Paul GoldenJune 12, 2013

Improving Your Odds of M&A Success

1

• Factors influencing failure and success

• Improving your odds of success

• A real world example

Agenda

2

• Misgauging strategic fit/flawed business logic

• Inadequate understanding of the new business

• Deal structure or pricing issues

• Flawed integration/misreading company culture

• Not focusing enough on customers and sales ( vs. cost synergies)

50-90% of Acquisitions Fail

3

Those with lower success rates:

• Roll ups

• Consolidation to improve competitive behavior

• Attempts at transformation

• Buying cheap

Source: McKinsey

The Type of Acquisition Influences Odds of Success

4

Those with higher success rates:

• Improve target company’s performance

• Consolidating to remove excess capacity from the industry

• Accelerate market access for target or buyer’s products

• Speedier access to skills and technology

• Pick winners early and help them develop their businesses

Source: McKinsey

The Type of Acquisition Influences Odds of Success

5

• The most successful M&A teams spend 30-50% of their time analyzing non-accounting business issues.

• The best teams conduct almost 2X external interviews with customers, suppliers, end users, business partners, industry experts.

• Focus on key value drivers and risk areas rather than an exhaustive diligence checklist

• Cost synergies can be easier to achieve than revenue...yet...

Sources: KPMG and PWC

Successful M&A Teams Focus Differently

6

Most Acquisitions Are Done For Revenue Related Reasons

Gaining Market Share 25%

Geographic growth 18%

Expanding into a growing sector 10%

Entering into a new market 10%

Acquiring a brand or additional services

8%

Achieving cost synergies 7%

Acquiring new technology or IP 5%

Reason For Acquisition Respondents

Source: KPMG7

• KPMG survey of typical M&A team - No mention of Marketing

• Deloitte Model for Managing M&A Process -No mention of Marketing

• Google it...same thing

Is There Something Missing In The M&A Process?

Legal 75%

Finance 56%

Business Unit 56%

HR 35%

Tech Support 33%

Investor Relations 21%

Health, Safety, Environ. 20%

Function Frequency of Response

Deloitte Model

Strategy, Industry, Acct/Tax, IT, HR and Integration

8

So....

• Marketing is at the core of the primary reasons for acquisition

• Two of five reasons for failure have to do with marketing✓ Inadequate understanding of the business✓ Not focusing enough on customers and sales

9

• Get marketing experts involved in your due diligence

- marketing strategy, brand management, market research, marketing communications, customer service

• Bring them in early in the process

• Have them build realistic models for future sales and revenue

Marketing Involvement Can Improve Your M&A Process

10

Marketing Assets To Consider

Tangible Assets Intangible Assets

Market PenetrationMarket Share

Prices and MarginsPatents and Trademarks

Product PortfolioDistribution Networks

Advertising/CommunicationsOnline Presence

Brand EquityCompetitive Positioning

Usage and Buying Behavior ( Awareness, Purchase Intent,

Preference)Market Research/KnowledgeMarketing Skills/Experience

Customer Relationship Mgmt. Customer Loyalty

Net Promoter Scores

11

• PE client wanted to understand the market for a casual dining chain:

1. How customers make the purchase decision

2. Brand awareness, usage, and satisfaction relative to relevant competitors and benchmarks

3. Brand positioning relative to competitors

4. Key strategic and operational strengths, liabilities, and opportunities of the target brand and competitors

5. How specific demographic segments perceive & use the target business product / service

An Example Of Using Marketing Insights To Evaluate An Acquisition Chain

12

13

Who is the ABC Customer?

Major Characteristic Detail

Mature 55% of all respondents indicating at least 1 visit in the past 90 days (“customers”) are over 45, 70% are over 35

1

Caucasian & African American 60% of customers are Caucasian, 30% are African American

2

Gender Neutral Roughly 50-50 split of men to women registering visits in the last 90 days

3

Middle to lower income 86% of customer respondents report annual incomes less than $100k, 47% less than $50k

4

Balance of couples and families 50% of customer respondents indicating having 2 or less in their household (including themselves)

5

14

Who is the ABC Foods Heavy User?

