Cross-Border European M&As

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Trends in European M&As and areas of attention for successful cross-border M&As. Presented as part of the New York 2008 World Trade Week at Baruch College.

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Cross-Border European M&As

  1. 1. EUROPEAN CROSS BORDER M&As:  The Making Of Global Leaders and  Emerging Central­Eastern Europe  Pete Chatziplis, CFA, ACCA, CF Weissman Center for International Business, Baruch College World Trade Week, New York May 22, 2008
  2. 2. Topics Global M&A activity Current M&A trends in Europe European M&A Deal Analysis: sectors and sizes Sources of financing: what’s the role of private equity? Eastern Europe Areas of importance in planning and executing an M&A Q&A session Pete Chatziplis, European Cross Border M&As, Baruch College, World Trade Week, New York, May 22, 2008 1
  3. 3. Global M&A Activity 2007 a record year for Global M&As: – Total Global M&A Deal Value in 2007 $ 3.6 trillion ($3.7 trillion in 2006) – North America: $ 1.58 trillion, 9% growth/ 4,950 deals – Europe: $1.4 trillion, same as in 2006/ 6,290 deals – Asia: $ 430 billion, 5% growth/ 2,700 deals 2007 Deal Value by Region 2007-2006 Deal Value 4,000 3,500 $440m $180 $430 3,000 $410m * Other, $180, North 2,500 5% $1,400 America, $1,400m $1,580, 44% 2,000 Asia-Pacific, 1,500 $430, 12% 1,000 $1,450m $1,580 500 Europe, $1,400, 39% 0 2006 2007 Other includes: Latin America, Africa, Middle East. North America Europe Asia-Pacific Other Source: Mergermarket, The Comprehenisve Review of North American Mergers & Acquisitions, Mergermarket Full Year 2007. Pete Chatziplis, European Cross Border M&As, Baruch College, World Trade Week, New York, May 22, 2008 2
  4. 4. Top 2007 Deals Globally • RBS-Fortis-BSCH/ABN Amro €71bn Banks • Altria Group/Kraft $61 bn Consumer • Enel&Acciona/Endesa €48 bn Energy • Providence,Madison,Teachers/BCE $44 bn Telecoms • KKR,TPG,GS/TXU Corp $44 bn Energy • Rio Tinto/Alcan €32 bn Industrials • Unicredit/Capitalia €22 bn Financials • KKR&Pessina/Alliance Boots €18 bn Consumer • KKR/First Data $27 bn Business Services • TPG,GS/Alltel $27 bn Telecoms • Blackstone/ Hilton $25 bn Leisure • Bank of America/LaSalle €15 bn Financials Pete Chatziplis, European Cross Border M&As, Baruch College, World Trade Week, New York, May 22, 2008 3
  5. 5. European M&A Activity 2007 close to 2006 at historical high: – Slowdown in 2H’07 due to credit crunch – Credit crisis affected mega deals but not volume; deals take longer time – 1Q 2008 deal volume down by 10% – Drivers: Strategic activity; cash availability in PEs; weakening US$ European Deal Value European Deal Volume Source: Mergermarket, Deal Drivers, A Comprehensive Review of European M&A s, Full Year Edition 2006. Pete Chatziplis, European Cross Border M&As, Baruch College, World Trade Week, New York, May 22, 2008 4
  6. 6. European M&A Activity – Deal Sizes 2007 a mega-deal year; middle market is strong: – Continued increase in average size; deals over €500 m totaled €800 billion (80% of total); 350 transactions – Significant middle market activity: 700 deals for a total of €160 billion 2007 M&A Deal Split (Value) 2007 M&A Deal Split (Volume) Source: Deal Drivers, The Comprehensive Review of North American Mergers & Acquisitions, Mergermarket Full Year 2007. Pete Chatziplis, European Cross Border M&As, Baruch College, World Trade Week, New York, May 22, 2008 5
  7. 7. European M&A Activity – Countries Growth and regulations are critical: – UK traditionally with the bulk of the M&A activity – France is viewed as the most protectionist country, followed by Italy, Germany – Eastern Europe growing is perceived as the most attractive region 2007 Deal Value by Country 2007 Deal Volume by Country Other UK & Other UK & CEE 5.2% Ireland 7.3% Ireland CEE 10.8% 25.0% 13.5% 25.1% Nordic 6.1% Nordic Germany 12.2% Germany Benelux 8.0% 10.1% 17.2% Benelux France 8.9% France Iberia Italy 9.3% Iberia 8.4% Italy 7.0% 6.5% 10.9% 8.5% Source: Deal Drivers, The Comprehensive Review of North American Mergers & Acquisitions, Mergermarket Full Year 2007. Pete Chatziplis, European Cross Border M&As, Baruch College, World Trade Week, New York, May 22, 2008 6
