Developing and Delivering Successful M&A Capability

Developing and Delivering Successful M&A Capability
Research August 26, 2008 DRAFT FOR REVIEW ONLY

Executive Summary Background Approach Research Results Recommendation Next Steps Appendix

XXX’s move to holding company structure via “project XXX” signals a dramatic shift from an operationally driven business to a deal driven organization, which requires… Cultural change from a reactive to a proactive, value-oriented environment with clearly defined walk-away points Sophisticated knowledge of business structures (i.e., multiple holding companies) Comprehensive financing plan before pursuing M&A related activity Efficient corporate governance process allowing for rapid decision-making Acknowledgement that corporate strategy equals M&A strategy Proactive identification of targets coupled with specific approach strategies Transaction professionals, highly experienced in: Valuation Deal structuring Financing (transaction-related) Negotiation To assist XXX in strengthening its pre-deal M&A process, xx has researched many organizations that are facing or have overcome similar challenges to XXX. This document summarizes that research. External research: Pre-deal M&A execution models Factors impacting model selection Pre-deal M&A playbook: Processes Roles and responsibilities Governance Templates NOTE: Please reference the supporting research deck for additional detail on research and findings

Our findings and recommendations draw on xx’s expertise in executing best in class deals and primary research of over 35 companies who are… in industries with high levels of M&A activity… of relevant size (gross profit) to XXX… = comparison category for XXX actively executing deals… …comparable size to those of XXX Source: CapitalIQ, MergerStat, xx Analysis Notes: * Average is of deals in , except for Wellpoint ( ) *“Typical” is an average over years with major outliers excluded

4/21/2017 5:07 AM Finding #1: M&A groups structure their organizations using one of four models, with nearly 60% centralized and nearly 30% hybrid Structure Description Examples Virtual External resources perform M&A activities on an ad hoc basis Senior advisors provide expertise in pre-deal activities and are generally familiar with the organization and specific industry Western Refining NCR Corp External Resources BU BU < 20% of companies researched Decentralized M&A practitioners are located in each business unit (BU) BU(s) defines strategy and conducts all pre-deal activity Approvals may still be required from corporate depending on corporate governance process Integrated Oil & Gas Company BP (moving to a centralized model) Corp BU BU BU Centralized M&A group resides at Holding Company Holding Company drives overall M&A process, including setting strategy across all BUs Central team works closely with relevant specialists as required Central team involves relevant BU for diligence and synergies assessment to create buy-in and accountability for the transaction Oil Refining Co. A Oil Refining Co. B Family-Owned Consumer Goods Business Corp 58% BU BU BU 85% of companies researched Hybrid Corporate and BUs share responsibility for setting M&A strategy, M&A related resources, and activities BUs typically lead, manage, and execute smaller deals Parent-level M&A group leads larger “game-changing” deals LG Electronics SK Energy Viacom Corp 27% BU BU BU = location of M&A capabilities 5 5

Finding #2: Regardless of the structure employed, nearly all M&A groups studied, lead and manage 100% of M&A-related activities from minority investment to divestiture Increased control, risk, cost, and resources Contractual Agreement Strategic Alliance Minority Investment Joint Venture Acquisition/Divestiture Limits risk exposure Includes licensing, co-marketing, supply agreements, etc. Expresses a more serious commitment between the parties Exchange of managerial talent, resources, and capabilities Direct investment in another company Creates an option for future strategic uncertainty Creates a separate entity in which two companies invest More serious commitment Allows for knowledge transfer and experiences learned Gain assets of strategic value Mitigate risk of defection Reduce competitive threat Informed or uninvolved Consulted or Responsible Responsible Involvement of M&A group Contracts are typically executed by business units While business units typically drive strategic alliances, M&A groups are often consulted; some M&A groups lead strategic alliances A vast majority of M&A groups lead all deal activity related to minority investments, joint ventures, and acquisitions/divestitures

Finding #3: M&A teams predominantly have 3-5 dedicated professionals
85% of companies* employ centralized or hybrid models… … and most commonly have 3-5 people Notes: * of companies in sample set * Number of M&A practitioners at the BU-level in a hybrid structure could not be determined Source: xx primary research and analysis

