行业分析M&Aw.ppt

M&A,March1998,2,Bain M&A,Objectives,Introduction,The purpose of this module is to allow new ACs and Consultants to:obtain a background understanding of M&Aunderstand what Bain does/doesnt do in an M&A projectreview basic analytical tools required in different M&A projects at Baindevelop,through an exercise,an important basic analytical skill often used in M&A projects,3,Bain M&A,Agenda,Introduction,Trends in M&AGuiding Principles for Successful M&ABain ApproachCase Examples screeningdue diligencesaleExercise on Synergy CalculationTypical WatchoutsKey Takeaways,4,Bain M&A,Agenda,Introduction,Trends in M&AGuiding Principles for Successful M&ABain ApproachCase Examples screeningdue diligencesaleExercise on Synergy CalculationTypical WatchoutsKey Takeaways,5,Trends,F PEC G 80306 01,Drivers of M&A Activity,Bain M&A,Economy boom or recoveryOver-capacity in an industryCheap moneyIndustry consolidationGlobalization,Strategic,Financial,Other,Gain shareEliminate competitive threatCapture operating opportunities,e.g.,scale efficienciesLeverage existing business systemsforward/backward integrationstart-up alternativeDiversify/balance portfolioRetire excess industry capacity,GreedEgo,Improve capital markets evaluation of acquirermeet growth targetsreduce portfolio riskInvest idle cash,Macro-economics,6,M&A Activity-U.S.vs.Europe,$B,Europe,US,CAGR(1992-1997),21%,41%,European and US M&A activity is experiencing similar positive trends.,Note:Transaction Value(including Net Debt of Target).Excludes split-offs.Europe includes 50 major countries,Source:SDC,Trends,Bain M&A,7,M&A Activity,M&A activity has grown rapidly in nominal dollar terms,peaking in the U.S.in the late 1980s,and then matching those levels last yearThe ferocious merger activity of the late 1980s was driven in large part by the“easy money”afforded by the junk bond market.This resulted in huge,often unsubstantiated,premiums being paid for companies without regard to the value creation opportunities presented(or not presented,as the case may be)by the operations/underlying business of the targetGrowth in merger activity since 1992 has coincided with the economys recovery from recessionRecent M&A activity benefiting from:extended economic health with little recessionary pressure on horizona resulting corporate demand for growthincrease in international M&A activity as companies pursuing global strategiesSince late 1997,U.S.and European markets have experienced the resurgence of junk bonds to facilitate the execution of deals getting larger and larger,Trends,Bain M&A,8,Bain M&A,M&A Activity by Country 1996/97,Note:Represents announced dealsSource:SDC,US market dominates the global M&A activity.,Trends,Percent change:,50%,41%,110%,31%,50%,14%,79%,57%,9,Trends,US M&A Activity by Seller Industry(1992-97),Source:SDC(March 98),Value and volume of transactions vary across industries.For example,in the US,computer software and service industries tend to do many small deals.Telecommunications,broadcasting and leisure and entertainment have high transaction size.,Bain M&A,10,Trends,Multiples Paid for Acquisitions,Over the last five years,the prices paid for acquisitions have been increasing,and reinforces the need for in-depth due diligence and analysis to ensure a fair price.,Average EBIT Multiple,Bain M&A,11,Trends,Acquisition Success Rates,Harvard Business School,Survey of CFOs,London Business School,Bain&Company Study,Percent of Acquisitions Failing*in First Five Years,Percent of Total,The majority of acquisitions have been deemed failures.,Bain M&A,12,Common Reasons for Failure,Poor strategic fitcombination does not provide competitive advantagelack of understanding of the businessOverpayimperfect information/wrong valuationtoo optimistic in forecasts/synergiesunforeseen industry downturn/emerging technologyauction environment;failure to set/stick to walk away priceCEO/management egorevenue growth vs.profitabilityemotion vs.analysisPoor post acquisition integrationinadequate planningfailure to exploit revenue/margin potentialdisrupted relations with customers,employers and suppliersculture clash;failure to involve acquired people,Strategic,financial and operating causes,Trends,Bain M&A,13,Glossary,Trends,Credit Rating,The legal combination of two(or more)formerly independent entitiesThe acquisition by an independent entity of a control stake in another entity.This is usually achieved by acquiring more than 50%of shares for a public companyThe sale or closure of a particular entityLeveraged buy-out:An acquisition made possible financially by large issuance of debt,making the new entity highly“leveraged”or“geared”(i.e.,with a high ratio of debt to equity)Investment firms managing private funds by running business portfoliosBonds(or debentures,or coupon debt)issued by an entity without a credit rating or with entities with“non-investment grade”ratingFinancial markets use the service of credit rating firms such as Standard&Poors and Moodys to determine entities