  8. 8. European M&A Activity – Sectors Financial Services strong/Energy of growing importance: −Financial: $99 bn acquisition of ABN AMRO by BSCH/Fortis/RBS −Energy: $67 bn acquisition of Endesa by Enel SpA −Consumer: $25 bn acquisition of Alliance Boots by KKR/Pessina −Industrials: consolidation; Rio Tinto/Alcan, Akzo Nobel/ICI, Cerberus/Chrysler 8.40% 10.70% 4.80% Other 5.80% 12.00% 13.90% Life Sciences 15.70% 6.20% TMT 14.20% 19.50% Energy/Resources 10.30% Consumer & Leisure 28.50% Financial Services 33.60% 16.40% Manf'g & Bus.Serv. Value Volume Source: Deal Drivers, The Comprehensive Review of North Pete Chatziplis, European Cross Border M&As, Baruch College, World Trade Week, New York, May 22, 2008 American Mergers & Acquisitions, Mergermarket Full Year 2007. 7
  9. 9. Cross-Border M&A Activity Cross Border activity grows: – Record year in transatlantic deals; $330 billion (1,040 deals) – Increase in European buyers – Factors: Strategic activity; cash availability in PEs; weakening US$ – Significant Deals: Rio Tinto/Alcan, Thompson/Reuters – Rise of Sovereign Wealth Funds – Concerns over sectors of strategic importance and subsidized M&As Transatlantic Deals (Value) Transatlantic Deals (Volume) Source: Deal Drivers, The Comprehensive Review of North American Mergers & Acquisitions, Mergermarket Full Year 2007. Pete Chatziplis, European Cross Border M&As, Baruch College, World Trade Week, New York, May 22, 2008 8
  10. 10. M&A Financing Sector Increased importance of PEs – Europe: €212 bn in 1,270 deals, 20% of total activity in 2007 – US: $490 bn in 910 buyouts in 2007; 35% of total activity; – Asia: $42 bn, 700 deals (India $10 bn, China $9.5 bn, Taiwan $5.8 bn) – PE investment patterns in Europe: 80% increase in targets’ value over 3.5 years mainly through revenue growth and cost reduction 13% EBITDA growth vs. 21% in the US EBITDA Improvements through geographical expansion, improved selling/pricing/product mix, operational efficiency IPO 3 times more likely exit in US than Europe; secondary sales 4 times more frequent in Europe Pete Chatziplis, European Cross Border M&As, Baruch College, World Trade Week, New York, May 22, 2008 9
  11. 11. European PE Activity Increased importance of PEs – Sectors: Consumer 24%, TMT 17%, Industrials 15%, Energy 11%, Business Services 9%, Pharma 7%, Financial 5% – Fall in confidence in 2H2007 and 2008 but still strong – Focus on middle market and turnarounds, cash deals at discount – Largest buyout ever: Boots/Pessina,KKR at €17.8 billion PE Buyouts and Exits by Value Buyout Deals by Country Other Italy 1.7% 6.1% UK & Iberia 6.5% Ireland CEE 27.5% 6.9% Benelux 11.7% France Nordic 13.8% 12.3% Germanic 13.6% Source: European Private Equity in Review, Mergermarket, February 2008 Pete Chatziplis, European Cross Border M&As, Baruch College, World Trade Week, New York, May 22, 2008 10
  12. 12. M&A Pricing Trends Median Enterprise Value to EBITDA Multiple Medianvs. Financial Buyers - Global Deals Strategic EV/EBITDA- Global 11.0x 10.5x Increase in Valuations: 9.2x 9.6x 9.9x 9.0x 8.6x 8.9x 8.5x average multiple reached 7.2x 7.6x 7.7x 7.9x 6.7x 10.5x in 2007 6.0x 5.6x Higher multiples offered in 4.3x 3.5x electronics and large deals Higher multiples in CEE but 1.0x 2001 2002 2003 2004 2005 2006 2007 rationalizing Source: Thomson Financial Strategic Buyers Financial Buyers Includes only positive multiples less than 25x. Median Enterprise Value to EBITDA Multiple Median EV/EBITDA- Global < $250m Strategic vs. Financial Buyers - Global Deals Less than $250mm Cash rich PEs; average 11.0x multiple increased from 4.3X to 9.1x 8.5x 8.2x 10.5X 8.5x 7.4x 7.7x 7.8x 7.7x 6.8x 7.0x 6.7x 6.5x 6.2x Strategic and financial buyers 6.0x 5.2x competing head to head 3.9x 3.5x 1.0x 2001 2002 2003 2004 2005 2006 2007 Pete Chatziplis, European Cross Border M&As, Baruch College, World Trade Week, New York, May 22, 2008 Strategic Buyers Financial Buyers 11 Source: Thomson Financial Includes only posit ive mult iples less t han 25x.