4/21/2017 5:07 AM Finding #4: Focus on growth through acquisition, culture of strong corporate control, and/or substantially similar business units indicates a centralized model Virtual Decentralized Hybrid Centralized M&A activity complements organic growth M&A performed on reactive / ad hoc basis M&A activity as a core competency Growth fueled primarily through M&A-related activities Frequent M&A activity using repeatable, rigorous processes Portfolio approach M&A not a core competence Culture of control Divisions empowered to set strategy Corporate retains approval authority but does not actively determine division strategy Corporate actively participates in or sets divisions’ strategies, whether by direct influence or via economic incentives (e.g., capital distributions) High reliance on external expertise Divisions operate in different industries Little or no overlap in customer segments Wide variation in products or services Strategy dramatically varies by division Business units are geographically dispersed Similarity of business units / divisions Divisions operate in same industry Similar or overlapping customer segments High degree of commonality or complementing products / services Similar divisional strategies NO IMPACT in adoption of virtual model 8

4/21/2017 5:07 AM Finding #5: Greater scale of deal activity, in terms of both volume and value, suggests selection of centralized over hybrid model Virtual Decentralized Hybrid Centralized Low deal volume Deal Activity High deal volume Larger deals Smaller deals Note: due to sample size, this is indicative, however not statistically significant Average number of deals* Deal Value as % of Gross Profit 60 70% 60% 50 50% 40 40% Avg # of Deals 30 Avg Annual Gross Profit ( ) Avg Annual Deal Value as % of 30% 20 20% 10 10% 0% Virtual Decentralized Hybrid Centralized Virtual Decentralized Hybrid Centralized Corporate Development Structure M&A Structure median maximum minimum 75th percentile 25th percentile Source: CapitalIQ, MergerStat, xx primary research and analysis Notes: * Average is of deals in , except for Wellpoint ( ) *“Typical” is an average over years with major outliers excluded 9

Recommendation: Hold Co
Recommendation: Hold Co. portfolio management strategy suggests XXX adopt a centralized M&A structure, staffed with 2-4 M&A professionals 4/21/2017 5:07 AM Virtual Decentralized Hybrid Centralized M&A activity as a core competency M&A is not currently a core competency, but through Project X, XXX intends to move toward a portfolio approach in which M&A is necessarily a core competency Culture of control Hold Co. retains significant control over BUs through capital allocation Similarity of business units / divisions XXX’s divisions largely operate at different points in the value chain of the same industry Deal Activity XXX intends to become more active in M&A and execute larger more transformative deals = Less dominant factors for XXX = More dominant factors for XXX = Recommended structure 10

Holding company/ Corporate headquarters Knowledge / Expertise driven
4/21/2017 5:07 AM Implication #1: XXX’s M&A group leads and coordinates all acquisitions regardless of deal size; BU provides operational and integration planning expertise Business Unit Holding company/ Corporate headquarters External Advisor Location of activity Candidate profiles Target screening Valuation Modeling Due diligence: IT Due diligence: HR Due diligence: Market and financial Management of process execution Due diligence: IT Due diligence: Accounting Due diligence: IT Due diligence: Environmental Due diligence: HR Target valuation Process Focused Type of activity Company-wide and BU M&A strategy Screening criteria Universe of candidates definition and selection Methodology of approach Due diligence management Financial forecast assessment Deal structuring Diligence results summary Synergies analysis Integration assessment Deal negotiation BU M&A strategy Potential acquisition candidates identification Due diligence: Market Synergies analysis Financial forecasts assessment Integration assessment Legal: Diligence, deal execution, approvals, close deal Deal structuring Financing options Tax implications/strategy Knowledge / Expertise driven Bold = M&A group activities 11 11

