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NHH

NHH. M&A – key processes and case studies. Nov 7, 2013. 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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  1. NHH M&A – key processes and case studies • Nov 7, 2013

  2. 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

  3. M&A in investment banking • Complex, often transformational process for management of the buyer and the target • 1. Sell side • 2. Buy-side private company • 3. Buy-side public company • 4. Defense/”sell-side” public company

  4. 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

  5. Potential buyer considerations • Potential buyer groups and selected examples Strategic buyers Financial sponsors Key rationale • Strategic fit/synergies? • Process and financial capacity? • Willingness to pay • Growth • Cash flow • Attractive exit available? Concerns • Decision making takes longer • Have we covered all buyers? • Likelyhood to win • Level of preparedness • Availability of financing Selected examples Strategic buyer examples Financial sponsor examples • Tier 1 - Nordic • Company 1 • Company 2 • PE - Norway • Sponsor 1 • Sponsor 2 • Sponsor 3 • PE - International • Sponsor 4 • Sponsor 5 • Sponsor 6 • Sponsor 7 • Tier 2 - International • Company 3 • Company 4

  6. Key drivers for a successful transaction • 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 • Structure and documentation 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 • 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)

  7. Vender Due Diligence Third party reports preparted by the seller VDD area Content Purpose & comments Financial and tax • Comprehensive report by audit firm • Typically covers last three years • To assist in documenting financial performance of the business • Typically takes 6-8 weeks Legal • Report by law firm covering corporate documents, important agreements, legal issues etc. • Scope depends on complexity of company structure • To assist in documenting the business including key legal related matters • Typically takes ~4-6 weeks depending on time to complete data-room Commercial / market • A report by a business consulting firm covering market, trends and target company’s position • To support the business / investment case • Typically takes ~4 weeks

  8. Key documentation, activities and roles in the process Preparation phase Initial marketing and discussions Execution phase Business- strategy and plan, supporting VDD-materials (TBD) Introductory presentation Information Package and Management Presentation Key documents Information Package Introductory presentation Strategy and Business PlanNovember 2013 Management presentation Illustration only Illustration only Illustration only • 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 Timing • Preparation phase • Preparation/start of execution phase • Execution phase Key responsible • Management/Due diligence advisors • SEB/Management • SEB/Management SEB role and tasks • 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 Management role and participation • 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

  9. 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) Document Use and key content comments Introductory presentation Information Package 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

  10. Illustrative time line 2-staged process Illustrative process timing / structure April November December January February March Net debt & NWC schedule Year-end period Focused process Easter 1 Marketing material, VDD prep. Agree on party/ies for focused process – NDAs signed Prelim. Q4 update Initial disc. 2 3 Focused Info Pack distr. Indicative offer(s) Round 1 Final offer(s) SPA signed Round 2; Due diligence Incl. meeting(s) with management Decide on structure of further process Broader process Decide on broader pre-marketing (if any) Buyer review Decide structure of further process Pre-marketing Indicative offers NDAs Round 1 Initial financing discussions Final offer(s) SPA signed Round 2; Due diligence Info Pack distributed 1 • - 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) 2 3

  11. Case study: Deal by deal analysis • Recent¹ sell side transactions • 2008 – 2011 Source: SEB Enskilda > 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

  12. Europris case study

  13. Public-to-private – the buyer’s dilemma • 1. Takeover premium • 2. New issue discount • 3. How can you make money?

  14. Takeover premium in Norway

  15. New issue discount

  16. How can you make money? • Example based on Aker Solutions’ figures: • When buying: • Market capitalization today: NOK 25.1bn • Premium of 30% NOK 7.5bn • Total purchase price NOK 32.6bn • P/E prior to premium: 19.3x • Net Earnings: NOK 1.3bn • P/E after premium 25.1x • When selling: • Break even price NOK 32.6bn • Plus ipo discount (10%) NOK 4.6bn • Implied value needed NOK 36.2bn • Required earnings at same P/E NOK 1.88bn

  17. 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

  18. Process – a limiting necessity • 1. Process prior to announcement • 2. Post announcement transaction steps

  19. Pre-announcement strategies • 1. Friendly approach • 2. Secure pre-acceptances • 3. Blocking stake • 4. Majority stake

  20. Takeover considerations – general alternatives Alternative 1: Friendly approach to Target Board Alternative 2: Secure pre-acceptances before contacting 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 • 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 19

  21. Takeover considerations – general alternatives Alternative 3: Acquire blocking stake before contacting Board • 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 4: Acquire majority stake before launch • 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% 20

  22. Post announcement process

  23. 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

  24. 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 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 20 Jun: Norwegian Ministry of trade and Industry announced bookbuilding process to increase shareholding in Cermaq from 43.5% up to 65%. 24 Jun: China Fishery announces new offer for Copeinca at NOK 68.17. Cermaq has pre-accepted the offer 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 18 Jul: Cermaq announces definitive agreement for sale of EWOS to Altor and Bain for enterprise value of NOK 6.5 billion CEQ share price End of Oct: Expected closing of EWOS transaction 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 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 25 Jun: Norwegian Ministry of Trade and Industry announces that it has acquired shares and increased its ownership in Cermaq to 59.17% 11 Jul: Cermaq EGM authorizes a potential sale of EWOS 16 Oct. Altor/Bain secures bond financing of NOK 4,65bn for the financing of EWOS acquisition 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% 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

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