Intelligent M & A E-Book

Scott Moeller

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Sprache: Englisch

Seitenzahl: 555

Veröffentlichungsjahr: 2014

Beschreibung

Almost 70% of mergers fail, yet deals are essential for growing world-class companies. Therefore they must use all the tools and techniques at their disposal to improve their chances of success. Applying the techniques advocated in this book can help managers beat the odds - and employees themselves - to have an impact on whether a deal will be successful both for the company and for themselves.

This book looks at the process of a merger or acquisition and pinpoints the areas where business intelligence can raise the odds of success in each phase of the deal. Using techniques developed by governmental intelligence services and a wide range of recent case studies, quotations and anecdotes, the expert authors from the renowned Cass Business School show how to build success into any M&A situation.

The first edition of Intelligent M&A was written in 2006 and published in 2007.  This preceded the peak year (2007) of the last merger wave, including the excesses in a number of industries and deals (e.g., financial services with RBS’ dramatically failed acquisition of ABN AMRO as a key example), and the global economic downturn that led to a completely new way of operating for many industries and companies.

Therefore, there is a need to update the book to incorporate not just more relevant and up-to-date case studies of deals but to show the ‘new’ way of operating in a post-Lehman environment. Chapters will be comprehensively re-written and populated with new and relevant case studies.

Leseprobe

Table of Contents

Title page

Copyright page

Dedication

Introduction to the Second Edition

CHAPTER 1: The Need for Intelligence in Mergers and Acquisitions

Different Types of Mergers and Acquisitions

The Merger Waves

Reasons for M&A Deals

Public Sector Mergers

Conclusion

CHAPTER 2: Business Intelligence

The Intelligence Function

Business Intelligence Industry

What's Out There?

How Do We Project the Company's Message into the Environment?

Review

Structure

The Products

How Should the Intelligence Products Be Delivered?

Conclusion

CHAPTER 3: Designing the Acquisition Process

Steps in a Deal

Selling Approaches

Timing

Managing the Process

LBOs/MBOs

Hedge Funds and Venture Capitalists

Business Intelligence in the M&A Process

Conclusion

CHAPTER 4: Controlling the Advisors

Coordinating Advisor

External Advisor Roles

Corporate Development

Advisor Selection

How Advisors Are Paid

Advisors and Business Intelligence

Conclusion

CHAPTER 5: Identifying the Best Targets

Strategic vs. Opportunistic Deals

Role of Strategy

Screening Candidate Targets

Deal Pipelines

Acquisition Strategy

Business Intelligence in Target Selection

Scenario Planning

Alternatives to Acquisitions or Mergers

Organic Growth

Restructuring and Divestitures

Alliances and Joint Ventures

Holding Companies and Minority Investments

“Do Nothing”

