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8/12/2019 Castellanza Presentation_Final November 07
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M&A mandatesBuy Side and Sell SideNovember 2007
8/12/2019 Castellanza Presentation_Final November 07
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21-Nov-07 – 1
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How an M&A idea is generated
M&A DealSell side Buy side
Shareholders/Parent Company Buyer Target
Companies
Industrial/Sectorteam Public AuthorityClients
“Rumours”/“Gossip” on the
market
M&A Department
Other M&Aprocesses
8/12/2019 Castellanza Presentation_Final November 07
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Acquisition rationale
Acquisitions are aimed at improving company profitability, defending competitive advantages, preservingbusiness positioning and market share in the long term, creating additional value for the shareholders
Galbani/Lactalis, TelecomItalia/AOL, Weather/Wind,Unicredit/HVB
Integration
Rationale Description
Horizontal/lateral integration –
Same customer – Same product – Geographic expansionVertical integration – Acquisition of supplier – Acquisition of customer
AEM/Edison, Luxottica/Cole
Diversification
Product/technology expansion – Different product/technology – Same customersConglomerate (new products, newcustomers, possible new location)Financial sponsors
Saipem/Snam Progetti,Capitalia/Fineco, Erg/Enertad
Benetton/Autostrade,De Agostini/Toro
Defensive Acquisition of direct competitors – Enlarge company size – Anticipate competitors move
Gas Natural/Endesa (pending)ENEL/Endesa
8/12/2019 Castellanza Presentation_Final November 07
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Divestment rationale
Debt overload (excess in company leverage)
Change of strategy
– Refocus of business
– Refocus of strategy
Succession issues / family disputes
Assets swap
Opportunism
Regulatory / legal issues
Financial sponsors activity
8/12/2019 Castellanza Presentation_Final November 07
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Participants role in a M&A deal
TargetCompany
Seller
(ShareholdersParentCompany)
Buyer/s
8/12/2019 Castellanza Presentation_Final November 07
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Roles & responsibilities
Buyer
Business insight/analysis
Jointly with Financial Advisordefine target approach and solvefinancing issuesInvolvement in final negotiation
Top management
BoD membersCorporate development
Target
Cooperation with advisors in
initiation and executionPresentation of activities andeconomic financial data to advisorsand potential bidders
Top management
Divisional functionsFinance and Control functionSeller/Target auditors
Seller (Parent company)
Team members Responsibilities
Supervise the process
Operative coordination of internalresourcesInvolvement in the final phases ofthe negotiation
Top management
BoD membersCorporate development
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Roles & responsibilities (continued)
Professional team specialized inthese kind of transactions
Legaladvisors
Transaction structure and timetableLegal due diligence reportNegotiation activitiesFinalisation of the SPAFulfilment of Authorities’ requests
Financial Advisors
Buyer
Analyse transaction structureCoordinate due diligenceValuation
Assist negotiation phase jointly withlegal advisors
Local professional team(relationship with Buyer)Industry team (sector expertise)M&A team valuation
Team members Responsibilities
Financial Advisors
Seller
Approach potential buyers
Definition of transaction structureCoordinate procedure and duediligence
Assist negotiation phase jointly withlegal advisors
Local professional team
(relationship with Seller & Target)Industry team (sector expertise)M&A team coordinates procedureProfessional from global network toidentify potential bidders/partners
8/12/2019 Castellanza Presentation_Final November 07
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Roles & responsibilities (continued)
Professional team specialized inthese kind of transactionsSpecialist
Advisors(strategic/operational
real estate)
Specific issues analysis (i.e. realestate, IT)
Assessment of assets qualityBusiness due diligence report release
LendingBanks
Transaction structure analysis(buyer and target figures)Negotiate financing terms andconditions with buyers (i.e. covenants)Drafting of reliance lettersIssuance of financial commitment /resources
Lending/Leveraged finance team
Team members Responsibilities
Tax andaccounting
advisors
Accounting and tax due diligence
reportsPreparation of pro-forma figures(usually for the closing)Identification of optimal tax structure
Professional team specialized in
these kind of transactions
8/12/2019 Castellanza Presentation_Final November 07
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Available Process Typology
Driven bySeller
Confidential negotiation
Few parallel private negotiations
Private auction
Public auction
Driven by
Buyer
Unsolicited offers:
– Friendly
–Hostile (only public)
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Procedure selection process
Perfect in presence of a “preferred”
bidder Guarantee of exclusivityEasy to controlRelatively easy to be interrupted
Privatenegotiation
Few parallel
privatenegotiations
Pros Cons
Lower probabilities to maximize the
priceIt could need more time thanexpectedLower seller’s negotiation powerbecause of lack of competition
Lower seller’s negotiation powerbecause of reduced competitionManagement of different bidders,
who ask exclusivity, could resultdifficult to achieveStill low seller and advisor’snegotiation power because of lackof competition
It introduces competition in theprocessHigh level of uncertainty on the
status of the processIt allows to maintain confidentialityRelatively easy to be interrupted
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Procedure selection process (continued)
Perfect in case of numerous
potential biddersGood chance to maximize valueHigh control by the seller innegotiating terms of the agreementRapid process
Privateauction
Public
auction
Pros Cons
Process difficult to be interrupted
Risk of information leakage
Risk of damaging business’sreputation if the sale is notsuccessfully completedLack of flexibility to interrupt theprocess
Open to all potential buyersHighest probability of pricemaximisationHigh perception of “fairness”
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Procedure selection process (continued)
Negotiations efforts with only
controlling counterpart/sPrice offered previously agreedwith controlling shareholders
UnsolicitedOffer
(Friendly)
Pros Cons
Execution risk - bidder may not
reach optimum control threshold(i.e. debt push down)If target is public an unconditionalmandatory offer could be requiredCertainty to acquire an identifiedstake of target
Price solely fixed by Buyer on thebasis of its objectivesPossibility of conditional bidCertainty of acquiring desiredcontrol threshold (debt push-down)If successful likely probability oftake-private or free float restoration
UnsolicitedOffer (Hosti le voluntary
offer)
Poison PillsRisk of interlopers and counterbidsUncertainty of results until the endof the bid periodDelicate to be executed
8/12/2019 Castellanza Presentation_Final November 07
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8/12/2019 Castellanza Presentation_Final November 07
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Buy Side
8/12/2019 Castellanza Presentation_Final November 07
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Financial advisory role
Advisoractivities
Strategic fit analysis
Target valuation
Synergies analysis – Value (economies of scale, organisational synergies, cross selling opportunities,
etc.) – Timing
Transaction execution activitiesBuyer’s shareholders: value creation analysis (EPS accretion/dilution,etc.)