4/21/2017 5:07 AM Implication #2: The corporate M&A group focuses Hold Co management on long-term portfolio management strategies and fosters an unbiased approach in determining transaction pursuits Benefits Comments Observations Enables assessment and execution of acquisitions in markets in which the company currently does not operate while BUs address specific sectors The corporate group of a consumer goods manufacturer consistently identifies new product lines in unexplored sub-sectors and executes transactions that become new subsidiaries Large, game-changing transactions affect multiple BUs and hence enabling execution by a central team avoids bias in evaluation from individual BUs One serial acquirer uses a central M&A group in place of BU leaders to originate game-changing deals; as one M&A executive said, “…our job is to find the new ideas…to get transformative, game-changing growth” Ensures that acquisitions and investments are executed as part of a portfolio approach as well as for integration with existing operations Defines divestiture points Central M&A groups of PE firms allow them to take an objective view of acquisitions from an investment perspective: continuous portfolio review enables development of clear exit strategies that create value rather than to free up cash Allows M&A group to consider a longer time horizon (5-10 years), while business units (BUs) retain focus on shorter-term operational activities (2-5 years) J&J developed a corporate group to focus exclusively on long-term strategic options in emerging technologies unrelated to its decentralized operating companies; the emerging technologies are not within the 2-5 year time horizon of the BUs, but may become of strategic value to them in the future Expansion into new markets Completion of larger, transformative transactions Investments for financial vs. strategic purposes Focus on longer time horizons 12

4/21/2017 5:07 AM Implication #3: A corporate M&A group improves control of confidentiality in large, transformational deals and mitigates over-exposure to financial risk Benefits Comments Observations A corporate group limits the likelihood that information about a potential, game- changing transaction will be leaked, due to tighter control of documentation, and less widespread involvement of employees Leak of company’s interest in target can lead to higher prices paid for acquisitions Confidentiality is of particular importance for divestitures An insider leaked to five news agencies details of Interbrew’s discussions to acquire SAB Immediately after the leak, SAB’s stock price increased dramatically, while Interbrew’s tumbled Interbrew ended its discussions and could not execute the transaction Decentralized or hybrid structures may result in approval of deals that are on the borderline of acceptable risk tolerance In aggregate, approval of multiple borderline deals can increase overall risk profile to unacceptable levels A corporate level group can ensure that the overall risk for all deals does not exceed a company’s risk tolerance In 4 yrs, Metavante made 17 acquisitions, using a significant amount of its parent company’s, capital, leading to the parent’s board forming a “Metavante Acquisition Review Committee” to keep informed of Metavante’s acquisition plans The pressure on M&I’s capital reduced both M&I and Metavante’s ability to use cash to fund acquisitions; it was also largely responsible for a sponsored spin- off of Metavante with private-equity firm Warburg Pincus LLC Control of confidentiality Limits over-exposure to risk 13

4/21/2017 5:07 AM Implication #4: A corporate group allows development of M&A expertise, ensures BU adherence to M&A strategy and process, and allows efficient execution of deals Benefits Comments Observations Building a concentration of deal experience allows more rigorous strategic assessment of strategic targets resulting in a value creation plan that identifies: Major risks Further opportunities Cost improvements Walk-away points A dedicated corporate M&A group can provide fast track employees valuable experience leading to GM or career corporate development Expertise of a health insurance provider’s centralized group was built over several years - when the company was then acquired, the group was recognized as a center of excellence and retained as the core M&A function Ensures that all transactions further the M&A strategy for both the overall company and its individual business units Smiths’ Group’s centralized M&A group builds business cases for opportunities identified by BUs to test adherence to a well-defined M&A strategy Allows for quicker approval process due to centralized decision making and consistency in the M&A process PE firms with centralized M&A groups typically complete the M&A process in 2-8 weeks while a “typical” strategic buyer without a centralized process averages 6-18 weeks Build M&A transactional expertise Maintain control over M&A strategy Faster execution of large transactions 14

4/21/2017 5:07 AM Implication #5: Cultural considerations strongly impact successful deal execution requiring active management by the corporate development group Risks Leading Practices Observations Limited or no integration between M&A strategy and corporate strategy M&A strategy should be an integral part of the overall corporate strategy Western Refining: Did not consider M&A an integral part of its growth strategy Lacked M&A experience and was hasty in executing the $2 billion acquisition of Giant Industries Now experiencing integration and leverage challenges, and promised revenue synergies are at risk Rigidity of parameters While a detailed M&A playbook is important to develop repeatable processes, each transaction is unique, and the M&A group must have the authority to alter the criteria as necessary Major integrated oil and gas company: Inability to change divestiture parameters set by corporate Parameters sometimes fail to include all factors that could determine metrics and price Often leads to protracted time to completion of deal Slow approval process Well-communicated and commonly understood deal objectives enable the M&A group to research and present information relevant to the board and senior executives when approving a transaction. This allows for a more efficient approvals process Beverage manufacturer: Lack of clear objectives and executive involvement in deal process Results in slow approval process, after M&A group presents the business case and diligence findings to executive board Frequently causes a longer timeframe to execute transactions and potential loss of opportunities especially in auction process Risk aversion Companies must be ready to move fast and aggressively and be willing to “step on toes” to execute transactions Chemicals manufacturer: Identified target that was vital to growth strategy Board was reluctant to approach the target in an unconventional manner Caused the decision to be so delayed that three transactions occurred during the time for a decision to be made 15

