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Premium member Presentation Transcript Slide 1: DEVELOPING A CORPORATE ACQUISITION STRATEGY Case studies, Concepts, and Debatable Ideas Kenny Ong CNI Holdings Berhad www.myCNI.com.my www.OOBEY.com Slide 2: M&A Trends Rationale for M&As Strategies, Structure, and Optimizing Value in M&As Considerations, Risks and Pitfalls www.myCNI.com.my www.OOBEY.com Before we start… : How to fail without trying The Roadmap to Failureby Fred Wiersema and Mike Treacy Before we start… www.myCNI.com.my www.OOBEY.com The Roadmap to Failure Fred Wiersema and Mike Treacy : The Roadmap to Failure Fred Wiersema and Mike Treacy Performance Time www.myCNI.com.my www.OOBEY.com Denial and Defense : Denial and Defense “It’s not really good value our competitor is offering, because it doesn’t include a lot of our features.” - ABC vs Air Asia “It’s good value but not in our preferred customer market.” - ABC vs Toyota “Sure they’re hurting us, but with their unfair advantage, what can we do?” – ABC vs MILO “The rules we are playing by have always worked before” – AMEX vs VISA www.myCNI.com.my www.OOBEY.com The Roadmap to Failure Fred Wiersema and Mike Treacy : The Roadmap to Failure Fred Wiersema and Mike Treacy Performance Time www.myCNI.com.my www.OOBEY.com Ad Hoc Tactics : Ad Hoc Tactics Selectively hold discounts to hold business that has started to go elsewhere Introduce new promotions, terms, conditions, and offers to confuse and cloud the market Beef up customer service by adding people to fix mess-ups and quicken delayed shipments Delay capital investments and adjust accounting methods to portray quarterly financial results more favorably Introduce “new and improved” products that are new in form, but not in substantive ways that are of consequence to purchasers Merge, Acquire, Joint Venture and Ally out of desperation or without proper considerations www.myCNI.com.my www.OOBEY.com The Roadmap to Failure Fred Wiersema and Mike Treacy : The Roadmap to Failure Fred Wiersema and Mike Treacy Performance Time www.myCNI.com.my www.OOBEY.com Slide 9: “What is the moral of the story?” www.myCNI.com.my www.OOBEY.com What is the Business Model? : What is the Business Model? USP Market Discipline Profit Model www.myCNI.com.my www.OOBEY.com Intro: Market Discipline : Intro: Market Discipline Mamak stall www.myCNI.com.my www.OOBEY.com Intro: Market Discipline : Intro: Market Discipline "They are the most innovative" "Constantly renewing and creative" "Always on the leading edge" "A great deal!" Excellent/attractive price Minimal acquisition cost and hassle Lowest overall cost of ownership "A no-hassles firm" Convenience and speed Reliable product and service "Exactly what I need" Customized products Personalized communications "They're very responsive" Preferential service and flexibility Recommends what I need "I'm very loyal to them" Helps us to be a success Product Leadership Operational Excellence Customer Intimacy www.myCNI.com.my www.OOBEY.com Strategy: Disciplines, Priorities, and KPIs : Operational Excellence (low cost producer) Ref: The Discipline of Market Leaders, Michael Treacy & Fred Wiersema; 1995 Product Leadership(best product) Customer Intimacy (best total solution) Strategy: Disciplines, Priorities, and KPIs www.myCNI.com.my www.OOBEY.com The McPlaybook* : The McPlaybook* Make it easy to eat 50% drive-thru Meals held in one hand Make it easy to prepare High Turnover Tasks simple to learn & repeat Make it quick “Fast Food” Tests new products for Cooking Times Make what customers want Prowls market for new products Monitored field tests *Adapted from: Businessweek , Februrary 5th 2007 www.myCNI.com.my www.OOBEY.com Strategy: Disciplines, Priorities, and KPIs : Operational Excellence Competitive price Error free, reliable Fast (on demand) Simple Responsive Consistent information for all Transactional 'Once and Done' Customer Intimacy Management by Fact Easy to do business with Have it your way (customization) Market segments of one Proactive, flexible Relationship and consultative selling Cross selling Product Leadership New, state of the art products or services Risk takers Meet volatile customer needs Fast concept-to- counter Never satisfied - obsolete own and competitors' products Learning organization Strategy: Disciplines, Priorities, and KPIs www.myCNI.com.my www.OOBEY.com Strategy: Value Disciplines : Operational Excellence (low cost producer) Ref: The Discipline of Market Leaders, Michael Treacy & Fred Wiersema; 1995 Product Leadership(best