PricewaterhouseCoopersETIRA
Partnerships in Business : Joint Ventures, Mergers & Acquisitions
ETIRA „Members Only“- Meeting Frankfurt/Main, Germany – 25 January 2005Werner Suhl, PricewaterhouseCoopers
PricewaterhouseCoopersETIRA
Your considerations ?
Attractive markets / international partnerships
Other ... ?Management issues / Succession planning
Growth strategy / financial constraints
Focus on most profitable products
and services
Agenda
• Corporate Life-Cycle
• Financing Alternatives
• Private Equity
• Corporate Transactions(step by step)
• Valuation
• Practical Support, Don‘t Do‘s
• Questions
PwC
Agenda
• Corporate Life-Cycle
• Financing Alternatives
• Private Equity
• Corporate Transactions(step by step)
• Valuation
• Practical Support, Don‘t Do‘s
• Questions
PwC
PricewaterhouseCoopersETIRA
Attractive partnership /optimized exit Corporate life cycle
Time
Businessviability
Consolidation
Insolvency
Underperformance
Crisis
How to detect the ideal timing for a transaction ....
PricewaterhouseCoopersETIRA
Attractive partnership /optimized exit Corporate life cycle
Time
Businessviability
ConsolidationREBUILD
PROTECT
RELEASE
Restart
Turnaround
M&A
Fire sale
Insolvency
Underperformance
Crisis
Bankruptcy
Liquidation
... and how to recover from missed opportunities
Agenda
• Corporate Life-Cycle
• Financing Alternatives
• Private Equity
• Corporate Transactions(step by step)
• Valuation
• Practical Support, Don‘t Do‘s
• Questions
PwC
PricewaterhouseCoopersETIRA
Lack of liable capital / restricted supply of debtfor midsized corporates
0
5
10
15
20
25
30
0-10 10-25 25-50 50-100 100-250 250-500
Turnover Mio. EUR
Equi
ty(%
)
Equity capitalization
Quelle: IKB, 2003
PricewaterhouseCoopersETIRA
Financing Financing alternatives alternatives
Financial Investors
• Venture Capital
• Private Equity
• Initial Public Offering(IPO)
Equity Debt
StrategicInvestors
• Mergers and Acquisitions(M&A)
ClassicalInstruments
• Loans• Factoring• Leasing• Straight Bonds• Syndicated
Loans
StructuredConcepts
HybrideFinancing
• Participating Certificate
• Silent Partnership
• Convertibels / Warrants
• Loan with Profit Participation
Mezzanine
• Asset-Backed Finance
• StructuredLoans(Interest, Term, Currency)
• Acquisition-Finance
Financial Instruments
PricewaterhouseCoopersETIRA
Mezzanine-Fonds : examples
Agenda
• Corporate Life-Cycle
• Financing Alternatives
• Private Equity
• Corporate Transactions(step by step)
• Valuation
• Practical Support, Don‘t Do‘s
• Questions
PwC
PricewaterhouseCoopersETIRA
Private Equity-financing
Phases of Investment
* Investitionen in Deutschland 2002
Longterm developments
LBO22%
MBO22%
Start-up19%
Seed3%
Replacement capital
1%
Turnaround2%
Bridge1%
Expansion28%
MBI1%
* Investitionen in Deutschland 2002
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
LBOMBO/MBIBridgeTurnaroundReplacementExpansionStart-upSeedohne Angaben
PE investors demand controlling rights and influence on corporate decisions
Exit drives the total return – PE houses are partners for a limited period of time
PricewaterhouseCoopersETIRA
Private Equity deals 1991 – 2003 (Germany)Development of Investments and Divestments
4.451 4.435
537
1.211
541
2.4152.506
509 528 517 612
1.700
2.816
-820
-2.132-1.855
-1.262-770-538-728
-359-404-352-332-196-173
Investments (incl. funds in funds) Divestments
Valuein €m
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Source: BVK
High investments in 1999 - 2001, especially in early stage venture capitalTypical: Divestment peak tails after investment peak – nearly 40% write-offs in 2002
PricewaterhouseCoopersETIRA
Private equityinvestments as
% of GDP (2003)
0.12
0.21 0.23
0.39 0.39
0.580.63
0.7
0.6
0.5
0.4
0.3
0.2
0.1
Germany Italy Europe NL France Sweden UK
European Private Equity market
Source: EVCA Yearbook 2003
PricewaterhouseCoopersETIRA
2. United Kingdom 3. France 4. Italy 6. Germany 8. Netherlands 10. Sweden 14. Spain 17. Finland 20. Belgium
Western EuropeNorth America1. USA 9. Canada
Middle East & Africa13. Israel 18. South Africa
Central & South America
1%2%
25%
<1%Asia Pacific5. Japan 7. Korea 11. Australia 12. India 15. Hong Kong 16. Indonesia 19. China
Source: PwC / 3i
63%9%
Who is the world leader?
