrition unit √ √ 59 3 26 16 14 √ √ √

Leading BioPharma’s sale of its medical supplies unit √ 33 5 5 14 9 √ √ √ √

Leading FMCG company’s carve-out and sale of its pharmaceuticals business √ 25 3 19 3 √ √ √

Imaging tech company carve –out and sale of its healthcare IT platform √ 50 3 10 22 15 √ √ √ √

German car manufacturer’s carve-out and sale of its American business √ 28 3 4 16 5 √ √ √ √

Divestiture of logistics BU from a Fortune 500 company √ 25 2 4 14 5 √ √ √ √

Heavy equipment manufacturer carve-out of USD1.2 billion logistics business √ 30 2 8 17 3 √ √ √ √

Global healthcare company’s carve-out and tax-free spin of specialty pharma √ 103 2 27 54 20 √ √ √

Specialty chemicals sale of its coating business to a PE buyer √ 15 2 1 7 5 √ √ √ √

Fortune 500 company carve-out and sale of a BU √ 25 3 2 14 6 √ √ √ √

American producer of technology-based performance materials - carve-out and sale of 4 BUs, pharma, fine chemicals, plastics and polymers

√ 10 1 1 5 3 √ √ √ √

Leading oil company – carve-outs and sales of numerous BUs √ 13 2 2 6 3 √ √ √

TSA: Transitional Service Agreement PMO: Program Management Office

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© 2015 EYGM Limited.All Rights Reserved.

APAC no. 00000295ED None.

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This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax, or other professional advice. Please refer to your advisors for specific advice.

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Contacts

Singapore

Swee Cher Choo Transaction Advisory Services [email protected]

Indonesia

David Rimbo Transaction Advisory Services [email protected]

Malaysia

George Koshy Transaction Advisory Services [email protected]

Thailand

Piyanuch Nitikasetrsoonthorn Transaction Advisory Services [email protected]

Philippines

Renato Galve Transaction Advisory Services [email protected]

Myanmar

Andre Toh Transaction Advisory Services [email protected]

Vietnam

Jason Doan Transaction Advisory Services [email protected]

Portfolio and strategy reviewVikram ChakravartyAsia-Pacific Capital Transformation Leader [email protected]

Joongshik Wang Asean Corporate Finance Strategy Leader [email protected]

Operational separationKarambir AnandOperational Transaction Services [email protected] Abhay BangiOperational Transaction [email protected]

TaxRussell AubreyAsean Transaction Tax Leader [email protected]

Advisory (sell-side)Luke PaisAsean Mergers & Acquisitions Leader [email protected]

Financial VDDPurandar RaoSingapore Transaction Advisory Services Leader [email protected]

Valuation and business modellingAndre Toh Asean Valuation & Business Modelling Leader [email protected]

EY Asean DAS - Divesting for value- Final

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