product) Customer Intimacy (best total solution) Strategy: Value Disciplines www.myCNI.com.my www.OOBEY.com Strategy: Value Disciplines : Operational Excellence (low cost producer) Ref: The Discipline of Market Leaders, Michael Treacy & Fred Wiersema; 1995 Product Leadership(best product) Customer Intimacy (best total solution) Strategy: Value Disciplines www.myCNI.com.my www.OOBEY.com Sample KPIs for Each Discipline : Sample KPIs for Each Discipline Operational Excellence Price Selection Convenience Zero Defects Growth Customer Intimacy Customer Knowledge Solutions Offered Penetration Customer Data Customer-success focus Product Leadership Marketing Functionality # of Successes # of Failures Learn from key users Interdisciplinary teams Pipeline www.myCNI.com.my www.OOBEY.com 1. M&A Trends : 1. M&A Trends www.myCNI.com.my www.OOBEY.com M&A Trends : M&A Trends Booming Demand Supply/Demand shift to remote, unstable locations Demand shift in Asia Middle East ‘cheap’ energy = diversification Natural resources depleting fast Massive capital required Supply security Scarcity of Talent Global labor market New, low cost players Niche companies in new technologies* Private Equity Restructuring undervalued Conglomerates www.myCNI.com.my www.OOBEY.com M&A Trends : M&A Trends Alternative Industries – growth, fragmented* Low R&D, demand for new technologies Credit Crunch Foreign entities Political instabilities De-regularization, Unbundling Record profits, High Prices Antitrust Regulations Cross-border Regulations Traditional MNC consolidation Competition for Assets Rise of Sovereign Funds www.myCNI.com.my www.OOBEY.com Biggest Trend : Biggest Trend “Earnings Per Share growth expectations are way above what companies can achieve in most territories from organic growth alone” John McConomy, US Power and Utilities Transaction Services Leader, PricewaterhouseCoopers www.myCNI.com.my www.OOBEY.com 2. Rationale for M&As : 2. Rationale for M&As www.myCNI.com.my www.OOBEY.com Two Major Rationale for M&As: : Two Major Rationale for M&As: Cost Reduction Growth Strategies for Growth : Strategies for Growth “Double-Digit Growth”, Michael Treacy www.myCNI.com.my www.OOBEY.com Rationale for M&As: Growth : Rationale for M&As: Growth Expansion Consolidate Geographic Distribution Compensate Transformative Portfolio refocus Diversification Easier Tougher www.myCNI.com.my www.OOBEY.com Rationale for M&As: Expansion : Rationale for M&As: Expansion Expansion Consolidate Geographic Distribution Compensate Gain Scale to compete Integrated Solutions Financial Growth Supply (security, mix) Developing markets High cost of Extra Capacity Private Equity Expanding Sovereign Funds www.myCNI.com.my www.OOBEY.com Rationale for M&As: Expansion : Rationale for M&As: Expansion Expansion Consolidate Geographic Distribution Compensate De-regularization Demand outstrip supply Revenue Mix – Tax optimization Talent New, Low-cost Entrants Undervalued Big Players Newer Assets www.myCNI.com.my www.OOBEY.com Rationale for M&As: Transformative : Rationale for M&As: Transformative Transformative Portfolio refocus Diversification New Business Lines Selling/Spin-off non-core Increase product line New customers New technologies* Complementary Business Up-down Supply Chain Patent Convergence anticipation www.myCNI.com.my www.OOBEY.com Rationale for M&As: Cross Sectors : Rationale for M&As: Cross Sectors www.myCNI.com.my www.OOBEY.com Rationale for M&As: Cross Sectors : Rationale for M&As: Cross Sectors New Delivery, New Sources, Existing Resources Oil, Gas, Electricity, Coal Biomass, Nuclear, Ethanol, Wind, Solar www.myCNI.com.my www.OOBEY.com Example: Energy Sector Possible ‘Outside’ Acquirers or Investors : Possible ‘Outside’ Acquirers or Investors Institutional Fund Managers Corporations Sovereign Funds VCs NGOs Non-Profit Org Financial (Loans) JV Partners M&A Social VCs Holding Co. Gov. VCs Supply Chain Gov. Partnership Competitors www.myCNI.com.my www.OOBEY.com Why do ‘Outsiders’ Acquire or Invest? : Why do ‘Outsiders’ Acquire or Invest? Return/Profit Risk Management/ Hedging Tax-benefits CSR/Image Diversify revenue Counter-cyclical balance Support ‘Mission’ Exclusive rights Contractual obligation National Agenda Control Supply Chain R&D portfolio Control Management Alternative Cash Flow M&A www.myCNI.com.my www.OOBEY.com 3. Strategies, Structure, and Optimizing Value in M&As : 3. Strategies, Structure, and Optimizing Value in M&As www.myCNI.com.my www.OOBEY.com Strategies for Growth : Strategies for Growth “Double-Digit Growth”, Michael Treacy