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PricewaterhouseCoopers LLP Page 1 Canadian Association of MoversDecember 2007 Buying A Business Damian Peluso Director PricewaterhouseCoopers Transaction.

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Presentation on theme: "PricewaterhouseCoopers LLP Page 1 Canadian Association of MoversDecember 2007 Buying A Business Damian Peluso Director PricewaterhouseCoopers Transaction."— Presentation transcript:

1 PricewaterhouseCoopers LLP Page 1 Canadian Association of MoversDecember 2007 Buying A Business Damian Peluso Director PricewaterhouseCoopers Transaction Services

2 PricewaterhouseCoopers LLP Page 2 Agenda I.Current Trends and Facts II.The Deal Process III.Doing the Right Deal

3 PricewaterhouseCoopers LLP Page 3 Current Trends and Facts

4 PricewaterhouseCoopers LLP Page 4 Whose buying….. Acquisitions are a BIG deal for companies today: -40% of companies with sales > $10M are considering an acquisition within the next 12 – 18 months Driven by very valid business reasons: -Access new markets & distribution channels -Add new capabilities for products & services -Harvest cost & efficiency synergies

5 PricewaterhouseCoopers LLP Page 5 Historically Not Great Success Rates 77% of acquisitions do not meet or exceed their cost of capital 17% have contributed significant value 50% of major mergers since 1990 have eroded shareholder returns 33% resulted in marginal returns

6 PricewaterhouseCoopers LLP Page 6 Why Deals Fail……… Conglomerate thinking; acquiring outside of core competencies Deficient due diligence procedures and lack of due diligence experience Disconnect between decision making and due diligence results (the ‘gut feel’) Lack of negotiating discipline; not setting or staying within prescribed terms Deal complexity and ambiguous deal terms Disconnect between due diligence and integration planning; lack of deal resource continuity Lack of clear integration strategy and focus on key value drivers Deficient communication planning and execution The most common reasons cited for deal failure include:

7 PricewaterhouseCoopers LLP Page 7 The Deal Process

8 PricewaterhouseCoopers LLP Page 8 Deal or No Deal – negotiating winning deals M&A is a process, not an event Recognize that negotiations have started from the point of first contact with the vendor Key to a winning deal is discipline

9 PricewaterhouseCoopers LLP Page 9 Every Deal Involves a Series of Stages There are 5 key stages to every deal: 1.Identifying the Right Target 2.Initial Target Profiling and Value Proposition 3.Due Diligence Period 4.Negotiations and Drafting of SPA 5.Close and Initial Integration

10 PricewaterhouseCoopers LLP Page 10 Pick a good one Target Identification: Set appropriate target criteria and establish objectives Obtain appropriate approval Identify and assign project leaders and responsibilities Identify and access the target’s decision makers, emphasize the value proposition for the seller Obtain appropriate target information to assess strategic fit Sign confidentiality agreements

11 PricewaterhouseCoopers LLP Page 11 Understanding the Target and How It Fits in Your Strategy Building your business proposition and initial analysis of the Target: Build the value proposition (early combined business model, synergies and initial valuation) Initial thoughts of corporate structure, deal structure (asset vs. share), purchase price and financing (income vs. capital) Developing project plan LOI, transaction and timing Initial due diligence (financial, operational, legal)

12 PricewaterhouseCoopers LLP Page 12 Make sure you do your homework During the due diligence stage: Organize DD teams (set objectives, scope, deliverables and responsibilities). Mix of internal and external teams. Start due diligence field work for all respective teams (Operations, Finance/Back Office, Tax, HR, IT, Legal, Environmental, Background checks) Initial drafting of SPA Review and summarize due diligence findings and impact on value proposition of DD findings Initial thought of integration plan

13 PricewaterhouseCoopers LLP Page 13 Negotiations and Drafting of SPA During negotiations: Discussion of due diligence findings with target management, agreement on findings Update business and valuation model with due diligence findings and target discussions Update integration plan with due diligence findings and target discussions. Drafting of management/staff contracts Finalize value proposition (completed business model and final valuation) Finalize Banking/Financing and draft required documents Updating of PSA

14 PricewaterhouseCoopers LLP Page 14 Before Closing the Transaction Make Sure You Checked…. During the final stage: Finalize SPA Obtain appropriate Senior Management (Board) approval Perform confirmatory due diligence (i.e. quality of earnings, working capital, cash flow, etc) Signing of new senior management/staff contracts Perform post-closing due diligence analyses (closing balance sheet, working capital, EBITDA) Complete all required tax filings Prepare an integration communication plan and an internal/external communication strategy

15 PricewaterhouseCoopers LLP Page 15 Doing the Right Deal

16 PricewaterhouseCoopers LLP Page 16 Companies that truly excel at doing deals share a common set of core capabilities Clear and consistent methodology for the acquisition process Consistently manage the deal pipeline Focus capital and resources on the best opportunities (targets) Coordinated diligence process that includes cross functional teams and external advisors Commence integration planning concurrent with due diligence Early identification of key value drivers for each deal Integration process that delivers the value of each deal in the shortest time frame Business unit sponsor involved and accountable through the entire acquisition process

17 PricewaterhouseCoopers LLP Page 17 Deal or No Deal – negotiating winning deals Key Takeaways: Acquisitions are a key part of companies growth strategies Negotiating the deal is a key concern Negotiations occur throughout the acquisition process Succeeding at deal making takes discipline

18 Thank you. PwC Damian Peluso Director PricewaterhouseCoopers Transaction Services (416) 814-5776 © 2007 PricewaterhouseCoopers LLP, Canada. “PricewaterhouseCoopers” refers to PricewaterhouseCoopers LLP, Canada, an Ontario limited liability partnership, or, as the context requires, the network of member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity. *connectedthinking is a trademark of PricewaterhouseCoopers LLP.

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