PricewaterhouseCoopersETIRA
Private Equity investors : examplesTurnaround Expansion capital
MBO-Investors
Agenda
• Corporate Life-Cycle
• Financing Alternatives
• Private Equity
• Corporate Transactions(step by step)
• Valuation
• Practical Support, Don‘t Do‘s
• Questions
PwC
PricewaterhouseCoopersETIRA
Transactions during a corporate life cycle
StructuringFunds
Structuring
OperationalDue Diligence
VendorDue Diligence
Commercial Due Diligence
Post-DealServices
Financial Due Diligence
Deal Origination /Fund Raising
Investing
DevelopingDisposing
Buy-Side Advise
Identifying opportunities
Sell-Side Advise
Add-on Acquisitions
PricewaterhouseCoopersETIRA
Transaction value chain
Strategic development
Makingdeals
successfulExecuting
dealsEvaluating
deals
Structuring acquisitions and
negotiating purchaseagreements
Structuring acquisitions and
negotiating purchaseagreements
Financing structureand origination
Financing structureand origination
Project managementProject management Initial Public OfferingInitial Public Offering
Target valuation Target valuation
Assessing employeebenefits &
information systems
Assessing employeebenefits &
information systems
Financial and taxdue diligence
Financial and taxdue diligence
Identification and validation of
synergies and costreduction opportunities
Identification and validation of
synergies and costreduction opportunities
Operationalimprovements and
cost reductions
Operationalimprovements and
cost reductions
Decision support,employee benefits,
measurement systems
Decision support,employee benefits,
measurement systems
Monitoring deal flow
Monitoring deal flow
Idea generation andevaluation via SDA
Idea generation andevaluation via SDA
Post deal integrationPost deal integration
Portfolio companymonitoring and
compliance
Portfolio companymonitoring and
compliance
Strategic alternativesanalysis via SDA
Strategic alternativesanalysis via SDA
Valuation servicesValuation services
Identifying and contacting targetsIdentifying and
contacting targets
Evaluation of sectorand target market
position
Evaluation of sectorand target market
position
“Sell side”due diligence
“Sell side”due diligence
Environmental andproperty review
Environmental andproperty review
Identificattion andevaluation of tax
saving opportunities
Identificattion andevaluation of tax
saving opportunities
Identificattion of taxstructuring opportunities
Identificattion of taxstructuring opportunitiesProactive
assessment of PPA-effects of transaction
Proactive assessment of PPA-effects of transaction
Purchase Price Allocation (PPA)Purchase Price
Allocation (PPA)
Value Communication Advice (VCA)
Value Communication Advice (VCA)
Identifyingdeals
Determination andassessment of exposures
Determination andassessment of exposures
Transactionvalue chain
PricewaterhouseCoopersETIRA
Overview of the disposal process
I. Strategy & indicative offer II. Due diligence III. Negotiations
& closing
PROJECT MANAGEMENT
Early identification of “hot spots” and
“most likely” purchasers
Identification of, and best solution to,
bottlenecks
Address key issues as they
arise
Conclusion ofthe process
PricewaterhouseCoopersETIRA
Phase I: Indicative offers and valuation
Research and background on acquirors
Deal structure to achieve optimum consideration
for shareholders
Issues which will arise during due diligence
Control and release of information
Preparation of a longlist on the basis of the criteria catalogue
Agree longlist with all shareholders
Preparation of a short profile and an Information Memorandum
Approach potential acquirors and provide the sales documents
Help to prepare responses to questions
Understand shareholders´objectives Selection of acquirors
Understand shareholders objectives
- SWOT analysis - Identification of key transaction
risks
Discuss sale strategy
Preparation of criteria catalogue for potential acquirors
Vendor due diligence, vendorassistence
Perform preliminary valuation
Receipt of indicative offers
- Understand potential acquirors‘ strategic acquisition and integration concept
- First indicative offer with assumptions
- Financing
Assess content of indicative offers and summarise them
Receipt and clarification of indicative offers
PricewaterhouseCoopersETIRA
Phase II: Selection of the best acquiror and strengthening of own position
Management presentation Data roomEvaluation
Assessment of the true content of the bid including:real price, timing of payment, nature of considerationsources of financeconsideration of necessary approvalsfuture conditions for management
