Mand a toolkit 5 types of deal


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Mand a toolkit 5 types of deal

  1. 1. M&A TOOLKIT Strategic Fit: 5 Types of Deal© 2007-2013 IESIES Development Ltd. All Ltd. Reserved © 2007-2012 Development Rights All Rights Reserved
  2. 2. Each type of M&A has a different rationale Strategic Objective Value Hypothesis ExamplesOVERCAPACITY Eliminate overcapacity and Reduce costs of operations Daimler/Chrysler achieve lowest cost and overhead Mittal/Arcelor positionGEOGRAPHIC ROLL- Grow regionally Increase revenues and reduce MarionnaudUP costs by bringing efficient processes to new companyPRODUCT OR MARKET Enter into new markets Increase revenues through Quaker Oats/SnappleEXPANSION or product lines cross-selling Diageo/Seagrams Diageo/Ketel One ASWatson/SpektreR&D Gain a leading position Increase revenues through Cisco in a new technology applications of the new Google technology through your processesINDUSTRY Establish a dominant Increase revenues through AOL/TimeWarnerCONVERGENCE position in an emerging creating new products and Sony/Columbia industry services © 2007-2012 IES Development Ltd. All Rights Reserved
  3. 3. Daimler-Benz/Chrysler was an unsuccessful overcapacity dealDESCRIPTION: • Cross-border merger deal between Daimler-Benz and Chrysler in 1998, with Chrysler valued at US$36billion. Started as merger of equals, but Germans were really in chargeSTRATEGIC OBJECTIVE: • Reduce industry capacity and create the leanest automobile manufacturing company in the worldWHAT WAS BOUGHT? • Resources – plants, products and market shareVALUE HYPOTHESIS: • Reduce cost in procurement, manufacturing, distribution and overhead by $x billionISSUES: • Ability to achieve plant closures and cost savings • Huge integration job – both mature companies with completely different processes and values, both deeply rooted • Engineering-driven vs sales and marketing-driven culture clashALTERNATIVES? • Long term Alliance, co-sourcing, capacity and technology sharingRESULT: • In 2007, Cerberus private equity acquires 80% equity interest in Chrysler; Net cash outflow of EUR 0.5 billion for Daimler © 2007-2012 IES Development Ltd. All Rights Reserved
  4. 4. Marionnaud was built up through geographic roll-up, consolidating independent perfumiersDESCRIPTION: • Between 1993 and 2002, Marionnaud, a French perfumery chain, grew from 50 stores to over 600, with most of this growth achieved by buying out independents with less than 20 storesSTRATEGIC OBJECTIVE: • Achieve market share leadership in selective retail in France by penetrating every region and townWHAT WAS BOUGHT? • Resources and Values (customer service and proximity)VALUE HYPOTHESIS: • Marionnaud’s cheaper procurement will increase margins by 5-10%, achieving cash payback in 5 years on all stores boughtISSUES: • Cosmetic rebranding left every store with a different “footprint” • World class retail processes (e.g. supply chain) were never developed or rolled out • After France is saturated, what is the competitive advantage?ALTERNATIVES? • Buying Group/syndicateRESULT: • Marionnaud sold to A.S.Watson in 2004 in distress sale after unsuccessfully repeating this strategy outside France © 2007-2012 IES Development Ltd. All Rights Reserved
  5. 5. Diageo has done product extension deals that create a new growth platformDESCRIPTION: • In 2008, Diageo bought 50% of Ketel One, a US • Premium vodka ($22/bottle) with sales of $220m • for US$900mSTRATEGIC OBJECTIVE: • Extend Diageo product line to premium vodka, a segment Diageo has unsuccessfully tried three times to penetrate organicallyWHAT WAS BOUGHT? • Resources Processes and ValuesVALUE HYPOTHESIS: • Plug Ketel One into Diageo’s global distribution network, more than tripling growth from 6% to 20% per yearISSUES: • JV arrangement increases management complexity, but protects Ketel One processes and valuesALTERNATIVES? • Distribution agreement without equity stakeRESULT: • TBD © 2007-2012 IES Development Ltd. All Rights Reserved
  6. 6. Diageo has also done “in-fill” product extension dealsDESCRIPTION: •In 2000, Diageo and Pernod-Ricard acquired •Seagrams for US$8.2billion, and shared the •brands between themSTRATEGIC OBJECTIVE: •Achieve a competitive advantage in distribution and lowest distribution cost position in the USAWHAT WAS BOUGHT? •Strictly Resources only – the brandsVALUE HYPOTHESIS: •Increase growth by 2% per annum and increase our margin by 1% by creating a proprietary salesforce within distributorsISSUES: •Very easy integration •Restructuring distribution was a 2 year project, but was needed in any case •Pleasant surprise – quality of people gained – selected best 10% of Seagrams staffALTERNATIVES? •Impossible to structure with direct competitorRESULT: •Diageo’s US business has grown at double digits 2002-2007 © 2007-2012 IES Development Ltd. All Rights Reserved
  7. 7. Best Buy’s acquisition of Five-Star was a market extension dealDESCRIPTION: • Best Buy bought 51% of Jiangsu 5-Star, a • Nanjing-based electronics retailer with • 134 stores, in 2006 for US$180mSTRATEGIC OBJECTIVE: • Enter the Chinese retail electronics market, estimated to reach $100 billion by 2010WHAT WAS BOUGHT? • Mostly Processes and ValuesVALUE HYPOTHESIS: • Avoid expensive sub-scale learning curve in China; eventually achieve synergy through Best Buy processes and global buyingISSUES: • Jiangsu 5-star left alone by Best Buy; Best Buy continues to build its own mega- stores under its own brand; little short-term synergyALTERNATIVES? • 100% stake?RESULT: • Completed buy-out in 2009 • All 9 organic Best Buy stores closed in 2011 to enable focus on Five-Star • Stores expanded from 134 in 2006 to 170 in 2011; now accelerating growth again © 2007-2012 IES Development Ltd. All Rights Reserved
  8. 8. Time Warner/AOL was a huge Industry Convergence deal – unsuccessful, like most of these dealsDESCRIPTION: • AOL purchased Time-Warner for US$164b at the peak of the dot com boom in 2000STRATEGIC OBJECTIVE: • Dominate the emerging new media industry, as media entertainment converges with digital technologyWHAT WAS BOUGHT? • Resources, Processes and ValuesVALUE HYPOTHESIS: • Increase revenues by bringing Time-Warner’s content to AOL’s internet customer-baseISSUES: • AOL’s shares hugely over-valued • Culture clash between dot com and old media • Convergence has not happened – internet just another channelALTERNATIVES? • Contractual agreement to exploit content?RESULT: • AOL Time Warner reported a loss of $99 billion in 2002, mostly due to the goodwill write-off on the deal © 2007-2012 IES Development Ltd. All Rights Reserved
  9. 9. WHAT TYPE OF DEAL IS THIS? Selling acquirer’s What is the Selling target’s Market products to main cross- products to Product target’s selling acquirer’s Expansion Start Expansion customers direction? customers Y Industry Will the main Do the Convergence Is it a local N synergy come Y synergy business? from increased products N exist today? revenue? N Is the Y target in N the same industry? YGeographic Overcapacity roll-up R&D © 2007-2012 IES Development Ltd. All Rights Reserved