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M&A – key processes and case studiesNHHNov 7, 2013
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M&A – today’s topics
1. Introduction – M&A in investment banking
2. The auction – how to maximize value
3. Case study – auction process
4. Public offer – how do delist a company
5. Case study – public offer
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M&A in investment banking
1. Sell side
2. Buy-side private company
3. Buy-side public company
4. Defense/”sell-side” public company
Complex, often transformational process for management of the buyer and the target
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Sell side process – the auction
1. Know the buyers
2. Prepare – know what you selling
3. Keep tension and momentum
4. Never end up with one buyer at any time in the process
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Strategic buyers
Key rationale
Growth Cash flowAttractive exit available?
Selected examples
Strategic fit/synergies?Process and financial capacity?Willingness to pay
Financial sponsors
ConcernsDecision making takes longerHave we covered all buyers?
Likelyhood to winLevel of preparednessAvailability of financing
Financial sponsor examplesStrategic buyer examples
Tier 1 - NordicCompany 1Company 2
Tier 2 - InternationalCompany 3Company 4
PE - InternationalSponsor 4Sponsor 5Sponsor 6Sponsor 7
PE - NorwaySponsor 1Sponsor 2Sponsor 3
Potential buyer considerationsPotential buyer groups and selected examples
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Detailed organisational and business information– Market structure – Detailed organisational and operational
information / data
Management’s strategy and business plan– Clear strategy– Updated and detailed business plan & operating
model
Detailed historical and business plan financials– Detailed P&L information – Cash flow information – Balance sheet
Key drivers for a successful transaction
6
Important to allow for sufficient time to prepare documentation before initiating process – both to support buyers with providing offers and to support retaining momentum throughout the process to final offers & signing of transaction agreement(s)
Well prepared and well-structured process High quality documentation / supporting data
Allow sufficient time to prepare documentation ahead of process initiation
Process timing aligned with any (upcoming) milestones
Process structure to be adapted to potential buyer universe
Sufficient time for key potential buyers to make decisions
Keep to communicated time line & deadline
Structure and documentation
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Vender Due Diligence
ContentVDD area
Financial and tax
Commercial / market
Legal
Comprehensive report by audit firm
Typically covers last three years
A report by a business consulting firm covering market, trends and target company’s position
Report by law firm covering corporate documents, important agreements, legal issues etc.
Scope depends on complexity of company structure
Purpose & comments
To support the business / investment caseTypically takes ~4 weeks
To assist in documenting financial performance of the business
Typically takes 6-8 weeks
To assist in documenting the business including key legal related matters
Typically takes ~4-6 weeks depending on time to complete data-room
Third party reports preparted by the seller
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Preparation phase Initial marketing and discussions Execution phase
Timing
Management role and
participation
SEB role and tasks
Key responsible
Key documents
Business- strategy and plan, supporting VDD-materials (TBD) Introductory presentation Information Package and
Management Presentation
Introductory presentation
Information Package Management
presentation
Strategy/business plan and detailed operating model (historic and future financials)
VDD materials – To be discussed
Introductory presentation + teaser Materials used in initial discussions
to ascertain potential buyers’ interest
Information Package - provided in a “round 1” to provide basis for indicative offers
Management presentation
Preparation phase Preparation/start of execution phase Execution phase
Management/Due diligence advisors SEB/Management SEB/Management
Assist with input to business plan/strategy Assist in selecting due diligence advisors,
Process coordinator Take lead in drafting documents Evaluate buyer / partner interest
Process coordinator Buyer contact / discussions Evaluate buyer / partner interest
Prepare (updated) strategy and business plan and (input to) operating model
Provide input to documents Meetings with selected potential
buyers
Provide input to documents Conduct presentations Q&A / due diligence
Illustration only
Illustration only
Illustration only
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Key documentation, activities and roles in the process
Strategy and Business PlanNovember 2013
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Key content for Intro Presentation and Info Package
Key contents: Summary introduction to the business– concept, platform, history, organization, operations etc. Summary key investment considerations with focus on growth and development opportunities Summary market overview including description of regulatory framework & funding model Summary historical financial development (P&L level, other financial highlights)
Introductory presentation
Information Package
Document Use and key content comments
Key contents: Introduction to the business including concept and platform Key investment case considerations with supportive data / slides Market overview including size, growth rates, competitive landscape and detailed description of regulatory framework including funding model Detailed business description Business strategy / growth plan Historical financial development and business plan prognoses
– Detailed P&L including proforma and normalisation adjustments, and break-down of revenues and costs– Capital expenditure details – Balance sheet and working capital data
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Round 2; Due diligence
10
November December January February
NDAs Round 1
Final offer(s)
Indicative offers
Info Pack distributed
Year-end period
Prelim. Q4 update
Illustrative process timing / structure
March April
Decide on broader pre-marketing (if any)
Pre-marketing Decide structure of further process
Buyer review
Easter
Illustrative time line 2-staged process
Marketing material, VDD prep.
Round 2; Due diligence Final offer(s)
Indicative offer(s)
Focused Info Pack distr.
SPA signed
Round 1
Decide on structure of further process
SPA signed
Focused process
Broader process
3Initial disc.