www.myCNI.com.my www.OOBEY.com How Markets determine Growth Strategies (1) : How Markets determine Growth Strategies (1) Growth Rate www.myCNI.com.my www.OOBEY.com How Markets determine Growth Strategies (2) : Churn Rate How Markets determine Growth Strategies (2) www.myCNI.com.my www.OOBEY.com How Markets determine Growth Strategies (3) : How Markets determine Growth Strategies (3) Example: Energy Sector www.myCNI.com.my www.OOBEY.com Strategy 2: Share Gain : Create better ‘Value’ proposition Neutralize competitor advantages Buy Market Share outright Price Premium Operating Model Integration Strategy 2: Share Gain www.myCNI.com.my www.OOBEY.com Buying Market Share: Acquisition strategy : Buying Market Share: Acquisition strategy No evidence of previous company One Kingdom Pre-integration Blueprint Slow Trigger, Fast Bullet www.myCNI.com.my www.OOBEY.com Buying Market Share: Side notes on Funding : Buying Market Share: Side notes on Funding www.myCNI.com.my www.OOBEY.com *Adapted from Warren Buffet’s acquisition strategies Strategy 4: Invade Adjacent Markets : Strategy 4: Invade Adjacent Markets Adjacent Market = Important Similarities and Large Differences in: Cost Structure Competitors Customers Critical Capabilities www.myCNI.com.my www.OOBEY.com Strategy 4: Invade Adjacent Markets : Strategy 4: Invade Adjacent Markets www.myCNI.com.my www.OOBEY.com Strategy 4: Invade Adjacent Markets : Strategy 4: Invade Adjacent Markets www.myCNI.com.my www.OOBEY.com Example: Energy Sector Strategy 4: Invade Adjacent Markets : Strategy 4: Invade Adjacent Markets Upstream Midstream Downstream Distribution Conversion Raw Mat Vendors/Services www.myCNI.com.my www.OOBEY.com Strategy 4: Invade Adjacent Markets : Is it a promising market? Best when market is new and not stable You must time your entry carefully Entrenched companies usually delay embracing new technology or process Can you win in this market? Must be built on advantages that are tangible, practical and easily implemented Strategy 4: Invade Adjacent Markets www.myCNI.com.my www.OOBEY.com Strategy 4: Invade Adjacent Markets : Can you match the Standards of Competition in this Market? You do have to meet the quality level that is common in the market Three Standards:- Technology, Relationships, Business-model You must have 80 percent of the capabilities you need to match competitor’s Standards Strategy 4: Invade Adjacent Markets www.myCNI.com.my www.OOBEY.com Strategy 4: Invade Adjacent Markets : Make or Buy? It is easier to meet the standards of competition if you buy an existing player Adjacent acquisitions must remain as a separate enterprise Integrate Management Control (systems, technology) Inter-transfer of management talent, knowledge and capability are important Strategy 4: Invade Adjacent Markets www.myCNI.com.my www.OOBEY.com Strategy 5: Acquire new Business : Strategy 5: Acquire new Business No core advantage to bring in Investors mind-set vs. Managers mind-set Value unlocking via operational improvements Invest in Management/Leadership Premium = Combined value > stand alone www.myCNI.com.my www.OOBEY.com Linking BSC to M&A Strategy : Revenue Growth Base Retention Share Gain Positioning Adjacent Market New Business Operational Excellence Product Leadership Customer Intimacy Competencies Information Systems Motivation, empowerment, alignment Financial Learning & Growth Internal Process Customers Investment Strategy Productivity Market Value Linking BSC to M&A Strategy www.myCNI.com.my www.OOBEY.com 4. Considerations, Risks and Pitfalls : 4. Considerations, Risks and Pitfalls www.myCNI.com.my www.OOBEY.com Types of M&A Deals vs. Considerations : Types of M&A Deals vs. Considerations Overcapacity Product/ Market Consolidation Transformation/ Convergence Roll-up Acquire products/ market Strategic Growth Bet Size (Relative) Share Gain (Expansion) Adjacent (Transformative) New Business (Transformative) Small Large “Running a winning M&A shop”, McKinsey Types of M&A Deals vs. Considerations : Types of M&A Deals vs. Considerations Overcapacity Size (Relative) Share Gain (Expansion) Adjacent (Transformative) New Business (Transformative) Small Large “Running a winning M&A shop”, McKinsey Reduce industry capacity Control Pricing Similar Product Offerings Pay for Cost synergies Types of M&A Deals vs. Considerations : Types of M&A Deals vs. Considerations Roll-up Size (Relative) Share Gain (Expansion) Adjacent (Transformative) New Business (Transformative) Small Large “Running a winning M&A shop”, McKinsey Transfer Core Strength to target Pay for