credit worthiness(i.e.,the ability for an entity to pay back their debt).Ratings are allocated from AAA or Aaa(highest)to C(lowest)Entities with Investment Grade Ratings(AAA down to B)are considered stablenon-investment Grade entities(below B)present an investment risk(e.g.,third world countries,highly leveraged companies),Merger,Junk bonds,Acquisition,Divestiture,LBO,Private Equity Firms,Bain M&A,14,Bain M&A,Agenda,Introduction,Trends in M&AGuiding Principles for Successful M&ABain ApproachCase Examples screeningdue diligencesaleExercise on Synergy CalculationTypical WatchoutsKey Takeaways,15,Principles,Guiding Principles(1 of 2),Bain believes that a clear and disciplined approach to the acquisition process is vital to ensure success.,Principles:,Acquisitions are made to improve the strategic position of existing businesses or add to the core competencies of the corporationAssess impact of acquisitions on long-term shareholder valueUse acquisition as a vehicle to accelerate growth in key business units,Activities:,Proactive Strategic Thinking,Screening,Look for all companies that potentially strengthen the corporationDont allow a transaction mentality to dominate the process,Look for targets that present best fit in terms of:relatednessimpact on market positionExamine key success factors of potential targetsExamine competitive position of client petitive bidders,Define business segmentsDiagnose key competencies and any skill gapsAnalyze market dynamicsStudy cost of acquisition versus organic growth,Bain M&A,16,Principles,Guiding Principles(2 of 2),Bain believes that a clear and disciplined approach to the acquisition process is vital to ensure success.,Principles:,Activities:,Execution,Capture Full Value,Make better decisions upfront through careful due diligenceStrive to identify deal breaker issues as early as possibleUse information and insights to provide confidence in making a bid,Clearly communicate corporate vision to targetBegin integration process as early as possibleBe objective to ensure a fair decision-making processCreate a set of short-term and long-term objectives,Quantify all potential synergies and cost savingsExamine margin and revenue forecastsEvaluate management of target,Provide a blueprint for capturing full potential valueSupport managerial integration team,Bain M&A,17,Principles,Strategy and M&A,Corporate objectivesgrowth and financial targetscompetitive arena,Corporate strategystrategic positionmanagement of resources,Business unit objectivesbusiness definitiongrowth and financial targets,Business unit strategystrategic positionkey success factorssustainable competitive advantage,Organic growth,Growth throughbusiness unit acquisitions,Growth throughcorporate acquisitions,Acquisitions at both the corporate and business unit level need to be thought of as an integral part of a companys growth strategy.,Bain M&A,18,Principles,Strategic Framework,The focus of strategic M&A activity should be in areas where there is the highest value creation opportunity as well as the strongest parenting advantage.,Low,Low,High,High,Parenting Advantage“Is value to our client higher than value to other parents?”,Value Creation Opportunity,Focus,Bain M&A,19,Principles,M&A Value Creation Opportunities,Buy cheap,M&A value can arise from generating the full value of an undervalued entity or by adding value to under performing assets.,Add value,Take advantage of inefficiencies in the market,Spot new market trends early,Generate synergies,Bain M&A,20,Principles,Critical Issues,Resolving these issues allows an accurate evaluation of a company,Cost sharingCustomer sharingCompetitor overlapExperience sharing,Strength of key competitorsRelative cost positionStrengths and weaknesses of acquirer,Market growthTechnology changesProduct substitutionBarriers to exit and entrySupplier and buyer power,(I)Relatedness,(II)Strategic Strength,(III)Market Dynamics,(IV)Value:,Bain assimilates the strategic process with acquisitions by focusing on four key areas.,Bain M&A,21,Principles,Success Criteria-Diagnostic Tool,(IV)Value Accurate evaluation based on NPV vs.Market Price,(II)Strategic Strength(Relative Market Share),Relatedness(I)(Experience and/or Cost Sharing),The ability to improve the strategic position of the acquirer,and grow or complement its existing competencies are keys to success.,RMS1.5x,RMS1.5-1.0 x,RMS0.5x,Low 25%,Medium 25-50%,High 50%,Growth 10%,Growth 5-10%,Growth 5%,III)Market Dynamics,Bain M&A,22,Principles,Success and Market Share,Market Share Bought,Percent,Incidence of success,Incidence of outright failure,Acquisitions that increased market share substantially were consistently more successful.,Sources:Porter(33 Large U.S.Corps.;Management Interviews),Bain M&A,23,Market Impact of Announced Transactions*,Principles,The stock market rewards companies that make related and/or focused acquisitions.,Definition:,Note:*Two weeks before compared to one week after announcement,Source:Industry Literature Review,Bain