Buyer re-rating post transaction
8/12/2019 Castellanza Presentation_Final November 07
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Proposal
Unsolicited bid process
Target analysisStrategic fit
Business analysis
Anti-trust issuePoison pills
Valuation
Synergies
Impact on buyer analysisFinancial analysis
Likely consideration
Financing/credit Accretion/Dilution
Target availability analysisManagement teamassessment
Shareholding analysis“Informal” sounding
Idea
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Hostile vs Friendly target approach
Hostile
Due diligence NegotiationShares
pledged/acquired
Targetacquisition
Offer to shareholdersShares pledged/
acquired Target acquisition
Friendly Boardinvolvement
8/12/2019 Castellanza Presentation_Final November 07
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Value vs price: a quick lesson to learn
EnterpriseValue
NFP Other liabilities
Fairvalue
Market cap/Valuation
Synergywith buyer
Strategic/control
premium
Buyer bargainpower
Pricepaid
T a r g e
t p r i c e
Over valuation
Under valuation
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Timetable
Regulatory steps
‘Market’ steps
Between 15 and 45working days(to be decidedwith Consob)
Informalmeeting withConsob and
Antitrust
Prospectusdepositedwith Consob
Consobapprovesprospectus
Issuer’s opinion(same day ofOPA’s start)
Announcement ofacquisition oftendered shares
Disclosure requirementsMeeting with Borsa Italia
Prospectuspublished
anddelivered to
issuer
OPA starts Deadline forcounter offer
Announcement ofresults
OPA closesPayment
tendered shares
5 days of openstock exchange
5 days15 – 30 days 5 days 5 days
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Sell Side
8/12/2019 Castellanza Presentation_Final November 07
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Sell side: key issues to address
Key aspects – Company nature (sale perimeter)
– Transaction structure (majority/minority stake, JV,...) – Timing – Specific elements to address in the industrial sector of reference – Price
– Terms of payment – Privacy – Legal / tax aspects
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Identification of potential buyers
Trade buyers
Private Equity funds (MBO,LBO,MBI,BIMBO)
Institutional Investors
Others
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Timetable (auction)
Preparation and planning of the process
4 – 6 weeks
PreparationCompany analysis
Business comprehensionInformation gathering
Preparation of Business Plan
Preparation of Information Memorandum
Company valuationPreparation of Data Room
Draft of management presentation
Planning Analysis of potential buyers and market
sentimentSimultaneous approach of potential buyers(Teaser)
Distribution and sign off of confidentialityagreement
Draft of Sale & Purchase agreement
Draft of due diligence rules
Preparation of procedure letter
8/12/2019 Castellanza Presentation_Final November 07
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Timetable (auction)
Final Phase and closingSelection of bidder/s
(Possible competitive auction)
(Possible final choice of the buyer)
Internal approval
Final negotiations
Signing of SPA
Press release
Antitrust approval
4 – 6 weeks 3 – 4 weeks 4 weeks
Selection & closing Auction periodPreparation and planning
4 weeks
Closing
8/12/2019 Castellanza Presentation_Final November 07
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8/12/2019 Castellanza Presentation_Final November 07
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8/12/2019 Castellanza Presentation_Final November 07
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Timetable - Procedure
F M T W T F M T W T F M T W T F M T W T F M T W T F M T W T F M T W T F
Kick-off meeting
Steering Committee
Equity investment committees
Submission of binding offer
10 13 14 15 16 17 20 21 22 23 24 27 28 29 30 31 3 4 5 6 7 10 11 12 13 14 17 18 19 20 21 24 25 26 27 28
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Timetable - Due diligence
F M T W T F M T W T F M T W T F M T W T F M T W T F M T W T F M T W T F
10 13 14 15 16 17 20 21 22 23 24 27 28 29 30 31 3 4 5 6 7 10 11 12 13 14 17 18 19 20 21 24 25 26 27 28
List of attendants sent to advisor
Clarifications on data room contents sent to advisor
Management presentation
Data room and daily meeting
Circulation of draft due diligence reports
Indicative model inputs
Comments to draft due diligence reports
Data room
Final due diligence reports
Site visits
Circulation of site visits report
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Timetable - Legal
F M T W T F M T W T F M T W T F M T W T F M T W T F M T W T F M T W T F
10 13 14 15 16 17 20 21 22 23 24 27 28 29 30 31 3 4 5 6 7 10 11 12 13 14 17 18 19 20 21 24 25 26 27 28
Legal due diligence
Circulation of first draft of legal due diligence report
Legal due diligence
Circulation of final due diligence report
Receive SPA from seller
Mark-ups SPA
Finalise SPA
Drafting/mark-ups of the offer letter