All respondents ABC Foods Customers1ABC Foods

heavy users2

Age Skews older (58% above 45 yrs)

Skews older Skews younger (79% below 45)

Gender Neutral (50-50) Neutral Neutral

Ethnicity Skews Caucasian (64% Caucasian, 27% African

American)

Skews Caucasian (2nd largest group is African

American)

Skews Caucasian (2nd largest group is African

American)

Income Middle to lower income Middle to lower income Middle income

Household Neutral Neutral Skews to singles / couples

15

ABC Food Unaided AwarenessABC Foods trails many of the leading national chains, but outperforms its closest category competitor

ABC Foods registers 7% awareness, for the 11th most frequently named casual dining restaurant

ABC outperforms XYZ Restaurants, its direct category competitor defined by menu and ambiance, which received 1% unaided awareness

Please list the casual dining restaurants you are aware of in your area.

Awareness

Applebee's

Chili's

Longhorn's

Red Lobster

Olive Garden

O'Charlie's

Ruby Tuesday

Outback Steakhouse

TGI Fridays

ABC Foods

Golden Corral

IHOP

Texas Roadhouse

Carrabba's

XYZ Restaurants

39%

30%

24%

21%

20%

18%

17%

17%

11%

7%

7%

6%

4%

4%

1%

16

Customer Favorites

Of the following restaurants which you have visited, please select your favorite place to :

Percent

While ABC Foods ranked in the middle of the pack for favorite places to eat, it is the top of the pack for places to watch a sporting event among the competitors listed

Outback Steakhouse

Applebee’s

Chili’s

XYZ Restaurants

ABC Foods

Benchmark 2

On The Border

[Redacted]

Benchmark 1

Tilted Kilt

28%

21%

19%

10%

9%

4%

4%

3%

2%

1%

None of these

Don't watch sports

ABC Foods

Applebee’s

Benchmark 2

Chili’s

Benchmark 1

XYZ Restaurants

Outback Steakhouse

TGIFriday’s

Tilted Kilt

35%

21%

10%

8%

8%

6%

3%

3%

2%

2%

2%

Favorite Place to Eat PercentFavorite Place to Watch a Sporting Event

17

Purchase Momentum

ABC Foods purchase momentum is slightly negative

Benchmark 1 and XYZ Restaurants are capturing notable increases in purchase momentum

Net Trend

Flat purchase momentum for ABC Foods highlights an opportunity to re-energize the brand

-23%

-18%

-16%

-16%

-17%

-21%

-13%

-13%

-21% 11%

7%

0%

-2%

-2%

-3%

-3%

-6%

-11%

Benchmark 1

XYZ Restaurants

On the Border

Applebee's

ABC Foods

Chili's

Outback Steakhouse

Benchmark 2

TGIFriday's 12%

12%

13%

13%

15%

19%

13%

20%

32%

IncreasingDecreasing

How would you say your visits to [XX] are trending?

18

Customer Satisfaction

ABC Foods ranks below XYZ Restaurants in satisfaction despite:

- Registering higher awareness

- Higher scores as a ‘favorite’ for watching sporting events

Overall, how would you rate your most recent visit to…

Average

Surprisingly, ABC Foods ranks near the bottom of the pack in terms of satisfaction

Benchmark 2

Outback Steakhouse

Chili's

XYZ Restaurants

Applebee's

TGIFriday's

Tilted Kilt

On the Border

ABC Foods

Benchmark 1

4.35

4.32

4.23

4.19

4.17

4.15

4.14

4.12

4.06

3.84

ABC quality of food, menu or service could likely be a factor as highlighted by the middle of the pack ranking as a ‘favorite place to eat’ while leading the pack in favorite place to watch a game

Specific service, menu and food quality rating could be included in a brief, follow-up survey

19

Usage Comparables

Despite low satisfaction, usage is very high for ABC Foods among the benchmarked set

Higher usage could be affected by timing of survey during [Redacted] and [Redacted], as we know ABC Foods rates high as a favorite to watch a game

How many times in the last 90 days have you been to…

Average

ABC Foods ranked within the top 3 for trips in the past 90 days

Applebee’s

Chili’s

ABC Foods

Outback Steakhouse

XYZ Restaurants

Tilted Kilt

TGIFriday’s

On The Border

Benchmark 2

Benchmark 1

1.1

1.1

1.0

0.9

0.8

0.8

0.7

0.5

0.4

0.4

20

Competitor Set/ABC Foods Alternatives

XYZ Restaurants, with a similar menu and sports focused venue ranked only 6th on a list of alternatives

National casual dining chains with relatively high unaided awareness rate highest within the set

If ABC Foods were closed, where would you go?