Analysis,Unrelated,Related,Focused,Minimal cost overlap between acquirer and target,Medium degree of cost overlap Target derives 70%of revenues from same business as acquirer,Significant amount of activity and cost overlap between acquirer and targetTarget complements existing product line and adds to core competencies of acquirer,Average Percent Price Increases,Bain M&A,24,Examples of Failures(1 of 2),Principles,Industry,Acquirer,Target,Transaction Value,Acquisition Thesis,Reason for Failure,Entertain-ment,SonyMatsushita,ColumbiaMCA,$4.8B$6.1B,Own up stream contents for downstream hardware,Inadequate due diligenceover valued synergiesStrategically flawed and poor integration,Finance,Sears,DeanWitter,$6.7B,Build a one-stop financial supermarket,Inadequate due diligencelimited cross-sell potential,Consumer Goods,Quaker Oats,Snapple,Inadequate due diligencegrowth cycle not well understoodbrand strength overestimated,Leverage distribution channels,$1.7B,Sources:Industry literature;Bain Analysis.,The M&A landscape is littered with unsuccessful acquisitions which failed to adhere to the core guiding principles.,Bain M&A,Amex,Shearson,$900MM,Expand distribution capabilities,Poor integrationculture clash,25,Examples of Failures(2 of 2),Principles,Industry,Acquirer,Target,Transaction Value,Acquisition Thesis,Reason for Failure,Sources:Industry literature;Bain Analysis.,Retail,Allied,Federated,Technology/Telecommu-nications,AT&T,NCR,$6.5B,Expand geographically,Inadequate due diligenceovervalued potential synergies and brand value,Technology/telephony integration,Strategically flawedfew synergies between computer hardware and telephonyPoor integration,$7.5B,New market entry,Novell,WordPerfect,Poor integrationculture clash,$1.4B,The M&A landscape is littered with failures which failed to adhere to the core guiding principles.,Bain M&A,26,Principles,Examples of Successful Acquisitions(1 of 2),Industry,Acquirer,Target,Transaction Value,Acquisition Thesis,Reason for Success,Wells Fargo,Crocker,$1.07B,Expand geographical reach and leverage back-office,Careful due diligence and integrationcapture of synergies and cost savings,Food,Tyson,Holly Farms,$1.4B,Extend product line,Good strategic fit and due diligencecapture of cost-sharing potential,Consumer Goods,Cadbury Schweppes,Dr.Pepper/7-Up,$2.0B,Expand geographic distribution,Careful due diligenceincreased scale and presence as a global player,First Financial Management,Financial Services,First Data,$6.6B,Obtain scale economies,Well-managed integration integration of credit card processing services of consumer and commercial sides,Sources:Industry literature;Bain Analysis,However,many companies have created enormous value through successful acquisitions.,Bain M&A,27,Principles,Examples of Successful Acquisitions(2 of 2),Industry,Acquirer,Target,Transaction Value,Acquisition Thesis,Reason for Success,High Technology,Cisco,Stratacom,$4.5B,New technology,Well-managed integrationclose attention to culture match;open communication of strategic vision,Manufacturing,Crown,Cork&Seal,Carnaud(French),$3.9B,Expand geographic reach and leverage product strengths,Good strategic fit and due diligencestrong understanding of market dynamic to improve strategic position,Transportation,Union Pacific,Chicago&North Western Transportation Company,$1.1B,Expand geographically,Good strategic rationalepre-emptive strategic move to maintain strategic position,Sources:Industry literature;Bain Analysis,Healthcare,Columbia,HCA,Build national healthcare group,Good strategic fit and due diligencecapture of cost-sharing and scale economies,$5.7B,However,many companies have created enormous value through successful acquisitions.,Bain M&A,28,Bain M&A,Agenda,Introduction,Trends in M&AGuiding Principles for Successful M&ABain ApproachCase Examples screeningdue diligencesaleExercise on Synergy CalculationTypical WatchoutsKey Takeaways,29,Bain Approach,Key Activities,Strategy,Acquisition target screen,Due diligence,Target valuation,Integration,What sector or region?,The best candidate based on attractiveness and availability,The right price,Getting full value,Bid structure and negotiations,Integration pre-planning,Bains approach to acquisitions follows a series of key steps.,Should an acquisition strategy be pursued?,Validate screening assumptions,Bain M&A,30,Bain Approach,M&A Value Chain,Objective:,Identify potential candidates which present best fit in terms of:relatednessimpact on market position,Understand full strategic value of acquisition candidate,Implement strategic vision for merger that gives direction and impetus for changeDefinitive actions and role definitions to speed integration process,Business/strategic reviewmarket trendscustomers and supplierscompetitorscosts,technologyvaluation/full potential assessment,Bain Activities:,Industry profileTarget screeningTarget approach,Quantify current operating value,stand alone operating improvements,and potential synergies,Pre-planningcombined cash flowsTran