XXX’s move to a holding company structure via “Project X” signals a dramatic shift from an operationally driven business to an M&A driven organization XXX has completed a number of acquisitions, strategic alliances, and divestitures to date Smaller scale and asset purchases rather than large acquisitions with company-wide implications Frequently reactive regarding targets (i.e., waits for an auction) Evaluation and negotiation processes primarily owned by business units Divestitures occur opportunistically to generate cash without continual assessment of portfolio Decisions are not made within context of an overall portfolio but on ad-hoc basis More recently, XXX attempted larger scale, game-changing acquisitions but found many challenges No formally stated M&A strategy against which to evaluate fit Minimal documentation of processes putting knowledge transfer at risk Pursuit of deals for perceived benefits as opposed to fulfillment of pre-defined criteria Unclear roles and responsibilities due to lack of core deal team As XXX implements “Project X” and moves to a new business model, successful deal execution requires sophisticated and efficient transaction processes Need for greater emphasis on growth through acquisition, divestiture, and alliances Move to a holding company structure with greater separation between divisions Need for comprehensive financing plan before pursuing M&A-related activity Need for greater certainty of deal’s ability to add value or address strategic need To assist XXX in strengthening its pre-deal M&A process, xx has researched many organizations who are facing or have overcome similar challenges as XXX, to understand: Options for organization of pre-deal M&A capabilities Factors impacting which option is most suitable for an organization An M&A playbook will follow the research. The playbook will detail processes, roles and responsibilities required to execute pre-deal M&A activities.

M&A Strategy Definition Transaction Execution
We have focused our research on pre-deal activities in the M&A lifecycle M&A Strategy Define goals for M&A activity Establish the role of M&A as part of the organization’s growth strategy M&A Strategy Definition Target Screening Proactively identify potential targets Develop screening criteria to assess fit Evaluate against screening criteria Divestiture Plan and manage the divestiture transaction Capture divestiture value Complete post-divestiture activities for a clean separation Divestiture Target Screening Due Diligence Develop an understanding of a target’s strategy, operation, and organization through a comprehensive repeatable process for evaluating fit, value, and risk of target Validate acquisition economics Assess potential revenue and cost synergies Integration Develop detailed integration plan Plan and track synergy achievement Integration Due Diligence Transition Planning Develop integration strategy Establish Integration Management Office Transition Planning Transaction Execution Transaction Execution Draft letter of intent Determine final valuation of target Facilitate development of deal structure Negotiate and close the deal Key = pre-deal activity = out of scope of research 19 19

4/21/2017 5:07 AM We have based our research and findings upon primary and secondary sources We appraised the M&A functions of 36 companies through discussion with Subject matter experts and individuals with experience from M&A or Corporate Development groups Individuals with direct M&A experience from 30 xx clients The profile of the companies considered in our research is: 7 oil and gas companies, including, Valero, Tesoro, Western Refining, BP, and Sunoco 1 – 50 transactions completed per year $1 billion - $400 billion in annual revenue Companies from the following industries: Technology, media, and telecommunications Financial services Oil & gas Consumer packaged goods Life sciences Manufacturing We reviewed literature to include 17 business journal papers and articles 5 xx Research articles Corporate Dealmaker, Harvard Business Review, McKinsey Quarterly Various other publications and industry observers We considered results from 3 surveys which, in aggregate, studied: Activity of 1,800 companies Responses to interviews with 85 senior execs of prolific acquirers 24 private equity firms who completed 490 acquisitions and 225 divestments in aggregate 20

