Merges & Acquisitions M&A

Merger & Acquisition Approach Download the entire document at: www.gazhoo.com

XYZ M&A Objectives Introduction

The purpose of this module is to allow new ACs and Consultants to:

obtain a background understanding of M&A

understand what XYZ does/doesn’t do in an M&A project

review basic analytical tools required in different M&A projects at XYZ

develop, through an exercise, an important basic analytical skill often used in M&A projects

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XYZ M&A Agenda Introduction

Trends in M&A

Guiding Principles for Successful M&A

XYZ Approach

Case Examples

screening

due diligence

sale

Exercise on Synergy Calculation

Typical Watchouts

Key Takeaways

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Trends

F PEC G 80306 01 Drivers of M&A Activity XYZ M&A

Economy boom or recovery

Over-capacity in an industry

Cheap money

Industry consolidation

Globalization

Strategic Financial Other

Gain share

Eliminate competitive threat

Capture operating opportunities, e.g., scale efficiencies

Leverage existing business systems

forward/backward integration

start-up alternative

Diversify/balance portfolio

Retire excess industry capacity

Greed

Ego

Improve capital markets evaluation of acquirer

meet growth targets

reduce portfolio risk

Invest idle cash

Macro-economics Download the entire document at: www.gazhoo.com

Trends

M&A Activity - U.S. vs. Europe $B Europe US CAGR (1992-1997) 21% 41% European and US M&A activity is experiencing similar positive trends. Note: Transaction Value (including Net Debt of Target). Excludes split-offs. Europe includes 50 major countries Source: SDC XYZ M&A Download the entire document at: www.gazhoo.com

XYZ M&A Trends Acquisition Success Rates Harvard Business School Survey of CFOs London Business School XYZ & Company Study Percent of Acquisitions Failing* in First Five Years Percent of Total The majority of acquisitions have been deemed failures. Download the entire document at: www.gazhoo.com Notes: Failure defined as earnings less than cost of capital and/or subsequently divested.

XYZ M&A Principles Strategy and M&A

Corporate objectives

growth and financial targets

competitive arena

Corporate strategy

strategic position

management of resources

Business unit objectives

business definition

growth and financial targets

Business unit strategy

strategic position

key success factors

sustainable competitive advantage

Organic growth Growth through business unit acquisitions Growth through corporate acquisitions Acquisitions at both the corporate and business unit level need to be thought of as an integral part of a company's growth strategy. Download the entire document at: www.gazhoo.com

XYZ M&A Principles Strategic Framework The focus of strategic M&A activity should be in areas where there is the highest value creation opportunity as well as the strongest parenting advantage. Low Low High High Parenting Advantage “ Is value to our client higher than value to other parents?” Value Creation Opportunity Focus Download the entire document at: www.gazhoo.com

XYZ M&A Principles M&A Value Creation Opportunities Buy cheap M&A value can arise from generating the full value of an undervalued entity or by adding value to under performing assets. Add value Take advantage of inefficiencies in the market Spot new market trends early Generate synergies Download the entire document at: www.gazhoo.com

XYZ M&A Principles Success Criteria - Diagnostic Tool (IV) Value Accurate evaluation based on NPV vs. Market Price (II) Strategic Strength (Relative Market Share) Relatedness (I) (Experience and/or Cost Sharing) The ability to improve the strategic position of the acquirer, and grow or complement its existing competencies are keys to success. RMS >1.5x RMS 1.5-1.0x RMS <0.5x Low <25% Medium 25-50% High >50% Growth > 10% Growth 5-10% Growth <5% III) Market Dynamics Download the entire document at: www.gazhoo.com

XYZ M&A XYZ Approach Roles and Responsibilities 848704a2d01-19 0% 20% 40% 60% 80% 100% Percent of Professional Time

Screening study

Portfolio

Norm bands

Key issues investigation

Intrinsic cash flow valuation

How, what and when to say

Scripts

Non-offer letter

Terms

Support as needed

Legal Due diligence

Prospectus

Other document- ation

Scripts

Due diligence

Presentation to both boards

Market valuation

How, what and when to say

Price

Terms

Support as needed

Presentation to board

Letter of comfort

Due diligence

Pro formas

Accountants XYZ Lawyers Investment Banks Identify candidate Due Diligence Valuation Development approach Develop offer and deal structure Negotiate Board approvals Implement XYZ is an integral part of a dedicated team of M&A professionals. Download the entire document at: www.gazhoo.com