DEVELOPING A CORPORATE ACQUISITION STRATEGY

Click to edit Master title style,Click to edit Master text styles,Second level,Third level,Fourth level,Fifth level,*,DEVELOPING A CORPORATE ACQUISITION STRATEGY,Case studies, Concepts, and Debatable Ideas,Kenny Ong,CNI Holdings Berhad,1,M&A Trends,Rationale for M&As,Strategies, Structure, and Optimizing Value in M&As,Considerations, Risks and Pitfalls,2,How to fail without trying,The Roadmap to Failureby Fred Wiersema and Mike Treacy,Before we start,3,The Roadmap to Failure,Fred Wiersema and,Mike Treacy,Performance,Time,Clear Sailing,Todays performance,Ad-hoc Tactics,Denial & Defense,Doom Projections,Overdue Failure,The Moment of Truth,X,Performance Freefall,Tomorrows actual performance,Downpresure of Unclear Strategy,4,Denial and Defense,“Its not really good value our competitor is offering, because it doesnt include a lot of our features.” - ABC vs Air Asia,“Its good value but not in our preferred customer market.” - ABC vs Toyota,“Sure theyre hurting us, but with their unfair advantage, what can we do?” ABC vs MILO,“The rules we are playing by have always worked before” AMEX vs VISA,5,The Roadmap to Failure,Fred Wiersema and,Mike Treacy,Performance,Time,Clear Sailing,Todays performance,Ad-hoc Tactics,Denial & Defense,Doom Projections,Overdue Failure,The Moment of Truth,X,Performance Freefall,Tomorrows actual performance,Downpresure of Unclear Strategy,6,Ad Hoc Tactics,Selectively hold discounts to hold business that has started to go elsewhere,Introduce new promotions, terms, conditions, and offers to confuse and cloud the market,Beef up customer service by adding people to fix mess-ups and quicken delayed shipments,Delay capital investments and adjust accounting methods to portray quarterly financial results more favorably,Introduce “new and improved” products that are new in form, but not in substantive ways that are of consequence to purchasers,Merge, Acquire, Joint Venture and Ally out of desperation or without proper considerations,7,The Roadmap to Failure,Fred Wiersema and,Mike Treacy,Performance,Time,Clear Sailing,Todays performance,Ad-hoc Tactics,Denial & Defense,Doom Projections,Overdue Failure,The Moment of Truth,X,Performance Freefall,Tomorrows actual performance,Downpresure of Unclear Strategy,8,“What is the moral of the story?”,9,What is the Business Model?,USP,Market,Discipline,Profit Model,10,Intro: Market Discipline,Mamak stall,11,Intro: Market Discipline,They are the most innovative,Constantly renewing and creative,Always on the leading edge,A great deal!,Excellent/attractive price,Minimal acquisition cost and hassle,Lowest overall cost of ownership,A no-hassles firm,Convenience and speed,Reliable product and service,Exactly what I need,Customized products,Personalized communications,Theyre very responsive,Preferential service and flexibility,Recommends what I need,Im very loyal to them,Helps us to be a success,Product Leadership,Operational,Excellence,Customer,Intimacy,12,Operational Excellence,(low cost producer),Ref:,The Discipline of Market Leaders, Michael Treacy 1995,Product Leadership(best product),Customer Intimacy,(best total solution),Strategy: Disciplines, Priorities, and KPIs,13,The McPlaybook*,Make it easy to eat,50% drive-thru,Meals held in one hand,Make it easy to prepare,High Turnover,Tasks simple to learn & repeat,Make it quick,“Fast Food”,Tests new products for Cooking Times,Make what customers want,Prowls market for new products,Monitored field tests,*Adapted from: Businessweek , Februrary 5,th,2007,14,Operational Excellence,Competitive price,Error free, reliable,Fast (on demand),Simple,Responsive,Consistent information for all,Transactional,Once and Done,Customer Intimacy,Management by Fact,Easy to do business with,Have it your way (customization),Market segments of one,Proactive, flexible,Relationship and consultative selling,Cross selling,Product Leadership,New, state of the art products or services,Risk takers,Meet volatile customer needs,Fast concept-to- counter,Never satisfied - obsolete own and competitors products,Learning organization,Strategy: Disciplines, Priorities, and KPIs,15,Operational Excellence,(low cost producer),Ref:,The Discipline of Market Leaders, Michael Treacy 1995,Product Leadership(best product),Customer Intimacy,(best total solution),Strategy: Value Disciplines,16,Operational Excellence,(low cost producer),Ref:,The Discipline of Market Leaders, Michael Treacy 1995,Product Leadership(best product),Customer Intimacy,(best total solution),Strategy: Value Disciplines,17,Sample KPIs for Each Discipline,Operational Excellence,Price,Selection,Convenience,Zero Defects,Growth,Customer