Conclusion

CHAPTER 6: The Best Defense

Hostile Bids

Arbitrageurs

Private and Closely-Held Companies

Vulnerable Companies

Defense Preparation

Preventive Defenses

Active Defenses

“M.O.A.T.S” for an Effective Defense

Conclusion

CHAPTER 7: Due Diligence

Preparing for Due Diligence

The Due Diligence Process

Types of Due Diligence Information

Secondary Sources of Information

External Sources

Internal Due Diligence Information Available in the Bidder

Financial Due Diligence

Legal Due Diligence

Commercial Due Diligence

Management Due Diligence

Cultural Due Diligence

Ethical Due Diligence

Using the Intelligence

Conclusions

CHAPTER 8: Valuation, Pricing, and Financing

Value versus Price

Control Premiums

Alternative Methods of Pricing and Valuation

Synergies

Experts

Adjustments to Financial Statements

Total Deal Cost

Public Company Valuations

Private Company Valuations

Valuations and Business Intelligence

Alternative Pricing Methods

Assumptions

Mergers vs. Acquisitions

Multiple Valuation Methods

Role of Business Intelligence

Financing the Deal

Conclusion

CHAPTER 9: Negotiation and Bidding

Business Intelligence in Effective Negotiations

Takeover Strategies

Toeholds

Casual Pass

Bear Hugs

Tender Offers

Proxy Fights

Freeze-Outs

Fairness Opinions

Negotiation Process

Hard vs. Soft Negotiations

Resistance Strategies

Signaling

Conclusion

CHAPTER 10: Post-Deal Integration

Change Management

Integration Costs

Integration Planning

Keys to Integration Success

Communicate

Leadership

Engineer Successes

Advisors

Nurture Clients

Retain Key Employees

Adjust, Plan, and Monitor

Integrate the Two Cultures

Decide Quickly

Conclusion

CHAPTER 11: Post-Deal Review

M&A Skill as a Core Competency

Post-Deal Review Team

Post-Deal Review Timing

What should Be Measured and Tracked

Applied Learning

Role of Advisors

Conclusion

CHAPTER 12: Conclusions

Bibliography and References

CHAPTER 1    The Need for Intelligence in Mergers and Acquisitions

CHAPTER 2    Business Intelligence

CHAPTER 3    Designing the Acquisition Process

CHAPTER 4    Controlling the Advisors

CHAPTER 5    Identifying the Best Targets

CHAPTER 6    The Best Defense

CHAPTER 7    Due Diligence

CHAPTER 8    Valuation, Pricing, and Financing

CHAPTER 9    Negotiation and Bidding

CHAPTER 10    Post-Deal Integration

CHAPTER 11    Post-Deal Review

Websites

Index

End User License Agreement

List of Tables

Table 3.1:    Top 10 private equity deals. (source: Bloomberg)

Table 7.1:    Selected Due Diligence Topics.

Table 8.1:    Myths and Realities about M&A Valuations.

Table 8.2:    Valuation and pricing methods used by Kraft in its acquisition of Cadbury ($/share).

Table 9.1:    Mandatory Offer Levels in Selected Countries. (source: Regulatory websites)

List of Illustrations

Figure 1.1:    The World's Largest Announced M&A Deals. (source: Bloomberg)

Figure 1.2:    Sixth Merger Wave Success Factors.

Figure 2.1:    Organizational Environment.

Figure 3.1:    M&A HR Deal Process Overview at General Electric.

Figure 3.2:    Types of Leveraged Buy-out.

Figure 4.1:    The GE “Deal Team.”

Figure 5.1:    Top 5 Factors Considered in Defining Deal Rationale. (source: Mercer)

Figure 8.1:    Financing Risk Factors.

Figure 10.1:    Post-deal changes.

Figure 10.2:    Departments involved in a deal. (source: Mercer)

Figure 10.3:    Percentage of acquired employees (that the buyer would like to retain) who end up leaving the organization. (source: TheStoryTellers)

Figure 10.4:    Most used key performance indicators. (source: Mercer)

Figure 11.1:    Continual need for post-deal review.

Guide

Cover

Table of Contents

Start Reading

CHAPTER 1

Index

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This edition first published 2014

© 2014 John Wiley and Sons, Ltd

First edition published 2007 by John Wiley and Sons, Ltd

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ISBN 978-1-118-76423-7 (hardback) ISBN 978-1-118-76420-6 (ebk)

ISBN 978-1-118-76421-3 (ebk)

Cover design by Dan Jubb

To my wife, Daniela, and my children, Christine, Andrew, Ellen, and Jonathan

SM

To my wife Anita, with love

CB

Introduction to the Second Edition

The first edition of this book was published in 2007, the year that set the record during the sixth merger wave for merger and acquisitions (M&A) activity – a level that was double the current levels as we write this book. It was often described as a period of “merger frenzy,” and given the many failed deals from that era (most notably in the financial services sector, but in other industries as well), the number of deals was clearly too high.

It is therefore timely for an updated second edition of Intelligent M&A. The “pre-Lehman” bankruptcy world was very different from the world six years – and a global recession – later. The M&A market has changed as well, perhaps in some very healthy ways as more and more research is being published which shows that boards of directors and shareholders are much more reserved in their pursuit of consolidating activities, such as mergers or acquisitions. Those deals that do take place appear to be better grounded in strategy and priced more rationally. The froth is off the market. If we can be so bold as to say so, it appears that many of the recommendations in the first edition of this book have been implemented, although we certainly are not claiming credit for these changes but rather see the first edition as a reflection of the changes already underway at the time. More is still needed to continue to improve the success of M&A deals, and thus we have written this new edition.

Some things haven't changed in the intervening six years since that first edition, nor indeed since the first deals were done over a century ago. In the realm of corporate activity, mergers and acquisitions have played and will continue to play a defining role in shaping the corporate landscape. Research in 2012 from Sanford C. Bernstein & Co., the equity research firm, showed that the probability that an American Fortune 1000 company will pursue a significant merger in any one year is 30%. Given the breathtaking pace at which M&A transactions transform corporations and the sheer scope and scale of modern-day deals, it is no surprise that the work of investment banks and corporate finance boutiques has come to dominate the headlines. Yet, for all the bravura of M&A, such transactions also carry a high degree of risk as a result of the premiums paid and the organizational upheaval caused. Indeed, our studies show that 40–50% of a company is potentially at risk when an acquisition occurs. The lament heard after most failed deals is that certain elements were not known, indeed it will often be claimed that they could not have been known. Any intelligence specialist will tell you that all things are knowable – it is merely a question of how badly you want to know and how hard you are prepared to work to acquire that information.

