Divestments are a complex, challenging and necessary part of the business lifecycle. Despite this, up until the financial crisis they received little attention in strategic M&A reviews. We will consider the implications of the research published in our recent Global M&A report, Streamlining for success, along with the challenges of managing divestments and lessons learnt in recent years.

1. Separation Issues in M&A
A 2015 Perspective
17 December 2015
Robin Johnson - Eversheds UK
Marc Nufer – Eversheds Switzerland

2. Robin Johnson, Partner, London
T: +44 20 7919 4754
M: +44 783 141 4079
E: robinjohnson@eversheds.com
Marc Nufer, Partner, Berne
T: +41 31 32 87 58 0
M: +41 79 687 22 77
E: marc.nufer@eversheds.ch
2

3. 1. Mid Market Overview
2. Integration
3. Separation
4. Key Issues
5. Case Study
6. Eversheds Information
Introduction
3

4. The Mid-Market View
− 30% up in volume in Europe year-on-year 2014 to 2015
− Median EBITDA 8x with an average of 7x for deals below 100
million in value
− 60% of all European deals are in UK and Germany followed by
France, Spain, Italy, Netherlands, Ireland, Belgium, Sweden and
Switzerland
− North America still is the key big strategic inward investor in
Europe. The Asian Tiger has yet to roar though we are already
seeing some increased activity
4

5. 5

6. Unsuccessful deals because of
− lack of connective glue between
planning, execution and
integration of a transaction
− Cultural differences
− Poor project management
Core team throughout the transaction
Getting buy-in from local management (communication, setting out
rationale for the transaction)
Local compliance training in local language
Integration
Eversheds Blueprint Report
6

7. − Obtaining corporate, real estate and other records
as soon as possible
− Talking to suppliers and customers
− Understanding local permits and local
regulatory requirements
− Time and cost
Talking rather than e-mailing…
Integration (cont…)
7

8. Separation
Eversheds Report Streamlining for Success
2/3 of lawyers experience differences with their business
colleagues when planning a divestment!
− Legal teams want more involvement before commercial
negotiations take place
− Getting business to take legal seriously remains a problem
− Legal teams need to take
a commercial view of risk
8

9. Separation (contd..)
Managing conflicting legal and commercial priorities
“Acquisitions get a lot of
support but divestment is
left to legal, even though it
involves a lot more
complexity.”
Assistant General Counsel,
retailer
“When difficult issues
arise on a sale, I hear,
‘just hand it over to
legal to sort out’. If
the deal moves too
quickly it will only give
rise to post closing
complications which
come back to haunt
the business.”
General Counsel,
construction company
Handling the tension between the business desire to
go as quickly as possible and the legal need to get
separation right is one of the main issues I face now.”
Senior Corporate Counsel, supply chain company

10. Most frequently mentioned problems when
running a divestment:
1. Identifying and valuing assets for sale
and allocating costs
2. Communication around transitional issues
(TSA)
3. IT separation and transfer
“When you’re
carving out a part
of a business, IT is
likely to be the
biggest challenge.”
Deputy General
Counsel, multinational
retail company
“The IT guys don’t have a good understanding of the
business or legal point of view and it’s safe to say that
we don’t understand the IT issues, so it’s like a very
long and frustrating conversation where you speak past
one another.”
Senior VP and Global M&A Counsel, retailer
Separation (contd..)
Understanding what your are selling

11. Over half of respondents said price was not their main
consideration when assessing a buyer!
Most important non-price factors:
1. Buyer's credibility or track record in completing deals
2. Buyer's reputation or track record in running a business
3. Welfare of employees and other stakeholders
“We had a buyer
offering nearly twice
the price of the others,
but we didn’t deal with
them because we were
concerned about their
ethics.”
Corporate Vice President
and GC, consumer
electronics company
“There is an increasing focus now on how
confident we are a bidder can actually
take over the asset. Technological
capabilities and integration ability are the
things we look at more and more.”
Senior Group Legal Counsel, financial services
company
Separation (contd..)
Assessing potential buyers

12. 1. Involve legal team early in the deal
2. Clear and cooperative communication with the buyer
3. Starting deal preparation early
4. Creating detailed separation plans
5. Greater focus on vendor due diligence
“Running a sale goes
beyond the
negotiation table and
the SPA documents.
In the last decade we
have moved from a
sign and manage to
a manage and sign
process.”
Head of M&A Legal,
software company
Separation (contd..)
Increasing deal value and certainty