lower operating cost of target Increase revenue thru broad strength Types of M&A Deals vs. Considerations : Types of M&A Deals vs. Considerations Product/ Market Consolidation Size (Relative) Share Gain (Expansion) Adjacent (Transformative) New Business (Transformative) Small Large “Running a winning M&A shop”, McKinsey Economies of Scale Consolidate back office Expand Market presence Pay for Growth, Channels Types of M&A Deals vs. Considerations : Types of M&A Deals vs. Considerations Acquire products/ market Size (Relative) Share Gain (Expansion) Adjacent (Transformative) New Business (Transformative) Small Large “Running a winning M&A shop”, McKinsey Expand market offering Expand Geographic reach Pay for Growth, Channels Revenue synergies Types of M&A Deals vs. Considerations : Types of M&A Deals vs. Considerations Transformation/ Convergence Size (Relative) Share Gain (Expansion) Adjacent (Transformative) New Business (Transformative) Small Large “Running a winning M&A shop”, McKinsey Transform Industry Create new Value Proposition Pay for New Markets, New Capabilities Types of M&A Deals vs. Considerations : Types of M&A Deals vs. Considerations Strategic Growth Bet Size (Relative) Share Gain (Expansion) Adjacent (Transformative) New Business (Transformative) Small Large Adapted: “Running a winning M&A shop”, McKinsey Skill transfer into new business Pay for High Risk options, ability to act in new market space Three-Stage Process for Evaluating M&A deals : Three-Stage Process for Evaluating M&A deals 1. Strategy Approval 2. Approval-to- Negotiate 3. Deal Approval Business Dev + Business Unit Worth of Target? Attractiveness of Target vs. Others Target compatible with Strategy? Support from Acquirer? Integration possibilities? “Running a winning M&A shop”, McKinsey Three-Stage Process for Evaluating M&A deals : Three-Stage Process for Evaluating M&A deals 1. Strategy Approval 2. Approval-to- Negotiate 3. Deal Approval Price range Initial Due Diligence Vision for incorporation Key Synergies Nonbinding Term Sheet/LOI Negotiation Roadmap Process to Close “Running a winning M&A shop”, McKinsey Three-Stage Process for Evaluating M&A deals : Three-Stage Process for Evaluating M&A deals 1. Strategy Approval 2. Approval-to- Negotiate 3. Deal Approval Answering Key Questions Debating Valuations Aiming for Integration Dealing with Execution Risks “Running a winning M&A shop”, McKinsey Considerations, Risks and Pitfalls : Considerations, Risks and Pitfalls Global footprint vs. Local Presence Anti-trust and Regulatory permissions M&A Accounting Standards ‘Fair Value’ definition in financial reporting = ‘Exit’ price Acquirer and Target having different Risk Tolerances Public (or Public-hopeful) companies need to consider EPS after acquisition www.myCNI.com.my www.OOBEY.com Considerations, Risks and Pitfalls : Considerations, Risks and Pitfalls Synergies and Improvements need to realized as quickly and efficiently as possible Combined Management capability to deliver improved performance First 100 days post-acquisition blueprint Culture management Staff Poaching from Competitors (and non-competitors) Customer Poaching from Competitors www.myCNI.com.my www.OOBEY.com Consideration: Alternative Deals to M&A : Consideration: Alternative Deals to M&A “When companies are unwilling to sell or acquisition premiums are too high, alliances are the next best thing to a merger. In other cases, they are actually preferable to M&A” David Hernst, Principal, McKinsey’s Washington, DC www.myCNI.com.my www.OOBEY.com Consideration: Alternative Deals to M&A : Consideration: Alternative Deals to M&A Joint Venture Unite business units Problem with shared ownership New Product Lines Cost Reductions Share risk, Share Cost in new markets, R&D Buy-out clause Alliances Reduce non-core or commoditizing parts Outsourcing, Offshoring Help supplier gain Scale Enter Complementary business www.myCNI.com.my www.OOBEY.com End Note for M&A : End Note for M&A “Go where the money is... then marry for love” F. Scott Fitzgerald, Author www.myCNI.com.my www.OOBEY.com Thank You. : Thank You. soft copy of slides: www.totallyunrelatedrandomanddebatable.blogspot.com You do not have the permission to view this presentation. In order to view it, please contact the author of the presentation.
