Leveraging digital M&A to
maximise synergies
How Hitachi Rail achieved success
Paul Ennew
Former Global Integration Lead, Hitachi Rail
M&A MANAGEMENT SERIES
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Successful M&A is difficult
• Increasingly cross-border
• Risk
• Culture
• Management
• Higher valuations
• Cheap debt/Cash reserves
• Supply ≠ demand1
• Value leakage
• Customers
• Talent
• Synergies
1Beyond
Borders: The Future of Dealmaking, Herbert Smith Freehills/FT Remark 2016
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Execution is critical
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How does Digital M&A help
execution and synergy capture?
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History of Hitachi Rail
1910 :
Hitachi founded and developed first 5 horsepower induction motor
1920 :
Developed first steam locomotive
1924 :
First electric train manufactured for Japan market
1964 :
Built the Tokyo Monorail
1964 :
Started building Shinkansen trains in Japan
1999 :
Hitachi Rail Europe established in the UK
2001 :
Contactless ticketing system in Japan
2003 :
World’s first hybrid train
2005 :
First order for trains in Europe
2009 :
Class 395 goes into service on HS1 in Kent
2012 :
Hitachi led consortium wins £7.5bn Intercity Express Programme contract
2014 :
Global HQ moves to UK and non-Japanese CEO appointed
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Products and Services
Source: Hitachi IR Day Presentation June 2015
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Market Position
 #1 in Japan for High Speed Trains
 #1 in Japan for Monorails
 #1 in Japan for Traffic / Power management systems

#1 in Japan for computerised-interlocking

#1 in UK for Inter City trains
Source: Hitachi IR Day Presentation June 2015
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FY2014 Financial Performance (pre-deal)
Revenue
Income Ratio
€1,200m
4.6%
FCF
EBIT
EBIT Ratio
€50m
€92m
7.5%
Order Intake
Order Backlog
€3,400m
€5,900m
Source: Hitachi IR Day Presentation June 2015
Euro/Yen exchange rate as of 11 June 2015
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Business Challenges
• Mature Japanese oligopoly
• Deliver UK contracts
• Further growth
• Market consolidation
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Deal Strategy
• 4th largest global provider of integrated rail solutions
• Scope deal – revenue synergy led
• Best of breed integration strategy
• Economies of scale in SG&A not a key driver
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2014 Revenues(Billion Euro)
A Top 4 Globally Integrated Provider
Asia Rolling Stock
Global Integrated
Providers
Rolling stock
Rolling stock & systems
% of sales in home market
% Home market – Asia Pacific
Systems
Locomotives
Turnkey ( Full line ups)
% Home market – Europe
93%
% Home market – Americas
31.7
91%
16.9 95%
14.8 68%
16%
8.5
58% 81%
EBIT (%)
6.8
7.2
7.0
7.5
4.5
5.6
6.2
5.8
45%
n/a 58%
44%
n/a
3.3
2.7
7.5
3.1
n/a
n/a
n/a
2.4
n/a
2.1
34% 74% 51%
n/a
1.8
85%
1.4
1.4
n/a
1.3
1.3
1.1
0.7
4.1
7.5
9.6
0.3
20.0
Combined Organisation
Source: Hitachi Internal Analysis
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FY2014 Revenue by Market
Hitachi
Ansaldo STS
+
€1.2bn
Ansaldo Breda
+
€1.3bn
Total
=
€0.7bn
3% 3%
2%
26%
25%
21%
9%
29%
26%
7%
2%
12%
€3.3bn
62%
13%
7%
82%
23%
26%
Japan
Asia Pacific
Middle East & Africa
Italy
Rest of Europe
19%
4%
Americas
Source: Hitachi IR Day Presentation June 2015
1Euro/Yen exchange rate as of 11 June 2015
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Product Portfolio
Combined Product Portfolio
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Production Capacity
• Kasado fully utilised
• Newton Aycliffe facility
not yet operational
• Spare capacity in
Naples/Pistoia/Reggio
Calabria
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Integration Challenges
• History of portfolio management
• No integration playbook
• Team working across time zones
• Varying experience/tools
• Culture
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Solution: Value-Driven IMO
 Direction and decisions
 Tasks and activity
 Challenge and Support
 Consolidate and report
 Focus on value
 Focus on methodology
 Proactive
 Reactive
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Solution: Value-Driven IMO
 Direction and decisions
 Tasks and activity
 Challenge and Support
 Consolidate and report
 Focus on value
 Focus on methodology
 Proactive
 Reactive
Challenge: How to free IMO from administrative and reporting
tasks and focus on driving value and decision making?
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Solution: Digital M&A
Document
management
Reporting and
analytics
Team
management
Process
tracking
Schedules
KPIs
Issues
Privileges /
Access
Management
Audit
Project
management
Email
Process
management
Collaboration
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Digital M&A – The Choice
or
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Actions
• Selected award-winning
digital M&A platform
• Trained 70 users across 6 countries and 3 organisations
• All integration governance, planning, status reporting,
risk management and document sharing in
• Minimise disparate MS Office-based tools
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Pipeline Management
Planning
Reporting
Risk
Analytics
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Benefits to Hitachi Rail
• Single source of all integration information and tools
• Value-added Integration Management Office
• Enabled virtual global integration team collaboration
• Drive process to identify, quantify and report synergy
targets and realisation
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Benefits to Hitachi Rail
• Single source of all integration information and tools
• Value-added Integration Management Office
• Enabled virtual global integration team collaboration
• Drive process to identify, quantify and report synergy
targets and realisation
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Maximising Synergies through Digital M&A
Stage gates
L1 – L5
Ideas
IL1
IL2
Ideas being
turned into
initiatives
IL3
Initiatives
being planned
and prepared
for approval
IL4
Initiatives in
implementation
IL5
Impact
accruing
Impact accrued
Milestones Idea sized
• Any idea
generated with
high level
estimate of
impact (entered
into tracking
system)
Prioritised for
Approved for
planning
implementation
• Idea analysed
• Initiative
for feasibility,
approved,
total value of
signed-off by
ownership
the IMO and
impact and risks
being
• Initiative’s owner implemented
identified
• Detailed
implementation
plan developed
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Major activities
completed
• All key activities
to realise savings
completed (e.g.
contract / PO
signed, policy
changed)
• Savings
valuation
approved by IMO
Fully realized
• Savings impact-
•
ing bottom-line
(e.g. new price in
effect,
equipment
returned)
L5 value
captured at
annualised rate
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Outcomes
 Successful, de-risked Day 1
 Maximised quick wins (100 Day Plan)
 Identified major long-term
opportunities for improvement
 World’s fastest growing rail business
Source: Hitachi IR Day Presentation June 2016
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FY2015 Financial Performance (post-deal)
Revenue
Income Ratio
€3,200m
6%
FCF
EBIT
EBIT Ratio
-€792m
€160m
5%
Order Intake
Order Backlog
€3,600m
€18,100m
Source: Hitachi IR Day Presentation June 2016 (consolidated numbers including 5 months of trading from acquisitions)
Euro/Yen exchange rate as of 1 June 2016
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For more information:
Paul Ennew
Managing Director, Transaxis
+44 (0)75 3544 9259
[email protected]
www.transaxis.co.uk
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