This document outlines the key steps in developing an M&A strategy, including determining business drivers, financing constraints, developing an acquisition candidate list, preliminary valuation models, rating candidates, and approving the strategy. The process involves translating the business plan into acquisition criteria, understanding available funding, identifying potential targets, estimating costs and returns, prioritizing opportunities, and getting stakeholder approval for the strategy.

1. How to Build a M&A Strategy
Presented by
Praveen Asokan
13382053
MBA-IB
Organizing an Acquisition

2. Contents
• What is an M&A Strategy
• Strategy Development Process Overview
• Determine Business Plan Drivers
• Determine Acquisition Financing Constraints
• Develop Acquisition Candidate Lists
• Build Preliminary Valuation / Return Models
• Rate / Rank Acquisition Candidates
• Review / Approve Acquisition Strategy

3. What is an M&A Strategy?
• Translates strategic business plan
into a list of target acquisition
candidates
• Provides a framework for
evaluating acquisition candidates
• Enables management team,
board of directors, and investors
to get on the same page

4. M&A Strategy Process
• Determine Business Plan Drivers
– How can your strategic business plan
be accelerated or more successful via
M&A?
• Determine Acquisition Financing
Constraints
– How can you fund acquisitions?
What returns must be achieved?
Who approves funding?
• Develop Acquisition Candidate
List
– What specific private and public
companies are you interested in
acquiring?
• Build Preliminary Valuation
Models
– What are the initial estimates of
acquisition cost? What returns could
be produced?
• Rate/Rank Acquisition Candidates
– How do various acquisition
candidates rank in terms of impact to
business and feasibility of closing
acquisition?
• Review & Approve Acquisition
Strategy
– Do all of the critical stakeholders
(executive team, board, & investors)
agree with strategy and priorities?

5. 1. Determine Business Plan
Drivers
Translateyourcompany’sstrategic
business plan into a set of drivers and
requirements that your M&A strategy
will address

6. Business Plan Drivers
1. What markets do you want to be in?
2. What share do you want of each market?
3. What products/technologies does your roadmap require?
4. What geographies do you want to operate in?
5. What types of people, skills, & experiences do you need?
6. What financial targets do you wish to achieve?
7. Do you need to pre-empt your competitors?
8. How much risk are you willing to take?
Acquisition strategies are derived
from strategic business plans. You
need to have your basic strategic
plan in place first before you can
develop an effective M&A strategy

7. What markets do you want to be in?
Supply Chain Related Markets
= solid growth
= flat to low growth
= flat to declining growth
1. Understand the structure, size, growth, and trends of existing markets
2. Identify markets/market segments your firm wishes to enter via M&A
Plan Make Distribute Sell Service
Demand Planning Manufacturing Planning Inbound Logistics Sales Forecasting Returns / Exchanges
Apparel Assortment Planning Manufacturing Scheduling Inventory Management Shelf Assortment Warranty Service
Planogram Planning Inventory Management Carrier Capacity Management Price Management Field Service
Floor Planning Inbound Logistics Fleet Management Trade & Promotion Mgmt Loyalty Programs
Space Planning Production Control Outbound Logistics Point of Sale
Spend Management Quality Control Store Replenishment Markdown Management
Procurement Outbound Logistics Vendor Managed Inventory E-Commerce
Reverse Auctions Cost Accounting Warehouse Replenishment Consumer Credit & Payments
Order Management Supplier Payments Transportation Procurement Advertising Management
Supply Chain Network design Supplier Performance Mgmt Freight Audit & Payment Labor Management
Supply Chain Optimization Warehouse Management Global Trade Management Loss Prevention
Product Lifecycle Management Supplier Payments
Product Data Management
Horizontal / Enabling Technologies
EDI Translators Bar Coding RFID SOA ERP
EDI VAN Order Life Cycle Management CPFR BPM CRM
EDI - Enterprise-scale
Outsourcing
Warehouse Management Supplier Collaboration Portals EAI Application Development /
Deployment
Data Synchronization - Private
Catalogue
Electronic Payments Web Forms B2B Integration Content Management
Data Synchronization - GDSN
Data Pool
POS - Analytics Supply Chain Analytics Adapters Systems Infrastructure &
Management
AS2 Communications POS - Transaction Systems Supply Chain Visibility Business Intelligence
Mass File Transfer Scan-based Trading Trading Partner Mgmt Security

8. What share do you want of each market?
• The reality is that product/service revenues determine market
share
• Your relative position in the market determines what strategies
& tactics will yield best results

9. What products/technologies does your roadmap require?
Build
Buy
•Identify specific products or technologies that your strategic product roadmap requires
• Determine timeline when solution has to be available to achieve market share targets
• Honestly assess the time, costs, resources, and risks associated with build options

10. What geographies do you want to operate in?
•Determine your current geographic footprint
• Identify major geographies you want to expand to:
• Europe
• Middle East
• Asia
• South America
•Determine the relative sequence you would prefer
(Europe first, Asia second)
• Determine preference for either direct operations or
build presence via agents, resellers, partners, etc.