Strengthen own position during data room through controlled release of information:early identification of “hot spots” and how to avoid the heatturning negatives into positives
Assistance in managment presentation
- Business development- Market position and competitors- Financial development- Organization- Attractions of company
Assist shareholders and management throughout due diligence with on site presence
Invite selected potential acquirors to data room
- Provide further information- Prepare responses to points arising- Provide a draft purchase agreement
Planning, organization and coordi-nationof data room and site visits
Verification and analysis of the indicative offers to establish true worth of the bids
Evaluate „conditionality“ of offers
Negotiate key terms and improve terms to shareholders
Decide with shareholders whichpotential acquirors will proceed to the next phase
PricewaterhouseCoopersETIRA
Phase III: Successful negotiations and closing
Negotiations and closingFinal offers Further due diligence
Tactics during negotiations of terms of purchase
agreement
Alternative approaches toacquirors’ demands
concerning representations and warranties
Final offers within a fixed time frame
- Comments or modifications to draft purchase agreement
- Explanation and discussion of the offers
Evaluation and summary of the final offers
Presentation of final offers to shareholders
Further negotiations of bids, if appropriate
Co-ordination of last minute information requests
Initiation and co-ordination of further due diligence requirements
- Commercial due diligence- Financial due diligence- Tax due diligence- Legal due diligence- Environmental due diligence
Contents of disclosure letter to minimise future
liabilities
Final approval of negotiation tactics
Support in negotiations
Negotiations concerning representations and warranties
Co-ordination and organisation of the closing of the transaction
Agenda
• Corporate Life-Cycle
• Financing Alternatives
• Private Equity
• Corporate Transactions(step by step)
• Valuation
• Practical Support, Don‘t Do‘s
• Questions
PwC
PricewaterhouseCoopersETIRA
Value driver : „Selling the story “
Leading MarketPosition
Good Client Relations
AttractiveProducts
Reliability of Dataduring DD
Restructuring Risks
Sustainable ProcuctsTechnology
Management
Strategic Price
Market-Consolidation „Selling the
story“
Shar
ehol
der V
alue
International Orientation
Bidding Process
New Technologies
EstablishedBrand
MAXIMIZING SHAREHOLDER VALUE
MaximizingShareholderValue...
…as well as minimizing potential risks
Historic Development / Actual Position Chances / Aktual Risks
PricewaterhouseCoopersETIRA
Advanced valuation techniques :Strategic Decision Advice (SDA) ….
Step 1 : Modeling of Uncertainties and Development Paths:• Business plan and status quo analysis• Identification of uncertainty factors, possible decisions and
development paths• Derivation of all possible scenarios as combinations of the
identified uncertainties• Estimation of factor variations and probabilities
Low
Nominal
High Enterprise
Value
Low
Nominal
High
etc.
Low
Nominal
High
Ongoing and FutureRestructuring Plans
Low
Nominal
High
Curremt R&D-Pipeline
Low
Nominal
High
Market PotentialNew Products
Low
Nominal
High
Potential ofCurremt Portfolio
Low
Nominal
High
Degree of Inter-nationalisation
Scenario I a
Growth Relativto Competitors
Low
Nominal
High a
Low
Nominal
High
etc.
Low
Nominal
High
Investment SubsidiesGermany
Scenario II b
Personnel CostsGermany
Low
Nominal
High b
Low
Nominal
High
SynergyPotentials
Scenario III
Proceeds fromPartial Sale
Other Scenarios
PossibleScenarios
PricewaterhouseCoopersETIRA
c’d …. Strategic Decision Advice (SDA)
Current R&D-pipeline
Ongoing and future restructuring plans
65 70 75 80 85 90 95 100 105 110
Growth relative to competitors
Degree of Internationalisation
Potential of current product portfolio
Market potential of new products
Enterprise Value
Step 2: Identification and Analysis of Key Value Drivers:• Sensitivity analysis: Identification of key value drivers• Tornado diagramm: Graphical illustration of valuation effects
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
300 400 500 600 700 800 900 1000 1100 1200 1300 1400
Cum
ulat
ive
prob
abili
ty d
istri
butio
n
Value of the competing strategies in Mio EUR
Risk profiles for two competing strategic alternativesStep 3: Valuation and Analysis of Valuation Results:• Risk profile: Illustration of valuation results• Answers questions such as:
• What is the expected value of the respective strategicalternative or investment project?
