Readying Your Organization to Grow Through Acquisition

1. Readying Your Organization to Grow Through Acquisition Gail F. Lieberman Rudder Capital LLC CFO Summit/February 23, 2002 RUDDER CAPITAL www.ruddercapital.com

2. Outline • Is Growth by Acquisition a Viable Strategy • Organic Growth vs Growth by Acquisition • Strategic, People, Financial Considerations • If Yes, Getting Started • Planning Process, Process & Evaluation Tools, Setting Expectations, Education, Communication • Establishing Relations with Advisors • The Pre-Acquisition Process Sourcing Deals, • Deal Teams, Due Diligence Process, Integrity, Negotiating, Closing • Day One Plans • How Finance Can Add Value

3. Is Growth by Acquisition Viable for Your Company? Organic Growth vs Growth by Acquisition (a.k.a. Build vs. Buy) • Strategic Considerations • People Considerations • Financial Considerations

4. Strategic Considerations

5. People Considerations • Cultural fit can’t be underestimated • Assess management acquisition experience • Be realistic about organization bandwidth • Acquisitions are a diversion • Small and large acquisitions take the same amount of time (and cost)

6. Financial Considerations • Valuation, metrics, etc all matter • Acquisitions can be financed in both bad and good economic times • Several sources of acquisition funding are available

7. Getting Started • Planning Process • Process & Evaluation tools • Expectations • Education • Communications • Advisors

8. Integrate into the Planning Process • Develop achievable acquisition strategies • Prepare forecasts with and without acquisitions • List potential targets • Monitor competitive activity

9. Be Prepared with Process & Evaluation Tools • Start the education process early with respect to • terminology • measurement • process • Define hurdles and return metrics • Analytic tools/management reports to evaluate impact on • Revenues • Profits • ROI • Due diligence checklists • Process checklists

10. Set Expectations by Defining Objectives & Parameters • Payback by acquisition type • foldins: 3-5 year returns • strategic: 5-8 year returns • business partnering: 1-2 year returns • Size, revenue/profit/cash characteristics • ROI

11. Educate Management & The Organization • Terminology • Expectations • Communication • Decision making

12. Communicate Often • Investors • Board • Organization • Press • Advisors

13. Establish Relationship with Advisors Early • Investment Bankers • Lawyers • Tax advisors • PR Firms • Real Estate Advisors

14. The Pre-Acquisition Process • Sourcing Deals • Deal Team • Due Diligence • Integrity • Negotiation • Closing

15. Broaden the Charter for Sourcing Deals • Executive/Operating Management • Vendors • Board/Investors • Advisors

16. Form a Deal Team • Acquisition Team Leader • Operating Management • Lawyer • Tax • Analyst

17. Manage the Due Diligence Process • It’s Not Just About The Numbers • Culture • Customers • Product, Service • Risks

18. Integrity Goes A Long Way • The stage is set with the first communication • IOI’s, LOI’s • Managing expectations on both sides • Need to know vs confidentiality

19. Know Your Negotiating Levers • Work towards a term sheet before handing off to lawyers • Structure solves a lot of problems • The purchase agreement is prime negotiating space • Consider light mark-up as a competitive edge

20. Work Towards Smooth Closing Process • Work closely with lawyers • Work out press releases well in advance • Turn mountains into molehills • Alert and check fund transfer instructions • Acknowledge your deal team • Create an environment of unity

21. Day One Plans • Communications • The Human Equation • Integration • The Paper Trail

22. How Finance Can Add Value Various opportunities for leadership depending on culture of organization, but leading the process and “bringing it all together” is a key value-add • Communication • Education • Turning mountains into molehills • Feedback • Evaluation