For definitional clarity, when we talk about “business intelligence” (often called “competitive intelligence,” particularly in the US) we are referring to the “business intelligence function” not the hard and soft information systems that have identified themselves as “b systems.” The function itself (sometimes called “corporate intelligence”) is a vital aid to managerial decision making in any industry and at any time. By furnishing companies and other organizations with detailed and timely information about the commercial and competitive environment, the “art” of intelligence enables companies to determine more accurately where they have been, to orientate themselves in the present, and to plan for the future.

No more so than in the field of mergers and acquisitions, where so much risk attaches, business intelligence acts as a robust yet dynamic tool, providing company executives and other decision makers with the capability and wherewithal to make the necessary rational business decisions that will enable them to lead their organizations towards achieving their desired corporate objectives. By systematically acquiring and analyzing data, information, and knowledge, business intelligence makes a significant contribution not only to establishing, but also maintaining, a long-term competitive advantage. This is especially critical in the often-hostile “heat of the battle” of an acquisition takeover.

The idea for the first edition of this book emerged seven or eight years ago from the normal office banter in the room the two authors shared at Cass Business School, City University London. At the time, Chris Brady taught an MBA course on Business Intelligence which drew on his own experiences as an intelligence analyst during his service in the Royal Navy. Scott Moeller taught (and still does) a course in Mergers and Acquisitions that attracts more students than any other elective in the business school, and builds on his many years in the investment banking and private equity worlds. We had opportunities to overhear discussions that the other would be having with students, faculty, and industry practitioners. We realized the interconnected nature of the two fields we each studied and decided to connect our two disciplines for the benefit of the students. The natural extension of that decision was to extend the result of our collaboration into the book you are now reading.

This book shows that by employing first-rate and even sufficient intelligence as part of the M&A process, companies are able to achieve a higher degree of commercial success from those transactions. We will provide examples where, unfortunately, the opposite is also true, when companies ignored obvious and sometimes not-so-obvious intelligence possibilities. In the bear pit of corporate finance, to enter into the realm of high risk/high reward deals other than with one's eyes and ears wide open is undoubtedly to tempt fate. In this day and age, only the bravest (or the most foolish) would willingly or knowingly do so. It is intelligence that provides the information that the eyes and ears transmit to the brain.

Using business intelligence techniques in a takeover is not simply a matter of doing some things better, such as due diligence where business intelligence techniques are already widely used. Instead what is required is a change in approach or method from the inception of the deal idea through to post-deal integration, which often takes years, if not decades, to complete. In fact, the bottom line regarding the common ground of business intelligence and acquisitions is that management must work to ensure that the process is linked in a meaningful and productive way from start to finish. Understanding the value of intelligence requires a change in mindset for most executives and organizations. This was true when we wrote the first edition and is perhaps even more relevant in an economy that is much less forgiving than in the middle of the first decade of the new millennium.

One successful example that we shall be discussing is that of Johnson & Johnson who proactively work to link their takeover actions with their strategic intent at every step of the way. We shall see how, instead of merely focusing their attention on clinching a deal, they remain absolutely committed to only pursuing targets that are continuously relevant to their strategy; they then follow through their actions in such a way that the expected value from the deal is created.

As we turn towards our conclusions, it will hopefully have become clear that business intelligence in all its shapes and forms adds “… color and context to the M&A environment …,” as the Corporate Development Director of Friends Provident plc told us seven years ago. This serves to oil the cogs of the M&A machine and enables deals to be maneuvered towards a satisfactory conclusion for all the parties involved. It is increasingly clear that the role of business intelligence – both unmistakable and irreplaceable – has the opportunity to transform the mergers and acquisitions marketplace, providing a pole star for participants, a focus for questioning, and a useful steer for information gathering. While ignored in the future at the peril of any participants in an M&A deal, business intelligence – however discreet and reserved – must constitute a core element that will drive successful transactions. Without it, modern M&A activity – defined and shaped by the complexity of our modern financial and commercial environment – would be entirely different. We have seen evidence of this in the greater success of deals conducted since the last merger wave started in 2003. Nevertheless, certain companies continue to struggle with their M&A deals. Hewlett-Packard Co., according to Bloomberg, wrote down over $20 billion in 2011 and 2012 because of four earlier deals: the merger with Compaq in 2002 ($1.2 billion, representing 4.7% of the deal's value) and the acquisitions of EDS in 2008 ($8 billion, which was 61.5% of the deal value), Palm in 2010 ($0.9 billion, a massive 114% of the deal value), and Autonomy in 2011 ($8.9 billion, 85.4% of the deal which had been concluded just one year earlier).