abf-ma-by-kenny-ong-corporate-acquisition-strategy-v1-1210816392297092 aSGuest126225 Download Post to : URL : Related Presentations : Share Add to Flag Embed Email Send to Blogs and Networks Add to Channel Uploaded from authorPOINT lite Insert YouTube videos in PowerPont slides with aS Desktop Copy embed code: (To copy code, click on the text box) Embed: URL: Thumbnail: WordPress Embed Customize Embed The presentation is successfully added In Your Favorites. Views: 17 Category: Entertainment License: All Rights Reserved Like it (0) Dislike it (0) Added: February 09, 2012 This Presentation is Public Favorites: 0 Presentation Description No description available. Comments Posting comment... Premium member Presentation Transcript Slide 1: DEVELOPING A CORPORATE ACQUISITION STRATEGY Case studies, Concepts, and Debatable Ideas Kenny Ong CNI Holdings Berhad www.myCNI.com.my www.OOBEY.com Slide 2: M&A Trends Rationale for M&As Strategies, Structure, and Optimizing Value in M&As Considerations, Risks and Pitfalls www.myCNI.com.my www.OOBEY.com Before we start… : How to fail without trying The Roadmap to Failureby Fred Wiersema and Mike Treacy Before we start… www.myCNI.com.my www.OOBEY.com The Roadmap to Failure Fred Wiersema and Mike Treacy : The Roadmap to Failure Fred Wiersema and Mike Treacy Performance Time www.myCNI.com.my www.OOBEY.com Denial and Defense : Denial and Defense “It’s not really good value our competitor is offering, because it doesn’t include a lot of our features.” - ABC vs Air Asia “It’s good value but not in our preferred customer market.” - ABC vs Toyota “Sure they’re hurting us, but with their unfair advantage, what can we do?” – ABC vs MILO “The rules we are playing by have always worked before” – AMEX vs VISA www.myCNI.com.my www.OOBEY.com The Roadmap to Failure Fred Wiersema and Mike Treacy : The Roadmap to Failure Fred Wiersema and Mike Treacy Performance Time www.myCNI.com.my www.OOBEY.com Ad Hoc Tactics : Ad Hoc Tactics Selectively hold discounts to hold business that has started to go elsewhere Introduce new promotions, terms, conditions, and offers to confuse and cloud the market Beef up customer service by adding people to fix mess-ups and quicken delayed shipments Delay capital investments and adjust accounting methods to portray quarterly financial results more favorably Introduce “new and improved” products that are new in form, but not in substantive ways that are of consequence to purchasers Merge, Acquire, Joint Venture and Ally out of desperation or without proper considerations www.myCNI.com.my www.OOBEY.com The Roadmap to Failure Fred Wiersema and Mike Treacy : The Roadmap to Failure Fred Wiersema and Mike Treacy Performance Time www.myCNI.com.my www.OOBEY.com Slide 9: “What is the moral of the story?” www.myCNI.com.my www.OOBEY.com What is the Business Model? : What is the Business Model? USP Market Discipline Profit Model www.myCNI.com.my www.OOBEY.com Intro: Market Discipline : Intro: Market Discipline Mamak stall www.myCNI.com.my www.OOBEY.com Intro: Market Discipline : Intro: Market Discipline "They are the most innovative" "Constantly renewing and creative" "Always on the leading edge" "A great deal!" Excellent/attractive price Minimal acquisition cost and hassle Lowest overall cost of ownership "A no-hassles firm" Convenience and speed Reliable product and service "Exactly what I need" Customized products Personalized communications "They're very responsive" Preferential service and flexibility Recommends what I need "I'm very loyal to them" Helps us to be a success Product Leadership Operational Excellence Customer Intimacy www.myCNI.com.my www.OOBEY.com Strategy: Disciplines, Priorities, and KPIs : Operational Excellence (low cost producer) Ref: The Discipline of Market Leaders, Michael Treacy & Fred Wiersema; 1995 Product Leadership(best product) Customer Intimacy (best total solution) Strategy: Disciplines, Priorities, and KPIs www.myCNI.com.my www.OOBEY.com The McPlaybook* : The McPlaybook* Make it easy to eat 50% drive-thru Meals held in one hand Make it easy to prepare High Turnover Tasks simple to learn & repeat Make it quick “Fast Food” Tests new products for Cooking Times Make what customers want Prowls market for new products Monitored field tests *Adapted from: Businessweek , Februrary 5th 2007 www.myCNI.com.my www.OOBEY.com Strategy: Disciplines, Priorities, and KPIs : Operational Excellence Competitive price Error free, reliable Fast (on demand) Simple Responsive Consistent information for all Transactional 'Once and Done' Customer Intimacy Management by Fact Easy to do business with Have it your way (customization) Market segments of one Proactive, flexible Relationship and consultative selling Cross selling Product Leadership New, state of the art products or services Risk takers Meet