Canadian Association of Movers
December 2007
Buying A Business
Damian Peluso
Director
PricewaterhouseCoopers
Transaction Services
PricewaterhouseCoopers LLP
Page 1
Agenda
I.
Current Trends and Facts
II.
The Deal Process
III. Doing the Right Deal
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Page 2
Current Trends
and Facts
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Page 3
Whose buying…..
• Acquisitions are a BIG deal for companies today:
- 40% of companies with sales > $10M are considering an
acquisition within the next 12 – 18 months
• Driven by very valid business reasons:
- Access new markets & distribution channels
- Add new capabilities for products & services
- Harvest cost & efficiency synergies
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Page 4
Historically Not Great Success Rates
77% of acquisitions do not meet
or exceed their cost of capital
50% of major mergers since 1990
have eroded shareholder returns
17% have contributed
significant value
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33% resulted in
marginal returns
Page 5
Why Deals Fail………
The most common reasons cited for deal failure include:
• Conglomerate thinking; acquiring outside of core competencies
• Deficient due diligence procedures and lack of due diligence
experience
• Disconnect between decision making and due diligence results
(the ‘gut feel’)
• Lack of negotiating discipline; not setting or staying within
prescribed terms
• Deal complexity and ambiguous deal terms
• Disconnect between due diligence and integration planning; lack
of deal resource continuity
• Lack of clear integration strategy and focus on key value drivers
• Deficient communication planning and execution
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Page 6
The Deal
Process
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Page 7
Deal or No Deal – negotiating winning deals
• M&A is a process, not an event
• Recognize that negotiations have started from the point of first
contact with the vendor
• Key to a winning deal is discipline
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Page 8
Every Deal Involves a Series of Stages
There are 5 key stages to every deal:
1. Identifying the Right Target
2. Initial Target Profiling and Value Proposition
3. Due Diligence Period
4. Negotiations and Drafting of SPA
5. Close and Initial Integration
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Page 9
Pick a good one
Target Identification:
• Set appropriate target criteria and establish objectives
• Obtain appropriate approval
• Identify and assign project leaders and responsibilities
• Identify and access the target’s decision makers, emphasize
the value proposition for the seller
• Obtain appropriate target information to assess strategic fit
• Sign confidentiality agreements
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Page 10
Understanding the Target and How It Fits in Your Strategy
Building your business proposition and initial analysis of the
Target:
• Build the value proposition (early combined business model,
synergies and initial valuation)
• Initial thoughts of corporate structure, deal structure (asset vs.
share), purchase price and financing (income vs. capital)
• Developing project plan
• LOI, transaction and timing
• Initial due diligence (financial, operational, legal)
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Page 11
Make sure you do your homework
During the due diligence stage:
• Organize DD teams (set objectives, scope, deliverables and
responsibilities). Mix of internal and external teams.
• Start due diligence field work for all respective teams
(Operations, Finance/Back Office, Tax, HR, IT, Legal,
Environmental, Background checks)
• Initial drafting of SPA
• Review and summarize due diligence findings and impact on
value proposition of DD findings
• Initial thought of integration plan
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Page 12
Negotiations and Drafting of SPA
During negotiations:
• Discussion of due diligence findings with target management, agreement
on findings
• Update business and valuation model with due diligence findings and
target discussions
• Update integration plan with due diligence findings and target discussions.
• Drafting of management/staff contracts
• Finalize value proposition (completed business model and final valuation)
• Finalize Banking/Financing and draft required documents
• Updating of PSA
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Page 13
Before Closing the Transaction Make Sure You Checked….
During the final stage:
• Finalize SPA
• Obtain appropriate Senior Management (Board) approval
• Perform confirmatory due diligence (i.e. quality of earnings, working
capital, cash flow, etc)
• Signing of new senior management/staff contracts
• Perform post-closing due diligence analyses (closing balance sheet,
working capital, EBITDA)
• Complete all required tax filings
• Prepare an integration communication plan and an internal/external
communication strategy
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Page 14
Doing the Right
Deal
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Page 15
Companies that truly excel at doing deals share a common set of
core capabilities
•
•
•
•
•
•
•
•
Clear and consistent methodology for the acquisition process
Consistently manage the deal pipeline
Focus capital and resources on the best opportunities (targets)
Coordinated diligence process that includes cross functional
teams and external advisors
Commence integration planning concurrent with due diligence
Early identification of key value drivers for each deal
Integration process that delivers the value of each deal in the
shortest time frame
Business unit sponsor involved and accountable through the
entire acquisition process
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Page 16
Deal or No Deal – negotiating winning deals
Key Takeaways:
• Acquisitions are a key part of companies growth strategies
• Negotiating the deal is a key concern
• Negotiations occur throughout the acquisition process
• Succeeding at deal making takes discipline
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Page 17
Thank you.
Damian Peluso
Director
PricewaterhouseCoopers
Transaction Services
(416) 814-5776
[email protected]
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PricewaterhouseCoopers LLP, Canada, an Ontario limited liability partnership, or, as
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