Our findings and recommendations draw on xx’s expertise in executing best in class deals and primary research of over 35 companies who are… in industries with high levels of M&A activity… of relevant size (gross profit) to XXX… = comparison category for XXX actively executing deals… …comparable size to those of XXX Source: CapitalIQ, MergerStat, xx Analysis Notes: * Average is of deals in , except for Wellpoint ( ) *“Typical” is an average over years with major outliers excluded

Executive Summary Background Approach Research Results An internal M&A group confers multiple benefits upon XXX Potential organizational models for M&A groups Factors impacting the selection of a particular model Recommendation and Implications Next Steps Appendix

Nearly all M&A groups studied lead and manage 100% of M&A-related activities from minority investment to divestiture Increased control, risk, cost, and resources Contractual Agreement Strategic Alliance Minority Investment Joint Venture Acquisition/Divestiture Limits risk exposure Includes licensing, co-marketing, supply agreements, etc. Expresses a more serious commitment between the parties Exchange of managerial talent, resources, and capabilities Direct investment in another company Creates an option for future strategic uncertainty Creates a separate entity in which two companies invest More serious commitment Allows for knowledge transfer and experiences learned Gain assets of strategic value Mitigate risk of defection Reduce competitive threat Informed or uninvolved Consulted or Responsible Responsible Involvement of M&A group Contracts are typically executed by business units While business units typically drive strategic alliances, M&A groups are often consulted; some M&A groups lead strategic alliances A vast majority of M&A groups lead all deal activity related to minority investments, joint ventures, and acquisitions/divestitures

Possessing in-house M&A capability enables XXX to conduct the right transactions with greater efficiency and lower risk… Ensures selection of most suitable targets Allows adoption of an “always on” approach and continual evaluation of potential deal Ensures compatibility between M&A strategy and overall corporate strategy Allows for consideration of all M&A opportunities when approving transactions Increases likelihood of dispassionate, objective approach Increases speed of transaction lifecycle Employs an efficient, repeatable process executed by trained resources Makes efficient use of experts, reducing impact on the business operations Provides opportunity to incorporate key lessons learned from previous deal experience Reduces subjectivity in decision making Employs strict deal metrics and objectives that the organization must meet Reduces likelihood of over-payment from over-eagerness to complete transactions Reduces dependency on outside advisors who may be incentivized to complete a deal Strengthens credibility as acquirer Strengthens reputation as a sophisticated and serious acquirer with ability to execute Enhances ability to obtain future deal financing based on proven track record Creates a more positive view for target employees through a standardized and efficient M&A process and generates greater respect from target’s leadership and management Increases likelihood of transaction success Improves quality of proactive or auction based bid Provides clear accountability for successful close Allows post-deal value tracking Creates clear mechanism to communicate to integration team / BU synergies identified during diligence

…and will bring the required skills to M&A activities
Financial analysis Applies rigorous financial screening criteria Develops valuation models, synergy estimates, earnings forecasts, and value-creation analyses Tests validity of business case and commercial viability of projections A Life Sciences Manufacturer staffs M&A group primarily with ex-investment bankers Industry expertise Requires general understanding of business drivers and industry trends to facilitate and manage meaningful commercial diligence process Assesses strategic fit of potential targets Members of a Healthcare Company’s M&A team focus on a BU to become familiar with the industry Negotiation Develops negotiation strategy, trade-offs and walk-away points Frequently acts as lead negotiator in a frequently complicated, high-stakes, and combative negotiation Thermo Fisher Scientific M&A group members are directly involved in the negotiations Process management Leads the deal team, co-ordinating input of external and internal resources Mitigates risk by monitoring all activities and ensuring progress to plan Manages overall deal execution “an in-house team provides a higher level of customization of the process” Political savvy Requires ability to motivate and obtain input from others even when no formal reporting line exists Needs to be able to work with target’s management teams in potentially hostile environment “even scheduling a deal meeting can be difficult given the seniority of the people involved” High level functional knowledge Prioritizes functional diligence requirements based on deal objectives Summarizes risks arising from any functional area Identifies need for involvement of functional experts in high risk areas “The M&A group presents deals for approval and must clearly understand and describe the results of all due diligence”