volatile customer needs Fast concept-to- counter Never satisfied - obsolete own and competitors' products Learning organization Strategy: Disciplines, Priorities, and KPIs www.myCNI.com.my www.OOBEY.com Strategy: Value Disciplines : Operational Excellence (low cost producer) Ref: The Discipline of Market Leaders, Michael Treacy & Fred Wiersema; 1995 Product Leadership(best product) Customer Intimacy (best total solution) Strategy: Value Disciplines www.myCNI.com.my www.OOBEY.com Strategy: Value Disciplines : Operational Excellence (low cost producer) Ref: The Discipline of Market Leaders, Michael Treacy & Fred Wiersema; 1995 Product Leadership(best product) Customer Intimacy (best total solution) Strategy: Value Disciplines www.myCNI.com.my www.OOBEY.com Sample KPIs for Each Discipline : Sample KPIs for Each Discipline Operational Excellence Price Selection Convenience Zero Defects Growth Customer Intimacy Customer Knowledge Solutions Offered Penetration Customer Data Customer-success focus Product Leadership Marketing Functionality # of Successes # of Failures Learn from key users Interdisciplinary teams Pipeline www.myCNI.com.my www.OOBEY.com 1. M&A Trends : 1. M&A Trends www.myCNI.com.my www.OOBEY.com M&A Trends : M&A Trends Booming Demand Supply/Demand shift to remote, unstable locations Demand shift in Asia Middle East ‘cheap’ energy = diversification Natural resources depleting fast Massive capital required Supply security Scarcity of Talent Global labor market New, low cost players Niche companies in new technologies* Private Equity Restructuring undervalued Conglomerates www.myCNI.com.my www.OOBEY.com M&A Trends : M&A Trends Alternative Industries – growth, fragmented* Low R&D, demand for new technologies Credit Crunch Foreign entities Political instabilities De-regularization, Unbundling Record profits, High Prices Antitrust Regulations Cross-border Regulations Traditional MNC consolidation Competition for Assets Rise of Sovereign Funds www.myCNI.com.my www.OOBEY.com Biggest Trend : Biggest Trend “Earnings Per Share growth expectations are way above what companies can achieve in most territories from organic growth alone” John McConomy, US Power and Utilities Transaction Services Leader, PricewaterhouseCoopers www.myCNI.com.my www.OOBEY.com 2. Rationale for M&As : 2. Rationale for M&As www.myCNI.com.my www.OOBEY.com Two Major Rationale for M&As: : Two Major Rationale for M&As: Cost Reduction Growth Strategies for Growth : Strategies for Growth “Double-Digit Growth”, Michael Treacy www.myCNI.com.my www.OOBEY.com Rationale for M&As: Growth : Rationale for M&As: Growth Expansion Consolidate Geographic Distribution Compensate Transformative Portfolio refocus Diversification Easier Tougher www.myCNI.com.my www.OOBEY.com Rationale for M&As: Expansion : Rationale for M&As: Expansion Expansion Consolidate Geographic Distribution Compensate Gain Scale to compete Integrated Solutions Financial Growth Supply (security, mix) Developing markets High cost of Extra Capacity Private Equity Expanding Sovereign Funds www.myCNI.com.my www.OOBEY.com Rationale for M&As: Expansion : Rationale for M&As: Expansion Expansion Consolidate Geographic Distribution Compensate De-regularization Demand outstrip supply Revenue Mix – Tax optimization Talent New, Low-cost Entrants Undervalued Big Players Newer Assets www.myCNI.com.my www.OOBEY.com Rationale for M&As: Transformative : Rationale for M&As: Transformative Transformative Portfolio refocus Diversification New Business Lines Selling/Spin-off non-core Increase product line New customers New technologies* Complementary Business Up-down Supply Chain Patent Convergence anticipation www.myCNI.com.my www.OOBEY.com Rationale for M&As: Cross Sectors : Rationale for M&As: Cross Sectors www.myCNI.com.my www.OOBEY.com Rationale for M&As: Cross Sectors : Rationale for M&As: Cross Sectors New Delivery, New Sources, Existing Resources Oil, Gas, Electricity, Coal Biomass, Nuclear, Ethanol, Wind, Solar www.myCNI.com.my www.OOBEY.com Example: Energy Sector Possible ‘Outside’ Acquirers or Investors : Possible ‘Outside’ Acquirers or Investors Institutional Fund Managers Corporations Sovereign Funds VCs NGOs Non-Profit Org Financial (Loans) JV Partners M&A Social VCs Holding Co. Gov. VCs Supply Chain Gov. Partnership Competitors www.myCNI.com.my www.OOBEY.com Why do ‘Outsiders’ Acquire or Invest? : Why do ‘Outsiders’ Acquire or Invest? Return/Profit Risk Management/ Hedging Tax-benefits CSR/Image Diversify revenue Counter-cyclical balance Support ‘Mission’ Exclusive rights