Intimacy,Customer Knowledge,Solutions Offered,Penetration,Customer Data,Customer-success focus,Product Leadership,Marketing,Functionality,# of Successes,# of Failures,Learn from key users,Interdisciplinary teams,Pipeline,18,1. M&A Trends,19,M&A Trends,Booming Demand,Supply/Demand shift to remote, unstable locations,Demand shift in Asia,Middle East cheap energy = diversification,Natural resources depleting fast,Massive capital required,Supply security,Scarcity of Talent,Global labor market,New, low cost players,Niche companies in new technologies*,Private Equity,Restructuring undervalued Conglomerates,20,M&A Trends,Alternative Industries growth, fragmented*,Low R&D, demand for new technologies,Credit Crunch,Foreign entities,Political instabilities,De-regularization, Unbundling,Record profits, High Prices,Antitrust Regulations,Cross-border Regulations,Traditional MNC consolidation,Competition for Assets,Rise of Sovereign Funds,21,Biggest Trend,“Earnings Per Share growth expectations are way above what companies can achieve in most territories from organic growth alone”,John McConomy, US Power and Utilities Transaction Services Leader, PricewaterhouseCoopers,22,2. Rationale for M&As,23,Two Major Rationale for M&As:,Cost Reduction,Growth,24,Strategies for Growth,Base Retention,Share Gain,Positioning,Adjacent Market,New Business,GROWTH,“Double-Digit Growth”, Michael Treacy,25,Rationale for M&As: Growth,Expansion,Consolidate,Geographic,Distribution,Compensate,Transformative,Portfolio refocus,Diversification,Easier,Tougher,26,Rationale for M&As: Expansion,Expansion,Consolidate,Geographic,Distribution,Compensate,Gain Scale to compete,Integrated Solutions,Financial Growth,Supply (security, mix),Developing markets,High cost of Extra Capacity,Private Equity,Expanding Sovereign Funds,27,Rationale for M&As: Expansion,Expansion,Consolidate,Geographic,Distribution,Compensate,De-regularization,Demand outstrip supply,Revenue Mix Tax optimization,Talent,New, Low-cost Entrants,Undervalued Big Players,Newer Assets,28,Rationale for M&As: Transformative,Transformative,Portfolio refocus,Diversification,New Business Lines,Selling/Spin-off non-core,Increase product line,New customers,New technologies*,Complementary Business,Up-down Supply Chain,Patent,Convergence anticipation,29,Rationale for M&As: Cross Sectors,Traditional,Alternative,Incremental,30,Rationale for M&As: Cross Sectors,Traditional Utility,Alternative,Energy,Incremental,Technology,New Delivery, New Sources, Existing Resources,Oil, Gas, Electricity, Coal,Biomass, Nuclear, Ethanol, Wind, Solar,Example: Energy Sector,31,Possible Outside Acquirers or Investors,Institutional,Fund Managers,Corporations,Sovereign Funds,VCs,NGOs,Non-Profit Org,Financial (Loans),JV Partners,M&A,Social VCs,Holding Co.,Gov. VCs,Supply Chain,Gov. Partnership,Competitors,32,Why do Outsiders Acquire or Invest?,Return/Profit,Risk Management/ Hedging,Tax-benefits,CSR/Image,Diversify revenue,Counter-cyclical balance,Support Mission,Exclusive rights,Contractual obligation,National Agenda,Control Supply Chain,R&D portfolio,Control Management,Alternative Cash Flow,M&A,33,3. Strategies, Structure, and Optimizing Value in M&As,34,Strategies for Growth,Base Retention,Share Gain,Positioning,Adjacent Market,New Business,GROWTH,“Double-Digit Growth”, Michael Treacy,35,How Markets determine Growth Strategies (1),Growth Rate,Growth Rate,Strategy,Why?,Fast,Market Positioning,Share Gain,Base Retention,Maintain market share in strategic segments,Prepare for market decline,Competitors focus too much on getting new customers,Flat,Base Retention,Share Gain (Acquisitions),Lose customers slower than competitors,Create scale economics, squeeze costs,36,Churn Rate,Churn Rate,Strategy,Why?,Low,Share Gain (Acquisitions),Adjacent Markets,Buying customer base is cheaper than own efforts,New products, old customers strategy,High,Base Retention,Share Gain,Adjacent Market,Lose customers slower than competitors,Customers are always open to the best value and offer,Desperate to gain revenue,How Markets determine Growth Strategies (2),37,How Markets determine Growth Strategies (3),Fast Growth,Low Churn,Market Positioning,Share Gain (M&A),Base Retention,Adjacent Markets (M&A),Example: Energy Sector,38,Create better Value proposition,Neutralize competitor advantages,Buy Market Share outright,Price Premium,Operating Model,Integration,Strategy 2: Share Gain,39,Buying Market Share: Acquisition strategy,Integration,Operating,Model,Price,Premium,Buying,Market,Share,Net Cost per Customer stand alone,49,Revenue Growth,Base Retention,Share Gain,Positioning,Adjacent Market,New Business,Operational Excellence,Product