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CFO and Art Of Mergers and Acquisitions
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CFO and Art Of Mergers and Acquisitions

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Keynote speech delivered at the "CFO Asia 2008" Conference, Singapore. …

Keynote speech delivered at the "CFO Asia 2008" Conference, Singapore.
September 2008

Published in Business , Economy & Finance
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  • 1. M&As CFO’ M&A : CFO’s and the art of M&A d th t f Sanjay Uppal Group Chief Financial Officer Emirates NBD 15 – 17 September 2008 The Grand Copthorne Waterfront Hotel Singapore
  • 2. Introduction M&As as a corporate strategy Prospecting : Identifying targets Transaction Execution After the deal Ready to h R d t shop again? i ? 1
  • 3. In spite of the current financial turmoil, global M&A deal volume remains strong compared to historic levels Year-on-year Value*, USD billions No. of deals Comments $2,644 $2 644 5,000 • Global M&A activity is still 2,500 strong – Deal volumes are still 4,000 significantly higher than those g y g 2,000 $1,857 $1,857 seen in 2005 $1,813 3,000 • Deals driven by operational rather than financial agenda 1,500 , $ , $1,427 2,000 – Private equity contribution has shrunk, with only 7% of deals 1,000 $955 $955 in H1 2008 accounted for by 1,000 Private Equity q y $602 $610 • Significant and very fast 500 0 growing contribution from 2000 2001 2002 2003 2004 2005 2006 2007 2008 emerging markets, particularly H1 H1 H1 H1 H1 H1 H1 H1 H1 China, China India & the GCC * Announced deals (not withdrawn), includes deals above $25 million only Source: Dealogic; McKinsey analysis 2
  • 4. M&A activity in Asia – 2008 Despite turmoil in global financial markets, M&As in Asia expected to surpass record value of 2007 Approx US$ 300m worth of deals announced in Asia by August 2008 Total transactions in 2008 expected to exceed US$ 460m recorded in 2007 China, India & Singapore most active playgrounds for yg transactions 3
  • 5. CFOs in global organizations are playing a larger role in shaping M&A strategy Example Description CFO directly • Business development team reporting to CFO drives M&A responsible for agenda and execution M&A strategy & execution • CFO, along with CEO & Head of Strategy responsible for g M&A agenda • CFO played a very strong role in the merger with Compaq • Corporate development group responsible for M&A activity & reports directly to CFO • Built strong in house transaction capabilities including valuation for smaller deals CFO plays • CFO key member of capital allocation committee, which indirect role shapes M&A strategy through shaping g p g strategy •I d Independent M&A department reporting directly to CEO d t d t t ti di tl t • CFO influences M&A activity through the Board Source: McKinsey proprietary survey 4
  • 6. M&As make significant contributions to relative growth – but most acquisitions tend to destroy relative value A strong and well executed M&A strategy can . . . but most acquisitions fail to create value help companies realize growth . . . Explanatory power for differences in Improvement in share price from T – 2 years to company growth*, R², percent T + 2 years, adjusted for returns on MSCI World Index***, % Innovation** Market 23% growth Success 38% 39% 61% Failure 39% Inorganic activity * Based on the time series growth regression of 54 large companies across a broad range of sectors ** Remainder including disruptive innovation and noise in regression analysis *** Based on analysis around 1229 large deals executed before 2005 Source: SDC, Hoovers, Company reports, Analyst reports, McKinsey analysis 5
  • 7. Key stages of an acquisition Pre-transaction Execution Process Post-transaction Target Transaction Post Corporate M&A identifica Launch merger Capability Execution building strategy strategy tion mgmt Process Success of the Transaction depends on success at every stage 6
  • 8. Introduction M&As as a corporate strategy Prospecting : Identifying targets Transaction Execution After the deal Ready to h R d t shop again? i ? 7
  • 9. Corporate Strategy : Key Dimensions • Vertical / Horizontal Organic expansion • Resource allocation • Exit strategy Divestit • Non-core ures businesses • Growth leap Acquisit • Vertical / Horizontal ions integration 8
  • 10. M&A strategy integral to Corporate strategy Pre-transaction Valuation & Post-transaction synergies Due diligence Target Transaction Post Corporate M&A identifica Execution Launch merger Capability strategy strategy tion Process mgmt building Structuring- g Negotiation • Ability to use M&A successfully as growth route –Strong baseline p g performance –Distinctive capabilities to add value • Clear M&A strategy –Focused to achieve core corporate objectives 9
  • 11. M&A as a corporate strategy M&A : As an effective corporate strategy Build vs. Buy : Striking the right balance Align acquisition parameters with corporate goals Leverage financial assets through M&A Prepare the foundation for a successful acquisition Pitfalls & rebalancing the risk-reward ratio 10
  • 12. Motivations Cost-reducing & revenue enhancing synergies Diversification Strategic Focus : Horizontal & vertical integration Financial purchase Valuing considerations other than cash 11
  • 13. Introduction M&As as a corporate strategy Prospecting : Identifying targets Transaction Execution After the deal Ready to h R d t shop again? i ? 12
  • 14. Target identification : Bringing focus Pre-transaction Valuation & Post-transaction synergies Due diligence Target Transaction Post Corporate M&A identifica Execution Launch merger Capability strategy strategy tion Process mgmt building Structuring- g Negotiation • Clear target identification –Focused to achieve core corporate objectives • Know what you want 13