11. What types of people, skills, & experiences do
you need?
•Based on your market, product/service/technology, and
geographic requirements you should identify what types of
human capital needs you have that could be addressed by M&A
• For example:
•Specific technologies like AJAX, social media APIs,
non-relational databases, MapReduce, Hadoop, etc.
•Language skills (German, French, Arabic, Japanese, Chinese)
for local customer service support, localized UIs, etc.
• Indirect channel marketing and sales skills
• Social media platforms and execution

12. What financial targets do you wish to achieve?
• 1, 3, & 5 year targets for:
• Revenue
• Revenue Mix (License, Maint, SaaS, etc.)
• Gross Margins
• Operating Profit
• EBITDA
• Valuation (Enterprise Value / Market Cap)
• Determine split between organic versus M&A growth
• “We are a $65 million Business Today. By the end
of 2012 we will have annual revenues in excess of
$225 million. We expect that existing products and
services will contribute to 20% of the growth target
and the rest will come via mergers & acquisitions
Financial targets tend to
be the primary drivers of
M&A strategies.

13. Do you need to pre-empt your competitors?
If competitor A buys
acquisition candidate D
ďefore we do, we’re
screwed
•Is there a need to deny a competitor the
opportunity to acquire a specific company?
•What is the relative value of a competitor not
owning a specific company
•Rarely does one single acquisition change the
dynamics of an overall market
•There are generally other companies that could
fill the strategic requirements

14. How much risk are you willing to take?
• What is your risk profile -- conservative, moderate,
or aggressive?
• How much financial risk are you willing to take?
• 5% of combined company revenues?
• 50% of combined company revenues?
•Are you willing to invest in pre-revenue products /
technologies?
•Are you willing to enter totally new markets that
your business has no position in today?
• Are you willing to invest in international geographies
outside of your current geographic footprint?
Risk/reward is best examined in
context of a specific acquisition
candidate, unless your execs, board,
& investors have specific hard/fast
risk management policies

15. 2. Determine Acquisition
Financing Constraints
Determine the constraints associated
with financial resources to support
acquisitions

16. How Big is Your War Chest?
•Acquisitions can be funded multiple ways: cash, public
and private equity, debt, earn outs, minority investments,
PIPEs, etc.
• How much surplus cash and untapped credit facilities
are available?
• How much new equity can you raise?
• How much new debt can you raise?

17. Understand the Hurdles
•CFOs, Board of Directors, Investors, Debt Holders all
have criteria by which they evaluate potential acquisitions
•You need to understand these criteria since they will
definitely impact the types of acquisition candidates you
can pursue
• Some example criteria include:
• Debt Terms (We never do more than 4X coverage ratios,
convertible debt deals, or covenant-heavy deals)
It is not unusual for
various stakeholders
to disagree on M&A
approval criteria. It is
better to learn about
the requirements
before you pitch your
first deal

18. 3. Develop Acquisition
Candidate List
Identify the specific public and
private companies that you are
interested in acquiring

19. Build Your Initial List
• Identify acquisition candidates by:
•Market research (Gartner, AMR, IDC)
• Public stock research / analysts
• Competitor sections of public company 10-K͛s
• Recommendations from employees
•Referrals from investment bankers, attorneys,
board members, investors
• Develop summary profile for each company
• Target markets
• Key products/services
• Revenues
• Profitability
• Enterprise Value
• Geographic footprint

20. 4. Build Preliminary Valuation
Models
What are the initial estimates of
acquisition cost? What returns could
be produced?