Leadership,Customer Intimacy,Competencies,Information Systems,Motivation, empowerment, alignment,Financial,Learning & Growth,Internal Process,Customers,Investment Strategy,Productivity,Market Value,Linking BSC to M&A Strategy,50,4. Considerations, Risks and Pitfalls,51,Types of M&A Deals vs. Considerations,Overcapacity,Product/ Market Consolidation,Transformation/ Convergence,Roll-up,Acquire products/ market,Strategic Growth Bet,Size (Relative),Share Gain (Expansion),Adjacent (Transformative),New Business (Transformative),Small,Large,“Running a winning M&A shop”, McKinsey,52,Types of M&A Deals vs. Considerations,Overcapacity,Size (Relative),Share Gain (Expansion),Adjacent (Transformative),New Business (Transformative),Small,Large,“Running a winning M&A shop”, McKinsey,Reduce industry capacity,Control Pricing,Similar Product Offerings,Pay for Cost synergies,53,Types of M&A Deals vs. Considerations,Roll-up,Size (Relative),Share Gain (Expansion),Adjacent (Transformative),New Business (Transformative),Small,Large,“Running a winning M&A shop”, McKinsey,Transfer Core Strength to target,Pay for lower operating cost of target,Increase revenue thru broad strength,54,Types of M&A Deals vs. Considerations,Product/ Market Consolidation,Size (Relative),Share Gain (Expansion),Adjacent (Transformative),New Business (Transformative),Small,Large,“Running a winning M&A shop”, McKinsey,Economies of Scale,Consolidate back office,Expand Market presence,Pay for Growth, Channels,55,Types of M&A Deals vs. Considerations,Acquire products/ market,Size (Relative),Share Gain (Expansion),Adjacent (Transformative),New Business (Transformative),Small,Large,“Running a winning M&A shop”, McKinsey,Expand market offering,Expand Geographic reach,Pay for Growth, Channels,Revenue synergies,56,Types of M&A Deals vs. Considerations,Transformation/ Convergence,Size (Relative),Share Gain (Expansion),Adjacent (Transformative),New Business (Transformative),Small,Large,“Running a winning M&A shop”, McKinsey,Transform Industry,Create new Value Proposition,Pay for New Markets, New Capabilities,57,Types of M&A Deals vs. Considerations,Strategic Growth Bet,Size (Relative),Share Gain (Expansion),Adjacent (Transformative),New Business (Transformative),Small,Large,Adapted: “Running a winning M&A shop”, McKinsey,Skill transfer into new business,Pay for High Risk options, ability to act in new market space,58,Three-Stage Process for Evaluating M&A deals,1. Strategy Approval,2. Approval-to-,Negotiate,3. Deal Approval,Business Dev + Business Unit,Worth of Target?,Attractiveness of Target vs. Others,Target compatible with Strategy?,Support from Acquirer?,Integration possibilities?,“Running a winning M&A shop”, McKinsey,59,Three-Stage Process for Evaluating M&A deals,1. Strategy Approval,2. Approval-to-,Negotiate,3. Deal Approval,Price range,Initial Due Diligence,Vision for incorporation,Key Synergies,Nonbinding Term Sheet/LOI,Negotiation Roadmap,Process to Close,“Running a winning M&A shop”, McKinsey,60,Three-Stage Process for Evaluating M&A deals,1. Strategy Approval,2. Approval-to-,Negotiate,3. Deal Approval,Answering Key Questions,Debating Valuations,Aiming for Integration,Dealing with Execution Risks,“Running a winning M&A shop”, McKinsey,61,Considerations, Risks and Pitfalls,Global footprint vs. Local Presence,Anti-trust and Regulatory permissions,M&A Accounting Standards,Fair Value definition in financial reporting = Exit price,Acquirer and Target having different Risk Tolerances,Public (or Public-hopeful) companies need to consider EPS after acquisition,62,Considerations, Risks and Pitfalls,Synergies and Improvements need to realized as quickly and efficiently as possible,Combined Management capability to deliver improved performance,First 100 days post-acquisition blueprint,Culture management,Staff Poaching from Competitors (and non-competitors),Customer Poaching from Competitors,63,Consideration: Alternative Deals to M&A,“When companies are unwilling to sell or acquisition premiums are too high, alliances are the next best thing to a merger. In other cases, they are actually preferable to M&A”,David Hernst, Principal, McKinseys Washington, DC,64,Consideration: Alternative Deals to M&A,Joint Venture,Unite business units,Problem with shared ownership,New Product Lines,Cost Reductions,Share risk, Share Cost in new markets, R&D,Buy-out clause,Alliances,Reduce non-core or commoditizing parts,Outsourcing, Offshoring,Help supplier gain Scale,Enter Complementary business,65,End Note for M&A,“Go where the money is. then marry for love”,F. Scott Fitzgerald, Author,66,Thank You.,soft copy of slides: totallyunrelatedrandomanddebatable.blogspot,67,