  • 15. Target identification : A disciplined approach Corporate Aspiration Target : Fitment Criteria Affordability $$$ 14
  • 16. Affordability Determine appetite Re-establish strategic perspective Set limits : CFO plays a key role Hurdle rates for IRR Time within which it should be accretive to EPS Financial di i li i f d Fi i l discipline is fundamental t l Acquisition financing : Never too early to plan Resist temptation to overstretch 15
  • 17. Background check on potential targets Reputational due diligence Legal & regulatory risks Information gathering 16
  • 18. Taking the next step Public vs. Private deal Making contact with target The initial proposal : Presenting the win-win offer 17
  • 19. EmiratesNBD merger : Launch of the process 18
  • 20. Introduction M&As as a corporate strategy Prospecting : Identifying targets Transaction Execution After the deal Ready to h R d t shop again? i ? 19
  • 21. Executing the transaction Pre-transaction Post-transaction Transaction Target Execution Post Corporate M&A identifica Process Launch merger Capability strategy strategy tion t t t t mgmt building b ilding • Ability to execute deal successfully –Right deal team in place (with relevant skill sets & experience) • Good first hand understanding of key transaction principles –e.g. valuation : must be prepared to walk away if the price is too high 20
  • 22. Deal Organization & Interested Parties o Equity & Debt Investors Shareholder o Analysts & Media s & other stakeholders o Suppliers / Customers S li C t o General Public o Securities Regulator Regulators o Business Regulator o Stock Exchange o Jurisdictions External Advisors o Lead Advisor o Fairness Opinion o Legal o Financial Fi i l Internal Deal Team o Board o Management o CFO o Core Deal Team 21
  • 23. Due Diligence Assembling the acquisition team : Internal & external Understanding the motivation of the transaction Due diligence : Legal, Financial, Commercial, market surveys… Qualitative research on management team of target Analyze targets historical performance Anticipate dis-synergies (loss of customers, contracts, staff, etc) Tax i li ti T implications Special consideration to balance sheet items Review management projects & synergy benefits Identifying potential deal breakers 22
  • 24. Valuation & Negotiations Components of price & price-value equation Comparables, Comparables currency & other considerations Making the offer Structuring the terms Tailor-make terms for each deal E.g. earn-outs, management retention, non- g , g , compete clause, restructuring 23
  • 25. Communicating with all stakeholders . . . and articulated issues & our approach for d ti l t d i hf We developed our Stakeholder map. . . each stakeholder group Internal External Others Stake- Their Our Message Channels holders issues objective j Staff Shareholders General Public Shareholders Value Increase Safe / Press / Enhanced Website Transaction Customers Service/ Competitive Larger bank, Press / Boards Customers Advisors Ad i Pricing distribution.. Website UAE regulators Accountants Staff Job Security/ Attract and Better Intranet Career Retain best opportunities webcasts, Foreign Outlook talent in diversified newsletters regulators Legal Advisors organisation Analysts Regulators Transparency/ Compliance/ Other Advisors Meeting Blueprint Best Practice Media Ratings g agencies Suppliers 24
  • 26. Communicating with staff 25
  • 27. Multiple channels leveraged to ensure impact Outgoing communication Dialogue Channels / tools Channels/tools News Letters Steering committee meetings Press Releases Team meetings Media Interviews AGMs / EGMs E-Mails Shareholder dialogue Intranet Press Conferences Internet Press Interviews P I t i One-on-one meetings Informal Meetings Call Centres Intranet – “Ask the CEO” 26
  • 28. Emirates NBD merger timeline 7 March March – June 12 July 5 Sept 17 Sept 16 Oct Merger Valuation / Legal / Merger EBI EGM Executive ENBD Announced Due Diligence / g Terms Committee Lists on Negotiations Announced Appointed DFM (Press conference) Trading Suspended Trading Suspended Trading Suspended (7-15 Oct) ( 13 March 2 July 1 Aug 6 Sept 26 Sept Joint Steering Merger Merger NBD EGM First Board committee terms Offer Meeting of established agreed launched ENBD 27
  • 29. Introduction M&As as a corporate strategy Prospecting : Identifying targets Transaction Execution After the deal Ready to h R d t shop again? i ? 28
  • 30. Realising the vision Valuation & synergies Due Pre-transaction diligence Post-transaction Transaction Execution Target Process Post Corporate M&A Structuring- Capability identifica Launch merger strategy strategy tion mgmt building Negotiation g Focus shifts to well executed post merger management Prioritization of high value & high risk areas Delivering the value 29
  • 31. Making it work New B d N Brand Re-defining Vision, Mission & Values Organisation structures & model Delivering Synergies Analysts / Media communication Investor Relations HR policies p Integration : Plans & updates Financial Announcements Shareholders Team building Impact of external events ... 30
  • 32. Integration Deriving expected value Dedicated team in place before transaction closes Plan, Plan, Plan Timing is critical Communication 31
  • 33. Introduction M&As as a corporate strategy Prospecting : Identifying targets Transaction Execution After the deal Ready to h R d t shop again ? i 32
  • 34. Till next time….. Each deal is a lesson – Improve your chances next time Make M&A part of corporate growth cycle Stay tuned to opportunities – Create opportunities ! Don’t hesitate to ask for help End is not concluding the transaction – it is delivering the value Never stop shopping ! 33