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Risk dg 19 may 2016 presentation slides
- 1. 15/06/2016 1 An executive viewpoint on Risk Risk Discussion Group Sydney at Canadian Consulate House 19 May 2016 Welcome by Andrew Crawford, Founder of Group Welcome: Andrew Crawford (Founder of Risk Group in 2010) Formal Welcome from Glenn Ahern, CPA President Lisa Gray and Deputy President Richard Sharpe Welcome to the 400 followers of this group and the 73 registered for tonight’s event Event management: Treasurer Helen Dong Lucky door prizes, presented by Helen Dong and her Cadet team Shan, Jenna, Lydia, Nabila and Rebecca Thanks to our sponsors GIA and CPA and our supporters, especially ACS, Sydney University Business School, Macquarie University, Institute of Chartered Accountants Speakers tonight Paul Kernaghan, Senior Executive Financial Services Saranne Cooke, Professional nonexecutive Director David Fenwick, HSBC Commodity Finance Risk Moderator: Mr Paul O’Brien Volunteer Awards: Lisa Gray, Divisional President of CPA Supporters
- 2. 15/06/2016 2 Value destruction by acquisitions PAUL KERNAGHAN MAY 2016 3 What is value destruction in M&A? Price paid is more than the changes in cash flow resulting from the acquisition. 𝑃₀ > ∆𝐶𝐹1 (1+𝑖) + ∆𝐶𝐹2 1+𝑖 2 + Δ𝐶𝐹3 (1+𝑖)3 + ⋯ Δ𝐶𝐹𝑛 (1+𝑖) 𝑛 • Where P₀ is the acquisition price, • ΔCF is the change in cash flow resulting from the deal in any year • i - is the acquirer’s cost of capital 4
- 3. 15/06/2016 3 Many studies indicate that the majority of acquisitions destroy value for the acquirer HBR – 70% to 90% failure rate KPMG – 53% destroyed value, 30% added no value AT Kearney – 58% destroyed value McKinsey – 60% to 80% destroyed value Sirrower – 66% destroyed value LEK Consulting – 60% destroyed value The majority of value goes to the target’s shareholders! 5 Some Australian Examples in Financial Services: • HIH + FAI • AMP + GIO • AMP + NPI (UK) • NAB + Yorkshire & Clydesdale (UK) • NAB + Homeside (USA) • IAG’s UK Insurance Acquisitions • QBE’s 100+ Global Acquisitions • Big 4 Banks Wealth Mgt Acquisitions? Warning signs – if price represents… High PE ratio relative to current multiples and similar deals in the relevant sector Big Premium to target’s pre deal share price Large goodwill value (ie price paid minus net assets of the target) Acquirer’s share price usually falls after an acquisition announcement as value is transferred to target’s shareholders 6
- 4. 15/06/2016 4 Six core reasons why value gets destroyed? 7 Strategic Fit & Rationale Price Paid Due Diligence Integration Planning Resourcing & Execution Governance & Alignment Why does too much get paid? Over-estimate synergies. Fail to take into account negative synergies Loss of customers, talented staff and huge disruption to existing businesses Fail to ID legal and financial issues during Due Diligence. Under-estimate the cost, complexity and risks of integration. Valuation errors, assumptions and models. Management bias and ego. Investment bankers! 8
- 5. 15/06/2016 5 Due Diligence and Integration Planning DD Scope too narrow – legal and financial is not enough. Fail to validate synergies and identify negative synergies. No detailed integration plan on which to base one off costs. Insufficient attention to people, culture and systems. No clear integration blueprint, change and risk management model. Inadequate resourcing plan for integration. 9 Organising for M&A success? Deal Team Integration Planning Team Due Diligence Team 10 Role of M&A In Strategy Target Selection Criteria Search Process Steer Co Steer Co Integration Executive BU1 BU2 BU3 Comms & Change Mgt Systems Human Resources Finance & Risk Mgt BU4
- 6. 15/06/2016 6 Risk – a view point from non executive director and researcher Saranne Cooke FCPA MComLaw MBus(Mkt) BCom GAICD AFAMI CPM The transition from executive to non- executive director in managing risk • Managing ‘high’ risks in executive roles • Transitioning from management to oversight • Board and committee responsibilities
- 7. 15/06/2016 7 The delineation of board and management • The board oversees risk , the executive manages risk • Where is the line? • The line is variable and moveable Researching ASX200 directors • The ASX Corporate Governance Council Principles and Recommendations • What are directors saying? • What keeps them awake at night?
- 8. 15/06/2016 8 Risk and Innovation • The National Innovation and Science Agenda • Being innovative and managing risk • Risk as a positive Reflecting on risk David Fenwick, Commodities Finance Risk Management, HSBC Australia May 2016 PUBLIC
- 9. 15/06/2016 9 Disclaimers • This presentation is general in nature on matters of general interest. It is not intended to be comprehensive, is not advice, and does not take account of personal situations. Where appropriate you should seek professional advice. • The material contains personal views of the author, is not sanctioned by HSBC and may not represent their views • All information is in the public domain PUBLIC Reflect on my risk roles PUBLIC
- 10. 15/06/2016 10 PUBLIC 1: risks develop slowly, and then very quickly Something else I learned through that time PUBLIC 2 : to manage risks, rules and principles are needed
- 11. 15/06/2016 11 Project Triangle PUBLIC time cost quality RISK time cost quality 3 : you can’t have it all - time vs cost vs quality…and RISK PUBLIC
- 12. 15/06/2016 12 PUBLIC • Modelling • Stress testing • Scenario testing 4 : the map is not the terrain Thoughts to leave you with: 1 : risks develop slowly, and then very quickly 2 : to manage risks, rules and principles are needed 3 : you can’t have it all - time vs cost vs quality…and RISK 4 : the map is not the terrain PUBLIC
- 13. 15/06/2016 13 What does that mean for today? PUBLIC To join the group contact Chair - Darren on ljd.change@bigpond.com Treasurer – Helen Dong on hdaccount@email.com Founder – Andrew Crawford, https://au.linkedin.com/in/andrewcrawfordfmba Chair of Gosford Group – Richard Sharpe, Richard@sharpebros.com.au GIA representatives Lea Rushton, Peter McGee and Kerry McGoldrick