Agree on party/ies for focused process – NDAs signed
2
- Timing to be discussed vs company readiness and status of any on-going contacts & discussions.
- Key strategic potential buyers given access to materials as basis to provide indicative offers – “focused Info Pack”
- Further process with selected strategic party/ies (based on indicative offers) vs initiating broader process (based on pre-marketing)
1
2
3
1Net debt & NWC schedule
Incl. meeting(s) with management
Initial financing discussions
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Case study: Deal by deal analysisRecent¹ sell side transactions
1) 2008 – 2011
Source: SEB Enskilda11
1 2 3 4 5 6 7 8 9 10 11 12 13 14
Invited parties 77 37 15 32 6 109 56 3 16 22 35 66 35 61
IM’s/DataPack’s sent 49 24 9 20 6 86 34 2 9 7 10 33 11 22
No. of 1st round bids 21 8 4 10 2 24 7 1 2 5 5 5 5 5
1st round bids/IM’s sent (%) 43 % 33 % 44 % 50 % 33 % 28% 21 % 50 % 22 % 71 % 50 % 15 % 45 % 23 %
No. of invitations to 2nd round 4 4 4 7 2 15 4 1 1 2 1 3 4 5
Invitation to 2nd round bid vs 1st round bid 19 % 50 % 100 % 70 % 100 % 63 % 57 % 100 % 50 % 40 % 20 % 60 % 80 % 100 %
No. of Final rounds bids 1 1 2 4 1 4 1 1 1 2 1 2 3 2
Final rounds bids/2nd rounds invitations 25 % 25 % 50 % 57 % 50 % 23 % 25 % 100 % 100 % 100 % 100 % 67 % 75 % 40 %
% delta winning bid vs. next highest final bid (=% "overbid") 20.3% 2.7% 32.9% 6.6% 13.3%
% delta winning bid vs. highest 1st round bid 4.5% (8.3%) (18.8%) (35.%) .5% (15.8%) (4.4%) (26.3%) 6.3% (9.2%) 13.% (2.9%)
EV/EBITDA (LFY) 17.1x 10.4x 9.1x neg. 13.6x 9.2x 8.1x 4.3x NM 7.4x 8.9x 7.8x 9.4x 10.5x
> Few bidders going all the way – very selective buy-side behaviour> Key is to find a few really strong contenders – buyer security and communication is key> First round bid rarely increased in the second round
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Europris case study
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Public-to-private – the buyer’s dilemma
1. Takeover premium
2. New issue discount
3. How can you make money?
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Takeover premium in Norway
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New issue discount
Company Country First dayof trading
Change incompanyforecasts
Changein peer
multiples
Adjusted pitch value pr. share
(mid point, pre discount)
ImplicitIPO
discount
Issue price pr. share
(post discount)
% premium/discountto bottom ofprice range
% premium/discountto top of
price range
1 week performance
MQ Sweden Jun 2010 1% -14% 32.7 -2% 32.0 6% -9% -3%Chr Hansen Denmark Jun 2010 0% 9% 104.1 -14% 90.0 20% -11% 9%TDC Denmark Dec 2010 0% 7% 58.6 -13% 51.0 25% 5% -5%Duni Sweden Nov 2007 -12% -20% 57.1 -12% 50.0 14% 2% -6%HMS Sweden Oct 2007 0% -8% 67.2 10% 74.0 3% -16% -1%SRV Finland Jun 2007 -1% 11% 10.5 -14% 9.0 31% 7% 16%Rezidor Sweden Nov 2006 -13% 14% 59.8 -13% 52.0 39% 15% 0%AGR Norway Jun 2006 51% 1% 52.9 -11% 47.0 18% 0% -2%Gant Sweden Mar 2006 4% 10% 149.3 -8% 138.0 6% 6% 35%Ahlstrom Finland Mar 2006 -22% 34% 26.9 -18% 22.0 34% 12% 12%Cermaq Norway Oct 2005 40% -19% 47.5 -7% 44.0 28% 8% 9%Hemtex Sweden Oct 2005 28% 21% 61.5 -9% 56.0 31% 10% 15%Indutrade Sweden Oct 2005 7% 2% 68.6 -5% 65.0 25% 6% 16%Average 6% 4% -9.0% 21.5% 2.6% 7.2%Median 0% 7% -11.1% 24.7% 5.6% 8.7%
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How can you make money?