4/21/2017 5:07 AM M&A groups structure their organizations using one of four models, with nearly 60% centralized Structure Description Examples Virtual External resources perform M&A activities on an ad hoc basis Senior advisors provide expertise in pre-deal activities and are generally familiar with the organization and specific industry Western Refining NCR Corp External Resources BU BU < 20% of companies researched Decentralized M&A practitioners are located in each business unit (BU) BU(s) defines strategy and conducts all pre-deal activity Approvals may still be required from corporate depending on corporate governance process Integrated Oil & Gas Company BP (moving to a centralized model) Corp BU BU BU Centralized M&A group resides at Holding Company Holding Company drives overall M&A process, including setting strategy across all BUs Central team works closely with relevant specialists as required Central team involves relevant BU for diligence and synergies assessment to create buy-in and accountability for the transaction Oil Refining Co. A Oil Refining Co. B Family-Owned Consumer Goods Business Corp 58% BU BU BU 85% of companies researched Hybrid Corporate and BUs share responsibility for setting M&A strategy, M&A related resources, and activities BUs typically lead, manage, and execute smaller deals Parent-level M&A group leads larger “game-changing” deals LG Electronics SK Energy Viacom Corp 27% BU BU BU = location of M&A capabilities 28 28

M&A teams predominantly have 3-5 dedicated professionals
85% of companies* employ centralized or hybrid models… … and most commonly have 3-5 people Notes: * of companies in sample set * Number of M&A practitioners at the BU-level in a hybrid structure could not be determined Source: xx primary research and analysis

Virtual Model: Characteristics
Adds “virtual breadth” through selected use of partners familiar with the organization and with specific subject matter expertise After identifying a specific target of interest, partners may assist in developing the M&A strategy, and/or selecting specific targets or may be included after target selection Partners are experts in pre-deal M&A activity and/or the relevant industry Repetitive / Transaction Knowledge / Expertise driven Type of activity Business Unit Holding company/ Corporate headquarters Location of activity External Advisor Legal: diligence, deal execution, approvals, close deal Deal structuring Financing options Tax implications/strategy Corporate and BU M&A Strategy Screening criteria Universe of candidates definition and selection Due diligence: IT Due diligence: HR Due diligence: Market and financial BU M&A strategy Potential acquisition candidates identification Due diligence: market Synergies analysis Financial forecasts assessment Integration assessment Candidate profiles Target screening Target valuation Due diligence: Accounting Due diligence: IT Due diligence: Environmental Due diligence: HR Bold = Activities generally provided by internal M&A group in other models Corporate and BU M&A Strategy Screening criteria Universe of candidates definition and selection Methodology of approach Approach methodology Due diligence management Financial forecast assessment Deal structuring Diligence results summary Synergies analysis Integration assessment Deal negotiation 30 30

Virtual Model: Pros and Cons
Greatest flexibility / use of resources Skilled resources can be added “on demand” which can be more cost effective than having dedicated internal resources External resources provide new perspectives Organizational knowledge may be lost if virtual resources are not well managed A single view may result with little internal validation External advisors may bring bias towards deal completion rather than strategic fit of target due to compensation mechanisms NCR wanted to acquire several companies in the short-term but did not have a long-term M&A strategy. The virtual model allowed NCR to gain temporary M&A experts without adding permanent resources Investment bankers and other external advisors rarely have deep industry knowledge in comparison to a company’s employees External advisors are less familiar with the business model and strategy than employees, which may impede the M&A process 31 31

Virtual Model: Examples
Company NCR Western Refining Industry Information Technology Services Oil and gas refining and retail Revenue $5 billion $4 billion (pre-Giant acquisition); $7 billion post-acquisition M&A activity # of deals executed annually = 2 Typical deal size = $10 million Deal value range = $10 million Completed the $2 billion acquisition of Giant Industries in May 2007 Description / how it works NCR developed a short-term acquisition strategy and did not want to add permanent resources. xx staffed 4 people at the client site to act as the M&A group. An average of deals are in the pipeline at any given time The Giant deal was sourced by Western executives who had previously served as senior executives at Giant. Western extensively used external advisors to execute the acquisition of Giant Industries Rationale / Observations The Giant acquisition occurred largely because of the geographic proximity and close relationship between the companies (many executives at Western were previously executives at Giant)

