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MERGERS, ACQUISITIONS ANDRESTRUCTURINGWeek 3Babtan, Paun, Policarpo

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CORPORATE DIVESTITURE

Divestiture

Involuntary Voluntary

Underperforming

Underpositioned

Strategymisfit

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DIVESTITURES:DRIVING VALUE THROUGH SEPARATION

What do companies want out of a divestiture?

Getting value for their assets is the top goalnegotiating a good price matters;

Minimizing disruption to the business is another big concthe level of chaos such transactions may create in the existingbusiness;

Closing the deal quickly and using managements timeefficiently

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DIVESTITURES:DRIVING VALUE THROUGH SEPARATION

Importance of outcomesthat characterize asuccessful divestiture

Factor accgreatest v

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DIVESTITURES:DRIVING VALUE THROUGH SEPARATION

Factors that may lower the probability of success

Involvement of corporate development team in divestitures

Frequency of evaluating portfolio for potential divestitures

Adequacy of resources devoted to executing divestitures

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DIVESTITURES:DRIVING VALUE THROUGH SEPARATION

Some important steps in preparing to separate out part o

Make sure that all the stakeholders are aligned;

Create a plan for how the divestiture will happen, function by function;

Do due diligence on yourself;

Savvy leaders view divestit

essential core competenc

organization and embrace

portofolio optimization

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LEVERAGED BUYOUTS (LBO)

Financial dictionaries define a leveraged buyout (LBO) as a debt-financed transaction,

typically via bank loans and bonds,

aimed at taking a public corporation private.

Because of the large amount of debt relative

to equity in the new corporation, these bonds

are typically rated below investment-grade, and

are properly referred to as high-yield or junk bonds.

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LEVERAGED BUYOUTS (LBO)

LBOs differentiation aspects:

Whether the incumbent management of the target of the buyout is part o

team initiating buyout and invests in the equity of NEWCO

Whether the target firm is a company listed on a stock exchange and incl

public, both institutional and individual, investors as shareholders

Whether the management team consists of incumbent target manageme

includes new managers from outside or a mixture of both.

IBO

Investor buyout

MBO

Management buyout

MBI

Management buyin

BIMBO

Buyin managementbuyout

PTP

Going privatebuyouts

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LEVERAGED BUYOUTS (LBO)

Possible exit strategies for LBOs include

(i) initial public offering, which allows investors to

liquidate ownership interest,

(ii) re-capitalization which allows equity holders to

realize a return by taking a sizable dividend, and

(iii) outright or partial sale to another strategic or

financial buyer.

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LEVERAGED BUYOUTS (LBO)

Fine-tuned strategies

Buy-and-build

High-technology buyouts

JV LBOs

Club Deals

PIPE

This means:

Low R&D level -> High R&D level

Low risk business -> High risk business

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ACQUISITIONTHE DECISION MAKING PROCESSTHE TARGET SELECTION

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ACQUISITIONTHE DECISION MAKING PROCESS

Economic,Strategic

Financial evaluation.

Costs and benefits of the acquisition.

Rationalistperspective

Organizational context relevant

Acquisition process starts with an idea

Progresses through acquisitionjustification.

Organizationalprocess

perspective

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ACQUISITIONTHE DECISION MAKING PROCESS

OOpt

OverConfidence

Hubris Representativeness

Availability

Anchoring

Prospect theory

Directors can institutionalize a devils advocate whose function is make a

serious case as to why the deal should not be done.

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ACQUISITIONTHE TARGET SELECTION

Value creation sources:

Cost savings

Revenue enhancement

New growth opportunities

Public vs Private

Small vs Large

Consolidation in fragmente

Add-on or bolt-on acqu

Platform acquisition or le

Buy-build-operate (BBO

Buy-build-sell (BBS)

IPO roll-up

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