Example based on Aker Solutions’ figures:When buying:Market capitalization today: NOK 25.1bnPremium of 30% NOK 7.5bnTotal purchase price NOK 32.6bn
P/E prior to premium: 19.3xNet Earnings: NOK 1.3bnP/E after premium 25.1x
When selling:Break even price NOK 32.6bnPlus ipo discount (10%) NOK 4.6bnImplied value needed NOK 36.2bnRequired earnings at same P/E NOK 1.88bn
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To make money you need to
Increase earnings with more than 45 percent; or
Pay dividends of NOK 11.1bn in the ownership period; or
Increase p/e ratio from 19.3x to 27.9x
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Process – a limiting necessity
1. Process prior to announcement
2. Post announcement transaction steps
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Pre-announcement strategies
1. Friendly approach
2. Secure pre-acceptances
3. Blocking stake
4. Majority stake
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Friendly approach to Target Board Intention to launch a bid Offer price level (vs. disclosure obligations)
Conduct (limited?) DD prior to launch
Following DD, secure pre-acceptances (buy shares?); and Board recommendation
Launch voluntary offer
Takeover considerations – general alternatives Alternative 1: Friendly approach to Target Board
Secure pre-acceptances from key shareholders
Inform Board shortly prior to launch
Launch voluntary offer, subject to DD
Conduct a due diligence in the acceptance period
Subsequent mandatory offer and compulsory acquisition
Alternative 2: Secure pre-acceptances before contacting Board
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Takeover considerations – general alternatives
Acquire up to 33.3% of the outstanding shares
Friendly approach to Target Board Intention to launch a bid Offer price level (vs. disclosure obligations)
Alternative 3: Acquire blocking stake before contacting Board
Acquire a 50.1% shareholding (alternatively more than the mandatory offer threshold of 33.3%)
Launch mandatory offer
No conditions allowed
Compulsory acquisition if thr Offeror acquires more than 90%
Alternative 4: Acquire majority stake before launch
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Post announcement process
Month 1 Month 2
1 2 3 4 5 6 7 8
Month 3 - 4
Voluntary offer period (2-10 weeks)*
Board statement on offer
End of offer period. Shares are “locked”
Offer document published
Mandatory offer period (if not >90% achieved)(4-6 weeks)
Compuls. acq. (if 90%+accept)
End of objection period (if mandat.
offer)
Mandatory offer launched (if not >90% achieved)
Offer launched Comp. auth. Waived**
Shares accepted are acquired
Week
Month
Comp. auth. filings
Compuls. acq. (if not already done)
Time table from launch to completion
*Typically two weeks with one week extension**Comp. clearance after three weeks if no objections
9 - 16
End of objection period (if direct compuls. acq.)
Control of company if >90% reached in the voluntary offer
Control of company if >90% reached in a subsequent mandatory offer
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Conclusion
Public takeovers carries significant cost
You need either a plan, synergies or cash that others don’t have to be successful
Even if you do everyting right – others may destroy your value creation opportunity throughout the process
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Copeinca/Cermaq/Marine Harvest – Action fra Feb til Oct
Source: Newsweb, Cermaq, Copeinca, SEB
26 Feb: China Fishery announces unsolicited public offer on Copeinca at NOK 53.85 per share
20 Jun: Norwegian Ministry of trade and Industry announced bookbuilding process to increase shareholding in Cermaq from 43.5% up to 65%.
8 Jul: Exclusivity period for Altor and Bain lapsed, but negotiations ongoing. Also, a new indicative bid for EWOS has been received from another party
30 Apr: Marine Harvest announces unsolicited offer on Cermaq at NOK 104 per share, subject to Cermaq not completing the Copeinca acquisition. Marine Harvest acquires 4.7 5 of Cermaq
7 May: Open letter from Marine Harvest to Cermaq shareholders. Arguing why the Copeinca transaction does not have a viable rationale and why the Cermaq/Marine Harvest transaction makes sense
11-23 May: intensive lobbying from both Marine Harvest and Cermaq towards the Cermaq shareholders in front of the Cermaq EGM
24-31 May: Negotiations between Cermaq and Marine Harvest regarding an improved offer
31 May: Marine Harvest increasing offer to NOK 107. Says was prepared to offer above 112 per share if it had Cermaq support
24 Jun: China Fishery announces new offer for Copeinca at NOK 68.17. Cermaq has pre-accepted the offer
18 Jul: Cermaq announces definitive agreement for sale of EWOS to Altor and Bain for enterprise value of NOK 6.5 billion
5 Apr: Cermaq announces competing offer on Copeinca at NOK 59.7., subject to rights issue which must be resolved by EGM. Has acquired 17.9%, controlling 50.7%
21 Jun: Marine Harvest announces that it has not received sufficient acceptances in the Cermaq offer. The offer is cancelled and Marine Harvest sells its shares in Cermaq
11 Jul: Cermaq EGM authorizes a potential sale of EWOS
2 May: Cermaq says Marine Harvest offer is unadequate. Defending the rationale for the Copeinca transaction
10 May: Open letter to from Cermaq to its shareholders. Arguing against the Marine Harvest offer and for the rationale of the Copeinca transaction
23 May: Cermaq’s EGM votes down the rights issue. Cermaq BoD cancels the Copeinca offer
31 May: Cermaq announces that negotiations have been unsuccessful. Will evaluate other value optimizing opportunities
17 Jun: Cermaq announces that it has received a conditional offer for EWOS at NOK 6.2bn from Altor and Bain. Will give three weeks exclusivity
25 Jun: Norwegian Ministry of Trade and Industry announces that it has acquired shares and increased its ownership in Cermaq to 59.17%
16 Oct. Altor/Bain secures bond financing of NOK 4,65bn for the financing of EWOS acquisition
End of Oct: Expected closing of EWOS transaction
CEQ share price