Entirely Parent-driven Entirely Division-driven
Decentralized Model: Characteristics Characteristics BUs drive their own M&A strategy and target screening BUs move at their own timeline and pace, creating teams as necessary, primarily drawing from BU staff BUs execute transactions using M&A SWAT teams with staff from corporate for functional expertise and BUs for industry and operational expertise Entirely Parent-driven Entirely Division-driven Transaction process M&A Strategy Screening Criteria Target screening & selection Methodology of Approach Valuation Due diligence Deal execution Negotiation Integration 0% 25% 50% 75% 100% Level of divisional ownership Large (transformational) deals Small (transactional) deals 33 33

Decentralized Model: Characteristics Business Unit Holding company/ Corporate headquarters External Advisor Location of activity Due diligence: IT Due diligence: HR Candidate profiles Target screening Valuation Modeling Due diligence: IT Due diligence: HR Due diligence: Market and financial Management of process execution Process Focused Due diligence: Accounting Due diligence: IT Due diligence: Environmental Due diligence: HR Target valuation Bold = M&A Group activities Type of activity Knowledge / Expertise driven BU M&A strategy Screening criteria Potential acquisition candidates identification Due diligence: market Synergies analysis Financial forecasts assessment Deal structuring Diligence results summary Integration assessment Deal negotiation Legal: diligence, deal execution, approvals, close deal Deal structuring Financing options Tax implications/strategy 34 34

Decentralized Model: Pros and Cons
M&A strategy tuned to the unique needs of BUs Enhances BU ability to respond quickly Consistency of approach and resources from pre-deal to integration relative to BUs particular needs Ensures early involvement and communication with BUs to plan integration Less central ‘overhead’ required No centralized coordination of M&A strategy Potential duplication of M&A capabilities across businesses Lack of knowledge retention / sharing across units Smaller BUs may not be able to staff up as needed Increased risk exposure Raises potential confidentiality concern A major integrated oil and gas company’s decentralized structure allows for the M&A group to unemotionally execute transactions – strict guidelines for deal metrics provided by Strategy Group ensure that M&A group objectively executes transactions BP’s M&A groups became “too big for their own good” and there was no communication between the BU M&A groups leading to a reorganization into centralized model Prior to a reorganization to a centralized model, a global financial services center utilized a decentralized model in which BUs executed their own deals without standardized processes and corporate approval 35 35

Decentralized Model: Examples
Company Integrated Oil & Gas Company BP Industry Oil & Gas Revenue $400 billion $285 billion M&A activity # of deals executed annually = 7 Typical deal size = $500 million - $1 billion Deal value range = $18 million - $3 billion # of deals executed annually = 10 Typical deal size = $800 million Deal value range = $4 million - $9 billion Description / how it works Strategy Group: Develop M&A/divestiture strategy Develop strict metrics to determine M&A/divestiture strategy Determine strict metrics and deal prices for deal teams to follow Develop detailed planning documents for deal teams to follow Identify members of deal team Deal Teams: Perform due diligence Structure and execute transactions M&A function part of Strategy, Planning, and Economics M&A groups report to respective BU President Approximately 5 people focused on strategy and M&A in each Business Unit Staffed with people who have experience in the business Non-M&A Activities: Annual budget 5-year strategy plan Portfolio management M&A Activities: Performs valuation and financial analyses Leads and performs due diligence Structures and executes transactions Rationale / Observations Very proactive, unemotional approach to M&A M&A process can be very long due to unchanging deal parameters Business units are in the same industry but in very distinct parts of the value chain BP is in the process of moving to a centralized M&A group at the North American subsidiary level

Entirely Parent-driven Entirely Division-driven
Centralized Model: Characteristics Characteristics Corporate level M&A group drives overall pre-deal M&A process, including M&A strategy setting, target identification and screening, due diligence, transaction structuring and deal execution Maintains standardized tools and repeatable processes Depending on scale may have in-house SMEs who are aligned with specific BUs Involves BU management and other corporate functions for industry and functional expertise, respectively Works as a networked team by drawing expertise from multiple sources Entirely Parent-driven Entirely Division-driven Transaction process M&A Strategy Screening Criteria Target screening & selection Methodology of Approach Valuation Due diligence Deal execution Negotiation Integration 0% 25% 50% 75% 100% Level of divisional ownership Large (transformational) deals Small (transactional) deals 37 37