21. Preliminary Valuation Models
•Preliminary valuation models provide you with
key metrics to help understand the costs and
return potential of a specific acquisition
•At this point in the process, these models are high
level and preliminary in nature. They are intended to
provide you with an indication of potential costs and
value. Definitive analysis of acquisition opportunities
occur after the initial strategy has been developed and
approved.
•Most organizations have a preferred format for presenting
preliminary valuation. Get a copy of a model from past deals
and use it as your template. Each executive team, board, investors,
or debt holders have key metrics that matter to them.
• A sample valuation and return models are presented on the next pages

22. Sample Quick Valuation Analysis
QAD as of 9/10/09
Enterprise Value
Equity Value
Cash
Debt
113.3
(40.6)
16.9
Enterprise Value 89.6
•Used to illustrate the
costs and multiples
associated with a deal
• Can be developed very
Fees & Expenses
Legal & Accounting
Debt Costs
Restructuring
Total
1.0
1.9
12.0
14.9
Gross Purchase Price Funding Requirements
20% Restructured EBITDA Case: Debt @ 2.00x
Required Equity:
93.4
15.2
93.4
37.8
93.4
52.6
•Sample analysis of ERP
Company QAD
•This organization places
value on revenue &
EBITDA multiples. Your
organization may have
different metrics (EPS
Growth, Cash Flow, etc.)
Premium 0% 20% 33%
Price 3.68 4.42 4.89
Shares Out 30.8 30.8 30.8
Market Cap 113.3 136.0 150.7
less cash (36.6) (36.6) (36.6)
plus debt 16.9 16.9 16.9
Total Enterprise Value 93.6 116.3 131.0
plus: Fees & Expenses* 14.9 14.9 14.9
Gross Purchase Price 108.5 131.2 145.9
Gross PP / LTM EBITDA 4.9 22.1x 26.8x 29.8x
Gross PP / LTM Revenue 233.4 0.5x 0.6x 0.6x
quickly with limited info
Standalone Multiples EBITDA/Rev
TEV / LTM EBITDA 4.9 19.1x 23.7x 26.7x
TEV / LTM Revenue 233.4 0.4x 0.5x 0.6x
PF Contribution Multiples EBITDA/Rev
TEV / PF 20% EBITDA Margin @ LTM Rev 46.7 2.0x 2.5x 2.8x
TEV / PF 25% EBITDA Margin 58.4 1.6x 2.0x 2.2x
TEV / PF 30% EBITDA Margin 81.7 1.1x 1.4x 1.6x

23. Sample Returns Analysis
•Model estimates incremental exit valuation of
ĐoŵďiŶiŶg ͚MyCo͛ & QAD
•Valuation is based on EBITDA multiple – your firm
may choose different metrics

24. 5. Rate/Rank Acquisitions
How do various acquisition
candidates rank in terms of impact to
business and feasibility of closing
acquisition?

25. Strategic Matrix
Exit Impact
$500M+
$250M+
$0M
Acquirability
<10X
RR EBITDA
4-6X
RR EBITDA
1-2X
RR EBITDA
Company A
Company B
Company C
Company D
Company E
Company F
Company G
•Rating/Ranking of acquisition candidates
lets you understand the relative impacts
of specific acqusitions
•The sample matrix on the right looks at two
dimensions
•Acquirability – the relative price required
to win acquisition as measured by
restructured EBITDA multiples
• Exit Impact – the dollar impact to the
ĐoŵpaŶLJ͛s ǀ aluatioŶ iŶ ϯ LJeaƌs
•Once again, you need to develop/use metrics that
make sense for your business. EBITDA and Revenue
multiples are just two of dozens of potential metrics
that could be used.

26. 6. Review & Approve Acquisition
Strategy
Socialize acquisition strategy and
receive feedback/concurrence from
key stakeholders

27. Review & Approval
•Prepare summary briefing of strategy
(See table of contents on right)
• Schedule and deliver briefings to:
• Executive team
• Board of Directors
• Key investors/debt holders
• Consolidate feedback and produce final
strategy package
• Review/revise strategy each quarter. Do
a major update in conjunction with annual
strategic planning
Acquisition Strategy Presentation
• Executive Summary
• Acquisition Strategy Drivers
• Target Markets & Market Share
• Products/Technologies
• Geography
• People / Skills
• Financial Targets
• Competitive Pre-Emption
• Risk
• Funding Constraints / Metrics
• Acquisition Candidate List
• Preliminary Valuation / Return Models
• Strategic Matrix

28. What’s Next
This is the first in a series of presentations on Merger & Acquisition basics.
The remaining posts in this series will cover:
1. How to Build an Exit Strategy
2. How to Build an Acquisition Pipeline
3. How to Divest a Business
4. How to Analyze an Acquisition Candidate
5. How to Pitch an Acquisition to a Board of Directors, Private Equity Firm, or a VC
6. How to Work with Private Equity, Venture Capital, & Investment Bankers
7. The Art of the Initial Management Meeting
8. Acquisition Integration Planning the Sterling Software Way
9. Acquisition Cultural Integration. Horror Stories & Best Practices

29. Thank You   
Queries ???