Post-Deal Integration & Synergy Capture As multiples include - PowerPoint PPT Presentation

Post-Deal Integration & Synergy Capture As multiples include synergy potential, cracking the code to successful integration & synergy capture becomes even more important Thomas Fossum Partner Head of M&A Integrations and Carve-outs

EV / EBITDA increasing EV/ EBITDA transactions (Sweden, 2001-2015) 20x 180 18x 160 16x 140 14x 120 Number of transactions 12x EV/EBITDA Average: 10.44x 100 10x ‘Locked - box’ on the rise 80 Analysis of mechanism types - 12 month rolling averages 8x 90% 250 Buyers and Sellers meet 60 6x 80% 40 4x 200 70% 20 2x 60% Number of deals at high multiples . 0x 150 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 YTD 2015 50% Number of transactions Median EV/EBITDA * Above data represents transactions with publicly disclosed information. Source: MergerMarket, 2015-11-09 40% 100 30% 20% 50 Inflation and real interest rate low 10% Inflation och real interest rate (1998-2014) 5% 0% 0 5% LTM to Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Fuelled by low interest rates, 4% 1.0% Total Locked Box Completion Accounts Other 0.5% 2.2% 3% 2.4% 2.2% 4.5% 1.9% 0.4% 1.4% 3.4% 2% willingness to take risk, 3.5% 0.5% 3.0% 2.6% 2.1% 1% 1.9% 1.7% 1.6% 0.0% 1.4% 1.3% 0.9% 1.2% 0.9% 0.9% 1.3% 0.6% 0.4% 0.2% 0% -0.2% -0.2% -0.3% -0.7% -0.9% access to capital, and (1%) No of IPOs on OMX increases IPOs OMX Stockholm (2005-2015) (2%) 50 100% 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Real interest rate Inflation Interest rate, 1 year government bond 45 90% * The real interest rate has been based on inflation as estimated by SCB and the yearly average of a 1 year government bond. ** As of 2011, interest rates for a 1 year government bond have been estimated based on a linnear interpolation of a 6 month treasury bill and Source: Riksbanken and SCB high expectations on IPOs a 2 year government bond. 40 80% Share of private equity realted introductions 35 70% Number of introductions 25 30 60% 25 50% 20 40% 15 30% 21 10 20 20% 14 10 11 11 5 10% 7 6 4 3 3 - 0% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Performed Planned Share PE related introductions (%) * Above data includes transfers between exchanges Source: Nyemissioner.se PwC 2

What’s new is how often and how much above and EV/EBITDA ~14X beyond stand-alone value (Transactions, SWE Ytd’15, nov’15) the Deal Value is pushed Target’s Strategic Integration Purchase stand-alone premium synergies price value PwC 3

76% of Buyers say More than half of the respondents expect synergies between 7 and 12% of the targets revenue synergies constitute a key What were calculated synergies of target's revenue in per cent? deal success factor >15% 25% 13-15% 4% 10-12% 33% 24% 7-9% 29% 76% 4-6% 8% Synergies as a success factor Yes No Source: PwC M&A Integration Survey, 2015 PwC 4

…but, when shifting focus Reasons for failing from synergy calculations to synergy realisation, only 46% reach their targets 54% 46% Source: PwC M&A Integration Survey Synergies achieved Yes No PwC 5

WHAT WHEN WHO HOW Total integration Other corp. functions After Sales Finance and treasury Synergy potential varies Procurement Marketing IT a lot across functional HR Degree of integration areas, both in amounts, Sales Production R&D effort and time required Selective collaboration short Effort required long PwC 6

WHAT WHEN WHO HOW Deal makers are too optimistic regarding the timing when synergies become effective What was your planned timeline to realize the synergies and how long did it actually take? Postponing ‘difficult’ 50% 40% 45% discussions during the 35% 40% 30% 35% transaction period, 25% 30% 20% 25% results in significant 20% 15% 15% delays in integration & 10% 10% 5% 5% synergy capture 0% 0% 1-6 7-12 13-18 19-24 25-30 months months months months months Achieved time Planned time Source: PwC M&A Integration Survey PwC 7

WHAT WHEN WHO HOW Many activities are initiated pre-deal but not approached during the integration Which activities should be of primary focus in an ideal integration and which activities did you actually approach? 100% Mgmt commitment/sponsorship 71% Project structure, 91% A significant part of the 76% responsibilities Set Future Org structure and 65% gaps between “planned” 44% Operating Model 65% No disruption of daily business and “did”, are found in 47% Selection of the right internal 62% roles & responsibilities 41% resources 59% Speed in executing 44% 53% Speed in decision making 26% Activities planned Activities actually approached Source: PwC M&A Integration Survey PwC 8

Example Integration Fundamentals WHAT WHEN WHO HOW Selectively Take Degree of integration Best of both Transform integrate over/absorb Get 100% answers and Integration pace Faster is better (80/20) agreement The bottom line: “Integration Integration leadership Monitor progress Process manager leader” Shorter time-to-synergies Bottom up, Top down, Decision making Regional/BU led decentralised centralised starts with clarifying the Source of value Cost reduction Revenue IT/Ops transform Integration Fundamentals Keep Hybrid by Org structure Choose one Create new separate BU/geo Retention Passive, selective Active, targeted PwC 9