M&A . Federica Sist

1. M&A.Federica Sist SustainableInvestment banking 2018Prof. Claudio Giannotti

2. Advises on M&A transactions TOPICS • Investment banking industrycoverage • Business segments & Divisions by operators • The role of banks • M&A transactions • Relatedtopics

3. Investmentbank business • Goldman sachs – Global Investmentbanks: theyencompassesbothinvestment banking and deposit-taking businesses operatingthrough the world) • BNP Parobas – Large regionalbanks: regionalmarketsworldwidecompetition and in some countriestheyhave a larger market share than the global • Lazard – Boutique Investmentbanks: smallerfirmsengaged in investment banking (IB) • Edward Jones – Retail brokerage firms: notallservices of IB

4. Goldman SACHS

5. BNP Paribas

6. Lazard https://www.lazard.com/businesses/financial-advisory/ma-and-strategic-advisory/

7. Edward Jones

8. Basic businesses of IBs • Investment banking division: • Capital raising and M&A for clients (specialized by industry) • Capital raising for Governmentclients • Trading division: • Investing • Intermediating • Risk-managementservices to institutionalinvestor clients • Research • Non-client-relatedinvestingactivities • Asset management division: • Managingmoney for individual and institutionalinvesting clients

9. Investmentbanker’stemplate • Maximizationshareholdervalue – reduction for risks • Acquisition– undertakestrategicacquisition/expansion • Start-up – undertakestrategicacquisition/expansion • Joint venture – undertakestrategicacquisition/expansion • Capital projects– invest in core business • Disinvestiture – clarify core business mix – enhanceoperating performance • Sale • Spin-off • Ipo • Tracking stock • LBO/recap – repurchase share – optimize capital structure

10. M&A products • Sell side transactions (sale or merger) • Buy side transaction (purchase) • Restructuriongs / reorganization (carving out, capital structure) • Hostileacquisition defense advisoryservices …valuationanalysis and negotiationskills …fees are flexible and payed with successfulcompletion of a transaction

11. Position in the financialsystem • One of the options (Equity, debt , capital market , trading division sales and trading professional) to transfer funds financialresources from/to investors and issuers

12. M&A in practice • Acquisition: • Merger • Tender offer • Proxy context • Takeoverdefenses: • Theydepends on regulation of the country • Shareholderrightsplan • Alternative sale process: • Preemptive • Targetedsolitation • Controlledauction • Public auction • Cross bordertransactions: • Companies based in differentcountries (complications in terms of law, regulators, accounting, etc…) • Corporate restructurings: • IPO • Cave-out • Spin-off • Split- off • Tracking stock • LBO

13. Acquisition – connectedtopics • The core of M&A • Buying and selling; costs/risks/benefits • Dynamic analysis in a changing context • Creating value (absolute and relative) • Strategic rationale • Cost savings (sharing central services) • EPS, cost of capital, ROE, ROIC • Synergies • Cost/revenue synergies • => administration, procurement, marketing and distribution, R&D • Participants • Investment bankers & co • Bidder / target: senior manager (strategies, advisors selections, key deal decisions), the board of directors, business unit head, internal and external investor relations people, human resources people and accountants.

14. Acquisition - def • The public company can be acquiredthrougheither: • A merger • An acquisition of stock from the target with a tender offer and the merger acquiringremaining shares • An acquisition of the target

15. Acquisition - merger • Merger • Legal combination of the companies based on either a stock swap or a cash payment to the target company shareholders, as the result of 50% of shareholdervotesthatfavorsthe merger.. • MOE: combination of two companies with approximatelyequalassets • itisnotclear the buyer or seller identification • Synergies create valuesharedapproximatelyequally by shareholders of both companies

16. Acquisition –Tender Offer • Tender offeris the solutionwhen the boardisnotsupportive of the acquisition (for will or differentownershipstructure(any sigle/small groupof like-mindedshareholders holding majority position, )) • Public offer by an acquirer to allshareholders of a target company at a price in a period to obtain control • Tender offerisfasterthana merger even with the boardsupport • Regulated by Williams Act

17. Acquisition – proxycontext • An acquisitiondesigned to obtain • A gain in minorityrapresantationor control of board of director • A financial agitator or a atrategicacquirer put pression on a senior management and existingboardmembers

18. Corporate restructurings Bankruptcy-relatedconcerns & Strategic opportunities • New publiclytraded company from one or more parentcompany’s businesses • Separating a noncore business from a company’sother businesses (both in private and public market) • IPO • Carve-out • Spin-off • Split- off • Tracking stock transaction • To unlockshareholdersvaluethrough the separation of a subsidiary from a parent company • Management and board of directors must constantlyanalyze new opportunities to maximizeshareholdervalue • Otheraims: improvingoperating performance, reducingriskprofiles, more efficientaccessto public capital markets

19. Corporate restructurings – capital markets • IPO: the sale of all shares of a subsidiary to new public market shareholders in exchange for cash • Carve-out: the sale through an IPO of a portion of the shares of a subsidiary to new public market shareholders in exchange for cash, the parentkeepsownership in a portion of the formersubsidiary. • Spin-off: the parentgives up control over the subsidiary by distributingsubsidiary shares to parent company shareholders on a pro-rata basis. • Split- off: the parent company delivers shares of the subsidiary to onlythoseparentshareholderswho are willing to exchangetheirparent company shares for the share of the subsidiary. (preferredwhen a portion of parent company shareholdersprefers to ownonly the subsidiary’s shares and not the parentcompany’s shares) • Tracking stock transaction: a separate class of parent company shares isdistributed to existingshareholders of the parent company eitherthrough a spin-off or through a to new shareholders in a carve-out

20. IPO – social network key data

21. CARVE-OUT - structure

22. SPIN-off - structure

23. sPlit-off - structure

24. LBO • Higheramounts of debt to fund the acquisition of the target with the involvement of the financial sponsor Financial sponsor: • Private equityfirmsthatpurchase companies usingequitytheyhaveraised in a private investment fund combined with new debtraised to facilitate the purchase Targets: • Companies in mature industry with stable and growing cash flow in order to service large debtobligations and potentially to paydividends to the financial buyers

25. Lbo - structure

26. LBO-Financial Structure

27. The role of investmentbankers • Identification of potential companies or divisions to be bought /sold /merged or joint- ventured • Creation of scenarios for succesfultransactions, including pro-forma projections and anlysis of benefits and disadvantages • During the transactions: provision of extensivefinancialanalysis, deal structurerecommendation, tacticaladvice and sometimesfinancing • Management of transactionprocess • Negotiation of terms of the transaction and certainparts of documentation (the fairness opinion at the transactionclosing ) • Theirfees are percentages (2%->1%) of total and may be higher or lowerdepending on the complexity of the transaction

28. The role of investmentbankers

29. Acquisition – othertopics 1/2 • Credit ratings and acquisitioncurrency • Constituents • Fairness opinion • Due diligence • Tax-free re-organizations

30. Acquisition – othertopics 2/2 • Shareholderrightsplan • Riskarbitrage • Valuation • Comparable company analysis • Comparabletransactionanalysis • Discount cash flow analysis

31. https://www.youtube.com/watch?v=hjiMl5iCHEM • https://www.youtube.com/watch?v=sQ6xACl8hJk