• Which strategic alternative is the least risky?• How high is the probability that the value of the
strategic option will be positive?• How high is the probabilty that the value will be
between X and Y?
Agenda
• Corporate Life-Cycle
• Financing Alternatives
• Private Equity
• Corporate Transactions(step by step)
• Valuation
• Practical Support, Don‘t Do‘s
• Questions
PwC
PricewaterhouseCoopersETIRA
Due diligence steps and integration
Due Diligence Support
• Financial
• Market/Commercial
• Operational
• Reporting & Controlling
• Information Technology
• Human Resources
• Tax
• Realization of Chances
“Value Driver Analysis”
• Management of Risks
Urgent ActionsMid-term solutions
Trans-formation:
100 Days Plan
Post Deal ServicesBusiness Due Diligence
• Strategic Review
• “Red Flag Due Diligence”
• Market Review
• Risks and Opportunities Paper
“Pre-Due Diligence”
PricewaterhouseCoopersETIRA
Readiness +Value + Market-Test
Readiness Assessment
Preliminary Longlist + Short Profile
Preliminary Value Indication
Corporate Valuation
Approach of potential Investors
Presentation of ResultsAgree further Steps
Vendor Assistance / Data Analysis
Vendor Due Diligence
Establish Data Room
Finalize Long List/Short List
Finalize Information-Memorandum
Approach Investors
Distribution of Information-Memo
Receive non-binding Bids
Management Presentation
Due Diligence
Negotiations and Closing
Illustrative project-timetable
M
Phase
ContentJan 05 Feb 05 Mrz 05 Apr 05 May 05 June/July 05
Establish Sales Steps / Initiate Process Negotiation Phase
PricewaterhouseCoopersETIRA
„Don‘t do‘s“ Konzernstandards zu Akquisitionsprozessen
Unclear definition of responsibilities and contacts
Un-focused project management
Intransparent transaction process
Under-estimation of timing contraints
Non-coordinated communication
Lack of confidentiality
Gap between management (owners) and functional responsibilities
....
PricewaterhouseCoopersETIRA
Q u e s t i o n s ?
Agenda
• Corporate Life-Cycle
• Financing Alternatives
• Private Equity
• Corporate Transactions(step by step)
• Valuation
• Practical Support, Don‘t Do‘s
• Questions
PwC
PricewaterhouseCoopers networkPricewaterhouseCoopers (www.pwc.com) provides industry-focused assurance, tax and advisory services for public and private clients. More than 120,000 people in 139 countries connect their thinking, experience and solutions to build public trust and enhance value for clients and their stakeholders. “PricewaterhouseCoopers” refers to the network of member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity.
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Services benefiting you – PwC Advisory
TransactionsWe help our clients in mergers and acquisitions, including financial and operational due diligence, accessing the capital markets and valuing, negotiating and structuring deals. We also assist with divestments and developing exit strategies. Performance ImprovementWe help clients improve their performance. We use our deep understanding of finance, risk management / compliance, IT systems, operations and humanresources to help our clients identify and implement cost savings initiatives, improve management and control, identify and manage risk and improve quality. We also use our proven experience and expertise to provide hands-on assistance to improve financial under-performance and cash-flow management. Crisis ManagementWe help clients deal with critical events as they occur. We provide comprehensive services covering business recovery, restructuring, dispute analysis and forensic investigations.
PricewaterhouseCoopersETIRA
Your contact
Werner Suhl - Partner, Advisory, Frankfurt
Werner heads the German m&a practice within PwCs Deals Services offering and is part of the management of German Advisory service line with one thousand employees and partners
Before he spent 15 years at Deutsche Bank, Frankfurt as General Manager DB Morgan Grenfell and Managing Director Global Investment Banking
He serviced national and international clients in various industries regarding the purchase or sale of companies and shareholdings, joint ventures, corporate restructurings, management buyouts and in connection with public takeovers of listed companies. Overall he had management responsibility for more than 300 transactions with a total value of over € 150 billion
Werner is qualified as Chartered Accountant and Tax Advisor
Marie-Curie-Strasse 24-28 Phone +49-69-9585-565060439 Frankfurt am Main Mobil +49-160-8857567Germany E-Mail [email protected]
Werner Suhl Photo