Contractual obligation National Agenda Control Supply Chain R&D portfolio Control Management Alternative Cash Flow M&A www.myCNI.com.my www.OOBEY.com 3. Strategies, Structure, and Optimizing Value in M&As : 3. Strategies, Structure, and Optimizing Value in M&As www.myCNI.com.my www.OOBEY.com Strategies for Growth : Strategies for Growth “Double-Digit Growth”, Michael Treacy www.myCNI.com.my www.OOBEY.com How Markets determine Growth Strategies (1) : How Markets determine Growth Strategies (1) Growth Rate www.myCNI.com.my www.OOBEY.com How Markets determine Growth Strategies (2) : Churn Rate How Markets determine Growth Strategies (2) www.myCNI.com.my www.OOBEY.com How Markets determine Growth Strategies (3) : How Markets determine Growth Strategies (3) Example: Energy Sector www.myCNI.com.my www.OOBEY.com Strategy 2: Share Gain : Create better ‘Value’ proposition Neutralize competitor advantages Buy Market Share outright Price Premium Operating Model Integration Strategy 2: Share Gain www.myCNI.com.my www.OOBEY.com Buying Market Share: Acquisition strategy : Buying Market Share: Acquisition strategy No evidence of previous company One Kingdom Pre-integration Blueprint Slow Trigger, Fast Bullet www.myCNI.com.my www.OOBEY.com Buying Market Share: Side notes on Funding : Buying Market Share: Side notes on Funding www.myCNI.com.my www.OOBEY.com *Adapted from Warren Buffet’s acquisition strategies Strategy 4: Invade Adjacent Markets : Strategy 4: Invade Adjacent Markets Adjacent Market = Important Similarities and Large Differences in: Cost Structure Competitors Customers Critical Capabilities www.myCNI.com.my www.OOBEY.com Strategy 4: Invade Adjacent Markets : Strategy 4: Invade Adjacent Markets www.myCNI.com.my www.OOBEY.com Strategy 4: Invade Adjacent Markets : Strategy 4: Invade Adjacent Markets www.myCNI.com.my www.OOBEY.com Example: Energy Sector Strategy 4: Invade Adjacent Markets : Strategy 4: Invade Adjacent Markets Upstream Midstream Downstream Distribution Conversion Raw Mat Vendors/Services www.myCNI.com.my www.OOBEY.com Strategy 4: Invade Adjacent Markets : Is it a promising market? Best when market is new and not stable You must time your entry carefully Entrenched companies usually delay embracing new technology or process Can you win in this market? Must be built on advantages that are tangible, practical and easily implemented Strategy 4: Invade Adjacent Markets www.myCNI.com.my www.OOBEY.com Strategy 4: Invade Adjacent Markets : Can you match the Standards of Competition in this Market? You do have to meet the quality level that is common in the market Three Standards:- Technology, Relationships, Business-model You must have 80 percent of the capabilities you need to match competitor’s Standards Strategy 4: Invade Adjacent Markets www.myCNI.com.my www.OOBEY.com Strategy 4: Invade Adjacent Markets : Make or Buy? It is easier to meet the standards of competition if you buy an existing player Adjacent acquisitions must remain as a separate enterprise Integrate Management Control (systems, technology) Inter-transfer of management talent, knowledge and capability are important Strategy 4: Invade Adjacent Markets www.myCNI.com.my www.OOBEY.com Strategy 5: Acquire new Business : Strategy 5: Acquire new Business No core advantage to bring in Investors mind-set vs. Managers mind-set Value unlocking via operational improvements Invest in Management/Leadership Premium = Combined value > stand alone www.myCNI.com.my www.OOBEY.com Linking BSC to M&A Strategy : Revenue Growth Base Retention Share Gain Positioning Adjacent Market New Business Operational Excellence Product Leadership Customer Intimacy Competencies Information Systems Motivation, empowerment, alignment Financial Learning & Growth Internal Process Customers Investment Strategy Productivity Market Value Linking BSC to M&A Strategy www.myCNI.com.my www.OOBEY.com 4. Considerations, Risks and Pitfalls : 4. Considerations, Risks and Pitfalls www.myCNI.com.my www.OOBEY.com Types of M&A Deals vs. Considerations : Types of M&A Deals vs. Considerations Overcapacity Product/ Market Consolidation Transformation/ Convergence Roll-up Acquire products/ market Strategic Growth Bet Size (Relative) Share Gain (Expansion) Adjacent (Transformative) New Business (Transformative) Small Large “Running a winning M&A shop”, McKinsey Types of M&A Deals vs. Considerations : Types of M&A Deals vs. Considerations Overcapacity Size (Relative) Share Gain (Expansion) Adjacent (Transformative) New Business (Transformative) Small Large “Running a winning