  13. 13. European M&As – Cultural Themes Strong protectionist sentiments / cultural/ national sensitivities: – Vary by sector: stronger in Banks, Utilities, and Infrastructure – Vary by market (stronger in France, Germany, Italy) Regulatory framework a critical factor: – European Commission approvals; anti-monopoly regulation – Foreign Corrupt Practices Act (“FCPA”) – Sarbanes-Oxley considered as an obstacle – Fair Value Accounting Concern over Sovereign Wealth Funds CEE in the focus; large PE have setup specialized teams Pete Chatziplis, European Cross Border M&As, Baruch College, World Trade Week, New York, May 22, 2008 12
  14. 14. Successful M&As – Best Practices Five Disciplines: Establish Clarity of Purpose Safeguard Parent Power Know your Target Provide Incentives to Execute Integration Planning Source: Deloitte, Making the Deal Work, Avoiding Merger Failure (page 5 and 17) Pete Chatziplis, European Cross Border M&As, Baruch College, World Trade Week, New York, May 22, 2008 13
  15. 15. Damodaran – 7 sins in Acquisitions 1. Risk Transference: attributing acquiring company risk characteristics to target firm 2. Debt subsidies: subsidizing target firm for the strengths of the acquirer 3. Auto-pilot Control: The “20% control premium” and other myths… 4. Elusive Synergy: Misidentifying and misvaluing synergy 5. It’s all relative: Transaction multiples, exit multiples.. 6. Verdict first, trial afterwards: Price first, valuation to follow 7. It’s not my fault: Holding no one responsible for delivering results Pete Chatziplis, European Cross Border M&As, Baruch College, World Trade Week, New York, May 22, 2008 14
  16. 16. Issues in M&A Due Diligence Problem areas Remedial Action “Deal fever” may lead to oversee Define a clear DD plan (team, problems or try hide when too late objectives, methods, deadlines) Unclear deadlines and priorities Structure effectively DD team and Inefficient structure and coordination assign responsibilities, milestones and among due diligence/deal teams incentives “Ad hoc” approach and practices (error Prioritize: identify and focus on basics prone/inefficient process) (“cost-benefit” trade-off) Distraction and stress on deal team Use qualified staff/advisors, tested technology and methods Unavailability of information Negotiate over problem areas early in No performance monitoring, no the deal accountability “If it doesn’t look good, it’s not good” Ignore country/industry-specific issues; get trapped in “mind-sets” Inefficiencies can cost significantly in dollars and reputation Pete Chatziplis, European Cross Border M&As, Baruch College, World Trade Week, New York, May 22, 2008 15
  17. 17. Concluding Notes Slowdown due to credit crisis; unavailability of debt financing (LBOs) increase in the importance of strategic buyers Markets believed to recover in a year; at least Transatlantic deal flow increasing Protectionism exists; an obstacle in cross-border deals The most active sectors in cross border M&A Technology, Life Sciences and Financial Services; the least Infrastructure and Energy Growth expectations in Central-Eastern Europe M&A activity in Europe to remain strong but “Look before you leap” on cross-border M&As Pete Chatziplis, European Cross Border M&As, Baruch College, World Trade Week, New York, May 22, 2008 16
  18. 18. Q&A ? Pete Chatziplis, European Cross Border M&As, Baruch College, World Trade Week, New York, May 22, 2008 17
  19. 19. Pete Chatziplis, European Cross Border M&As, Baruch College, World Trade Week, New York, May 22, 2008 18

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