13. 1. Auction processes: issues with data room, redaction and content
and process, mark-ups, and costs pre “exclusivity”
2. Role of VDD and approach to due diligence
3. General against specific disclosures
4. Sellers – Financial sponsors – what does this mean in practice?
5. Warranty and indemnity insurance
6. Conditionality, anti trust, financing,
MAC, regulatory consents (local)
7. Consideration structures:
Completion accounts vs Lockbox
and leakage
Non-Financial Trends on Separation / Disposal
Projects
13

14. 1. Centralised project management
2. Commitments: time, quality, fees
3. Levels and materiality both in terms of due diligence and
transactional
4. Understanding local nuances (eg. notary, language,
documentation, consultation, authorities etc.)
5. Time and expectations: meaningful and achievable timetable.
Assume 50% longer on a cross-border deal and 75% more time.
Because deals will never go as planned!
Key issues on multi-jurisdictional deals
14

15. − A corporate to divest a large business unit
by way of asset deal
− No vendor due diligence exercise due to
timing and cost
− Full advisor involvement at late stage
Case Study
15

16. − Underestimation of time required for filling data room and
redacting documents
− Underestimation of preparing disclosure schedules to asset
purchase agreement (strict local law requirements)
− Underestimation of consent requirements for transfer of documents
− At the end, deal was restructured to carve-out and share sale
− Key Lesson Learnt: Importance of deal planning and
realistic timetable
Issues coming out of Case Study
16

17. Preparation for Disposal – Solutions
Preparation
Sourcing
Documentation
Processing
Information
Preliminary
Transaction
Structure
− Getting to know one
another – kick-off
calls and briefing
− Bespoke information
request list
− Establishing a
transaction timeline
– carve-out and
disposal
− Experienced
project
management team
− Clear and focused
parameters for
documentation
required
− Building a well
structured virtual
data room
− Commercial
considerations
(translation
/redaction/stages
for release of
confidential
information)
− Analysing
documentation and
obtaining further
information
− DealMaster –
customisable
− Local lawyer input
− Running the legal
Q&A
− Disposal: umbrella
sale agreement
together with
template
mechanical sale
agreements
− Clear and concise
reporting in a
format which suits
you
− Identifying
timetable issues and
providing solutions
17

18. Project Dealmaster
This document has been prepared in relation to the proposed sale of ●.
Specifically this document is intended to:
1.constitute a reference document for each internal and external legal
counsel to access in order to understand the applicable jurisdiction-specific
transfer requirements in each of the relevant jurisdictions (the “Local
Transfer Protocol”); and
2. assist management in reviewing assets and determining which are to
be transferred to the purchaser (“Jurisdiction-Specific Asset Lists”).
Managing the Disposal – DealMaster
− Intelligent and customisable
project management tool for
multi-jurisdictional
transactions
− Time saving – easy
identification of assets
relevant to each jurisdiction
− Cost saving - Quick/easy
ready built reference guide
for understanding transfer
mechanics in relation to
assets
− Real-time map of the
business throughout the
transaction
18

19. − Easy to use format –
suitable for use by
management as well as
external advisers
− Simple user guide,
showing the link between
asset lists for each
jurisdiction/entity and
the local transfer
requirements in relation
to those assets
− Navigating around the
tool is straightforward –
it is all interlinked
DealMaster - User Guide overview
19

20. DealMaster - Contents Page
20

21. DealMaster - Local Transfer Requirements
21

22. − Asset lists can be uploaded and updated throughout the transaction
or on an ongoing basis
− Customisable e.g. can list contracts or use this tool to capture key terms
for all contracts in an easily ‘searchable/filterable’ format
− Enables management to:
• assess what is owned/used in each jurisdiction
• easily identify which assets will be carved-out of the transaction
• effectively evaluate bids
DealMaster - Asset Lists
22

23. Committed locally, connected globally
− 350+ M&A lawyers across our global network
− one of the leading European midmarket corporate transactional
teams, extending beyond to the Middle East, Asia and Africa
− Over 50% of our transactions involve more than 3 jurisdictions
− Advised on over US$95 billion of deals in 2012/13
− We aim to provide the most transparent and predictable
international corporate legal offering available
− Cost budgeting, transparency and certainty
Our commitment to project management ensures we deliver
consistent high quality across our international network and
control when it comes to timing and costs!
The Eversheds’ International M&A Group
22

24. Copies of Streamlining for success: Corporate divestment and
separation trends and The M&A blueprint: From inception to
integration are available at www.eversheds.com
Reports
22

26. eversheds.com
©2015 Eversheds LLP
Eversheds LLP is a limited liability partnership
robinjohnson@eversheds.com
+44 20 7919 4754
Robin Johnson
Marc Nufer
marc.nufer@eversheds.ch
+41 31 32 87 58 0