M&A shop”, McKinsey Reduce industry capacity Control Pricing Similar Product Offerings Pay for Cost synergies Types of M&A Deals vs. Considerations : Types of M&A Deals vs. Considerations Roll-up Size (Relative) Share Gain (Expansion) Adjacent (Transformative) New Business (Transformative) Small Large “Running a winning M&A shop”, McKinsey Transfer Core Strength to target Pay for lower operating cost of target Increase revenue thru broad strength Types of M&A Deals vs. Considerations : Types of M&A Deals vs. Considerations Product/ Market Consolidation Size (Relative) Share Gain (Expansion) Adjacent (Transformative) New Business (Transformative) Small Large “Running a winning M&A shop”, McKinsey Economies of Scale Consolidate back office Expand Market presence Pay for Growth, Channels Types of M&A Deals vs. Considerations : Types of M&A Deals vs. Considerations Acquire products/ market Size (Relative) Share Gain (Expansion) Adjacent (Transformative) New Business (Transformative) Small Large “Running a winning M&A shop”, McKinsey Expand market offering Expand Geographic reach Pay for Growth, Channels Revenue synergies Types of M&A Deals vs. Considerations : Types of M&A Deals vs. Considerations Transformation/ Convergence Size (Relative) Share Gain (Expansion) Adjacent (Transformative) New Business (Transformative) Small Large “Running a winning M&A shop”, McKinsey Transform Industry Create new Value Proposition Pay for New Markets, New Capabilities Types of M&A Deals vs. Considerations : Types of M&A Deals vs. Considerations Strategic Growth Bet Size (Relative) Share Gain (Expansion) Adjacent (Transformative) New Business (Transformative) Small Large Adapted: “Running a winning M&A shop”, McKinsey Skill transfer into new business Pay for High Risk options, ability to act in new market space Three-Stage Process for Evaluating M&A deals : Three-Stage Process for Evaluating M&A deals 1. Strategy Approval 2. Approval-to- Negotiate 3. Deal Approval Business Dev + Business Unit Worth of Target? Attractiveness of Target vs. Others Target compatible with Strategy? Support from Acquirer? Integration possibilities? “Running a winning M&A shop”, McKinsey Three-Stage Process for Evaluating M&A deals : Three-Stage Process for Evaluating M&A deals 1. Strategy Approval 2. Approval-to- Negotiate 3. Deal Approval Price range Initial Due Diligence Vision for incorporation Key Synergies Nonbinding Term Sheet/LOI Negotiation Roadmap Process to Close “Running a winning M&A shop”, McKinsey Three-Stage Process for Evaluating M&A deals : Three-Stage Process for Evaluating M&A deals 1. Strategy Approval 2. Approval-to- Negotiate 3. Deal Approval Answering Key Questions Debating Valuations Aiming for Integration Dealing with Execution Risks “Running a winning M&A shop”, McKinsey Considerations, Risks and Pitfalls : Considerations, Risks and Pitfalls Global footprint vs. Local Presence Anti-trust and Regulatory permissions M&A Accounting Standards ‘Fair Value’ definition in financial reporting = ‘Exit’ price Acquirer and Target having different Risk Tolerances Public (or Public-hopeful) companies need to consider EPS after acquisition www.myCNI.com.my www.OOBEY.com Considerations, Risks and Pitfalls : Considerations, Risks and Pitfalls Synergies and Improvements need to realized as quickly and efficiently as possible Combined Management capability to deliver improved performance First 100 days post-acquisition blueprint Culture management Staff Poaching from Competitors (and non-competitors) Customer Poaching from Competitors www.myCNI.com.my www.OOBEY.com Consideration: Alternative Deals to M&A : Consideration: Alternative Deals to M&A “When companies are unwilling to sell or acquisition premiums are too high, alliances are the next best thing to a merger. In other cases, they are actually preferable to M&A” David Hernst, Principal, McKinsey’s Washington, DC www.myCNI.com.my www.OOBEY.com Consideration: Alternative Deals to M&A : Consideration: Alternative Deals to M&A Joint Venture Unite business units Problem with shared ownership New Product Lines Cost Reductions Share risk, Share Cost in new markets, R&D Buy-out clause Alliances Reduce non-core or commoditizing parts Outsourcing, Offshoring Help supplier gain Scale Enter Complementary business www.myCNI.com.my www.OOBEY.com End Note for M&A : End Note for M&A “Go where the money is... then marry for love” F. Scott Fitzgerald, Author www.myCNI.com.my www.OOBEY.com Thank You. : Thank You. soft copy of slides: www.totallyunrelatedrandomanddebatable.blogspot.com