PwC

www.pwc.in Strictly Private and Confidential

March, 2015

Inorganic growthPwC M&A tax

IDFC CFO CONCLAVE

PwC

Hits the headlines…

PwC

Highest failures…..

Inorganic growthSlide 3

March, 2015

Research says50% / 60% deal fails

M & A Deals

Post Deal

PwC

Why failures?

Inorganic growthSlide 4

March, 2015

Crazy valuation- Ego- Emotions

Over leveraging

Poor negotiations

Poor Due diligence- ignoring red flags- Forensic

Poor management resources

Poor post deal integration

Poor synergies

Accounting - Impairment

PwC

Some significant transaction

Inorganic growthSlide 5

March, 2015

ICICI – ICICI Bank

Vedanta – Sterlite, Hind Zinc,Malco, Balco

Sun Pharma - Ranbaxy

Tata - JLR

Success

Kingfisher – Air Deccan

Tata - Corus

International paper-AndhraPaper

Suzlon – RE Power

Failure

Kotak – ING Vyasa Vedanta - Cairn

PwC

Why inorganic growth

Inorganic growthSlide 6

March, 2015

Speed tomarket

leadership

Acquirecustomers

Diversification

Local toGlobal

Synergies –Backward forward

integration

Acquisition ofnew Technology

Economies ofscale/ReducecompetitionGeographical

spread

PwC

Few case studies

Slide 7March, 2015

PwC

Go get it.. Whether customer or vendors

Inorganic growthSlide 8

March, 2015

Agglomeration of~40 Companies in

25 Countries

Loss makingcompany

Market Cap 2001:214 Crs

Market cap today:43,901 Crs

Not just swallowing,digesting as well

2002: Irishand 15 othercompanies

2009:Visicorp -Largest Rear-view mirrormaker

2011:Peguform -automobileinteriorsmaker

2014:Stoneridge -wiring

1983: Autocomponentmaker, JV withSumitomoWiring

“Sehgal’s model is aggressive and INORGANIC.” - ACMA

1975: Formedcompany for Silver

trading

T/O:333 Crs

T/O:6702 Crs

T/O:14907 Crs

T/O:30721 Crs

PwC

Somebody’s weakness, somebody’s strength..

Inorganic growthSlide 9

March, 2015

JPVL JSW

Thermal Unit Hydro Unit

SPV

TAQA ++Reliance

PowerAdani

Interest rates !!

Diversification

Growth to JSW

Immediate addition to revenue

Strategic fit for JSW

Reduce debt burden for JPVL

PwC

Devil lies in the details….

Inorganic growthSlide 10

March, 2015

2007

Acquired RE power at premiumvalue of Euro 1.31 Bn

Removal of subsidy benefit onwind powerRestriction on

technology transfer Disallowance to list orleverage RE power

Withdrawal of accelerated depreciation

2015

Sold RE Power at discountprice of Euro 1 bn

1. Lack of attention todue-diligence findings

2. Bitten more than itcould chew

3. Lack on culturalintegration

4. Addressing the fears oftarget company

5. Lack of Scenarioplanning

Real M&A capability goes far deeper than merely smart buys.

Suzlon Story

PwC

Typical deal issues

Slide 11March, 2015

PwC

Typical Acquisition Structure – Debt Push down

What is achieved ?

• Debt in merged entity• Goodwill depreciation ?

Key steps

• Capitalization of Indian SPV

• Consolidation through merger

Buyer

I Co1

Target

CCD / NCD

Merger

PwC

Overseas acquisition – Double Dip

47

Interest deduction

Equity

EquityRPS

Equity

1

1000

ECB foroverseas

acq.

Loan to HoldCo

Tax group

AcquirerHold Co

SPV2

SPV1

New Co

Target

Interest deduction

PwC

Tax considerations

Tax holiday

C/f Tax loss

WHT on exit

Earn out structure

PwC

Typical deal issues

Slide 15March, 2015

PwC

Identify risk and nip in the bud

What’s the USP

Dare to walk away – Tolerate missedopportunities

Manage top team quickly

Strategies: They burned, we learned

Inorganic growthSlide 16

March, 2015

1

2

3

4

PwC

Culture match

100 days plan

Be clear on governance

Leveraging your strength

Strategies: They burned, we learned

Inorganic growthSlide 17

March, 2015

5

6

7

8

Thank you

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