Score

Top alternatives to ABC Foods are national casual dining chains (vs. sports focused venues)

Chili’s

Applebee’s

Outback Steakhouse

TGIFriday’s

On The Border

XYZ Restaurants

Benchmark 2

Benchmark 1

Tilted Kilt

23%

19%

13%

13%

8%

8%

6%

6%

4%

21

Perceived Value Rank and Importance

Ranking of perceived value

1

2

3

4

5

6

7

8

9

10

Applebee’s

Chili’s

TGIFriday’s

Outback Steakhouse

ABC Foods

XYZ Restaurants

On The Border

Benchmark 2

Benchmark 1

Tilted Kilt

ABC Foods ranks middle of the pack in perceived value in the competitive set & value is important given that 2 of the top 10 drivers for customer choice are value related

Top 10 attributes for customers in choosing a restaurant

1

2

3

4

5

6

7

8

9

10

High quality food

Serves food that is always delicious

Cleanliness of restaurant

Clean restrooms

Cleanliness of table

Good prices on food

Good value for my money

Fits my budget

Accurate service

Attentive servers and wait staff

22

Perceived Price Rank and Importance

Ranking of perceived price

1

2

3

4

5

6

7

8

9

10

Applebee’s

Chili’s

TGIFriday’s

ABC Foods

XYZ Restaurants

Outback Steakhouse

On The Border

Benchmark 2

Benchmark 1

Tilted Kilt

ABC Foods ranks higher in perceived pricing (vs. value) in the competitive set, & value is important given that 2 of the top 10 drivers for customer choice are price related

Top 10 attributes for customers in choosing a restaurant

1

2

3

4

5

6

7

8

9

10

High quality food

Serves food that is always delicious

Cleanliness of restaurant

Clean restrooms

Cleanliness of table

Good prices on food

Good value for my money

Fits my budget

Accurate service

Attentive servers and wait staff

23

Brand Perception: Highest Scoring Attributes

How important might each of the following factors be in determining which casual dining restaurant you choose to visit?

High quality and delicious food, cleanliness, and value are the most important attributes in a respondents’ decision on where to dine

Score

High quality food

Serves food that is always delicious

Cleanliness of restaurant

Clean restrooms

Cleanliness of table

Good prices on food

Good value for my money

Accurate service

Fits my budget

Attentive servers and wait staff

4.42

4.41

4.40

4.39

4.38

4.25

4.22

4.19

4.19

4.18

24

ABC Foods Brand and Attributes

What do you like most about ABC Foods?

1

2

3

4

5

6

7

8

9

10

Quality / taste of food 1

Ambiance 12, 20

Selection / price of beer 47,48

[Redacted] N/A

Selection of food 29

Sports viewing / TVs 44, 46

Location (Proximity) 16, 28

Price 6

Burritos N/A

Staff / Service 10, 11

ABC Foods’ customer responses of attributes differ notably from general preferences suggesting a niche

Rank in attributes

What do you like least about ABC Foods?

1

2

3

4

5

6

7

Noisy 41

Too crowded 25

Service 9, 10, 11

Don't like food 1

Too busy N/A

Food Price 6

Drink Price 47

Rank in attributes

• Applies to B2B as well as B2C

• Customizable

• Quick turnaround

• Confidential if necessary

Things To Consider In Due Diligence Marketing Research

25

• Most acquisitions fail

• The type of acquisition and where you focus to create synergies can impact your likelihood of success

• If your acquisition is revenue driven, Marketing should be part of your M&A process

Summary

26

ave

Home Run Marketing Solutions

For more information:Paul Golden

972-854-2616paul@brandslam.netwww.brandslam.net

Thank You

27