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Creating Value Through Consolidation
This document discusses business consolidation and mergers and acquisitions (M&As). It notes that while M&As can help drive growth, most acquisitions destroy shareholder value by failing to create expected synergies. To create value, companies must focus on executing successful post-merger integration. Emirates NBD achieved cost and revenue synergies exceeding targets in its acquisition of National Bank of Dubai by maintaining a phased approach prioritizing customers, processes, back office consolidation, and third-party relationships. Communication, planning, and dedicating integration resources are keys to delivering the expected value from a consolidation.
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Creating Value Through Consolidation
- 1. Business Consolidation :Creating Value Sanjay Uppal Group Chief Financial Officer Emirates NBD 18 – 22 October 2009 Dubai International Convention & Exhibition Center Dubai. UAE
- 2. M & Aactivity is driven by diverse motivations Synergies : Cost-reduction & revenue enhancement Diversification Strategic Focus : Horizontal & vertical integration Financial purchase Valuing considerations other than cash Market share 1
- 3. M&As make significantcontributions 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 2
- 4. Key stages ofM&A Pre-transaction Execution Process Post-transaction Target g Transaction Post Corporate M&A C t identifica Launch merger Capability C bilit Execution building strategy strategy tion mgmt Process Identify Value Negotiating for Value Delivering Value Success of the Transaction depends on success at every stage, and most importantly on ability to realize the expected value 3
- 5. Realising the vision– Delivering the value Valuation & synergies Due Pre-transaction diligence Post-transaction Transaction Execution Target Process Post Corporate M&A identifi- Launch merger Capability strategy strategy cation mgmt building Negotiation g Identify Value Negotiating for value Delivering Value Focus shifts to well executed post merger management Prioritization of high value & high risk areas Integration of businesses & achieving synergies Delivering the value 4
- 6. Making it work: Delivering shareholder value Strategy gy - Vision - Mission - Values - Synergies target y g g Communication - Employees - Board Technology & Process - Analysts Integration - Regulators - Alignment to Strategy - Rating agencies g g - Technology choice - Customers - Replacement - Suppliers - Migration - Shareholders - Process Review & Redesign - General Public - Integration Planning - Media Organization & People - Business Model - Organization structure - HR Policies - Team building - Realignment 5
- 7. The Experience 6
- 8. We communicated theexpected Value Creation potential of the Merger : 12 July 2007 Summary of Synergies (AED m) % of Smaller Base1 Synergies (2010) Total, AED m Projected Benchmark 2 Revenue 195 10.5% 5–10% Costs 151 22.2% 14– 26% 1. As a % of NBD’s Base 2. Domestic M&A transactions 7
- 9. Revenue Synergies Sourceof Synergies % Total Basis / Rationale • Greater share wallet and yield enhancement • Cross sell for new product capabilities to increase fee 34% income • Increased capacity for cross border risk due to larger balance sheet • Focus on cross selling amount major product categories 31% • Incremental revenue generated through market share /pricing advantages and leveraging of the largest distribution network in the UAE • Greater penetration, particularly regionally. In larger projects and financing deals, by leveraging balance 28% sheet and capital • Expansion of client base and cross sell of new product capabilities 4% • Improved cost of funding due to stronger capital base 3% • Improved sales due to integrated broader offering 100% Significant revenue synergies dependent on successful IT & Operations integration 8
- 10. Cost Synergies Sourceof Synergies % Total Basis / Rationale • Branch and ATM network consolidation. 34% • Integration of card acquiring business • Pricing advantages on advertising / marketing spend 26% • Optimised Head Office and Group Functions 25% • Reallocation of IT personnel from NBD to EBI IT dedicated centre • Reduced group capex spend 7% • Improved cost of funding due to stronger capital base 4% • Improved efficiency from integrated operations and IT platform 3% • Leveraging of existing Emirates Islamic Bank as platform for unified Islamic offering 100% Over 50% of cost synergies dependent on successful IT & Operations integration 9
- 11. Effort during Integrationfollowed 4 primary objectives 1 Maintain & improve customer service across networks 2 Derive economies of scale & cost benefits from consolidation 3 Control for / minimize risk during & after transition process 4 Minimize disruption & impact on staff and supporting entities 10
- 12. A Phased approachto achieve our objectives Customer PRIORITY 1 BRANCHES ATM/CDM WEB MOBILE CALL Front end customer facing SALES CENTRE channels have maximum visibility & impact on Customer service PROCESSES PRIORITY 3 • Core Banking • Brokerage Common processes • Trade Finance • ERP maximised through • Treasury • IT Security common front-end & back-end functionality / systems BACK OFFICE 3RD PARTY / VENDORS PRIORITY 2 PRIORITY 4 Consolidations of volumes will Vendor services & relationship remove duplication, drive consolidation to achieve better economies of scale services & cost base 11
- 13. H1 2009 :Achieved Synergies of AED 328m – Ahead of 2009 full year target by 33% 250 Revenue Synergies 195 AED Millions 200 150 129 129 104 60% 100 65 50 0 2008 2009 2010 Total Synergies Cost Synergies 169 400 33% 372 151 328 150 69% 300 90% 246 109 118% 235 100 100 200 124 + 50 100 50 0 0 2008 2009 2010 2008 2009 2010 Target Actual H1 One-off Synergies 76% 144% Note 1: Base used when computing synergy targets were 2006 financials Note 2: Actual 2009 synergies represent annualised synergies achieved in H1 2009 1212
- 14. Creating Value throughconsolidation Focus on achieving expected value Dedicated team in place before transaction closes Plan, Plan, Plan Timing is critical Communication 13
- 15. Business Consolidation :Creating Value Sanjay Uppal Group Chief Financial Officer Emirates NBD 18 – 22 October 2009 Dubai International Convention & Exhibition Center Dubai. UAE 14