At his trial in January 2004, Joachim Funk, the former Board Chairman of Mannesmann (now part of mobile telephony global giant Vodafone plc) casually referred to hostile M&A deals as being somewhat “… reminiscent of a battlefield …,” no doubt a telling and perceptive description of the scene after many corporate transactions. Others are fond of quoting Sun Tzu and Machiavelli, or generals such as Napoleon and George Patton. Yet, while corporate language is replete with military jargon there is less usage of the term “intelligence,” despite the fact that it is the use of intelligence in a commercial context – enabling companies to leverage their superior knowledge and insight to prevail over their rivals – which provides the greatest parallel between the universe of the soldier and that of the businessman. Those same military leaders were careful to note that they only acted when they felt they had the necessary intelligence at hand, and action without the necessary intelligence was reserved for either the inexperienced or desperate.

In any M&A transaction, company executives – like the generals in the midst of a military battlefield – ultimately need to rely on extensive intelligence as an aid to ensure that campaigns are waged, fought, and won for their shareholders with the greatest probability of success. Indeed, given the sometime abundance of corporate outfits and private equity houses chasing the same limited number of deals, intelligence becomes not just a “nice to have” but a fundamental and indispensable tool without which contestants should not consider entering the M&A “ring.” This is particularly important in a period of recession, when any mistake will be amplified. Summed up by a journalist at The Guardian as “… the commodity that really matters in the knowledge economy …,” intelligence enables companies to get ahead of the game at the very moment that the corporate stakes are highest.

This book is structured to provide an introduction to the mergers industry and the field of business intelligence. It then works through the topics relevant to any M&A deal from the beginning, when the deal is only a strategic idea, through the post-deal period. In each phase, we show not only best practice but also how business intelligence techniques can be applied to improve the likelihood of a deal succeeding. As practitioners, we have included in each chapter a number of illustrative case studies from our own experience and those of others. Accordingly, the book is designed to provide ideas to develop further and is not heavy on proscriptive to-do lists. This material is designed to be used by decision makers in companies and indeed non-profit and government organizations contemplating merging or acquiring (or being acquired). There is also a personal element to being an employee or manager in a company that is going through an M&A deal. In the first edition of this book, we added a chapter to provide some hints about how staff can personally best survive a merger, either from the target or bidder's side. Scott has now developed this into a full book (Surviving M&A: Make the most of your company being acquired (Wiley, 2009)) for those who want further guidance on what they should personally do if their company is being acquired.

As also shown by the case studies in this book, each deal is unique. We have tried to provide examples from many industries, although geographically they are concentrated in the UK and the US. We believe that these examples will be very helpful for anyone engaged in the M&A field, especially in providing ideas from outside your own industry. We have also provided an extensive bibliography to steer readers to further examples and discussion. For many of the topics in this book – such as strategy, company valuation, and negotiation – an entire library could be filled with books written about those subjects that we have only been able to discuss within the context of the intersection of the fields of business intelligence with mergers and acquisitions.

We are indebted to a number of people in producing the research and text of this book. Two of our MBA students at Cass Business School, Robert Gershon and Tamara Kanafani, helped us with researching the role of business intelligence in mergers and acquisitions for the first edition, and much of that material remains relevant and is included here; a number of other students and faculty too numerous to mention have also provided case studies or inspiration for sections of this book, but special note and appreciation go to Lisa Abshire, Javad Ahmad, Aparna Belapurkar, Ekaterina Chalova, Alina Chapovskaya, Tom Christie, Debi Davidson, Anna Faelten, Adam Grabowiec, Amit Gupta, Maslin Istaprasert, Yulia Korotkikh, Juan Martin Linares, Ana Maria Mora Luna, Natalia Mackowiak, Neil McFerran, Simon McGarry, Omotoye Makinde, Richard Odumodu, Otaso Osayimwese, Andrew Peters, Marianna Prodan, John Richardson, Jeetesh Singh, Ebru Ergun Toros, Didier Varon, and many other students of ours at Cass Business School, Steve Allan of Towers Watson, David Welsh of Insead, Philip Whitchelo of Intralinks, Chris Mouchbahani, and many others named throughout the book who provided quotations for us about the M&A market. Catherine Stokes and the editors at John Wiley have made sure that what is in our thoughts has been reflected properly on paper, although any errors are certainly ours and not theirs. And our families have been understanding in the time that we spent with the manuscript and not with them, now for the second time. Thanks to all.

CHAPTER 1The Need for Intelligence in Mergers and Acquisitions

Mergers and acquisitions are an integral part of the global strategic and financial business landscape, whether one is part of the acquiring company, the target, a competitor, an advisor (including investment bankers, accountants, lawyers, and many others), an investor, a regulator, or someone living or working in the neighboring community.