4/21/2017 5:07 AM Centralized Model: Characterisitics Business Unit Holding company/ Corporate headquarters External Advisor Location of activity Candidate profiles Target screening Valuation Modeling Due diligence: IT Due diligence: HR Due diligence: Market and financial Management of process execution Due diligence: IT Due diligence: Accounting Due diligence: IT Due diligence: Environmental Due diligence: HR Target valuation Process Focused Type of activity Company-wide and BU M&A strategy Screening criteria Universe of candidates definition and selection Methodology of approach Due diligence management Financial forecast assessment Deal structuring Diligence results summary Synergies analysis Integration assessment Deal negotiation BU M&A strategy Potential acquisition candidates identification Due diligence: Market Synergies analysis Financial forecasts assessment Integration assessment Legal: Diligence, deal execution, approvals, close deal Deal structuring Financing options Tax implications/strategy Knowledge / Expertise driven Bold = M&A group activities 38 38

Centralized Model: Pros and Cons
Builds in-house expertise that can be shared and leveraged Provides ability to manage and control M&A strategy, ensuring consistency of portfolio Enables faster transaction execution Allows greater focus on longer time horizons Enables expansion into new markets and execution of larger, transformative deals Allows for investments for financial purposes Reduces risk exposure through holistic view of approach and targets Requires deep understanding of each BU Requires BUs to cede M&A strategy Potential tension between BU and M&A group requires open and clear communication to mitigate any risk Often different groups accountable for evaluation and delivery of synergy targets Central team regarded as ‘overhead’ Cisco’s M&A group, which is regarded as a core function of the company, completed 110 acquisitions between 1993 and 2006 to enter into new product categories or improve its existing products with newer technology J&J developed a centralized group to focus exclusively on long-term strategic options in emerging technologies unrelated to its decentralized operating companies; the emerging technologies are not within the 2-5 year time horizon of the BUs, but may become of strategic value in the future A beverage manufacturer’s centralized M&A group assesses deal synergies and develops forecast financials without the involvement of the BUs that would ultimately achieve synergy and financial targets A public consumer goods company’s centralized structure creates tension with the BUs. Both BUs and the M&A group perform target screening with little communication between them 39 39

Centralized Model: Examples
Company Oil Refining Co. A Oil Refining Co. B Family Owned Consumer Goods Company Industry Oil & Gas Consumer Packaged Goods Revenue $100 billion $24 billion $8 billion M&A activity # of deals executed annually = 1-2 Typical deal size = $1-$2 billion Deal value range = $13 million – $8 billion Typical deal size = $900 million Deal value range = $33 million – $1.4 billion # of deals executed annually = 2-3 (sporadic) Typical deal size = $50 million Deal value range = $10 million – $1 billion Description / how it works Centralized M&A group reports to CEO Develops corporate strategy Identifies and screens targets Performs valuation and financial analyses Leads and performs due diligence Structures and executes transactions Corporate staff performs functional diligence as needed External advisors involved as needed Deals mostly sourced by senior executives Centralized M&A group reports to CFO Involves BU team to develop synergies and financial projections Uses external advisors extensively for capacity and capabilities Rationale / Observations Early strategy was to buy old refineries cheaply then upgrade to high yield refinery. Current CEO has stated the company will sell up to 1/3 of its refineries. Current strategy is to own and maintain high quality refineries. Strategy is a regional play; locates assets strategically Low capacity refineries Retail businesses strategic to company to lock up distribution Acquisitions are typically product line extensions About every 5 years, the company completes a large acquisition ($1 billion) Company is privately held, and strategy is very tightly controlled BUs operate in different markets with unique products and customers

Entirely Corporate-driven
Hybrid Model: Characteristics Characteristics M&A groups at both corporate and BU level, both contribute to setting M&A strategy Corporate M&A group sources and manages larger “game-changing” deals BU M&A team(s) leads smaller BU-specific deals, drawing from expertise of centralized group as required Collaborative approach to M&A strategy across organization, team rotation and sharing as required Division of responsibilities reflect the scale and nature of the deal Entirely Corporate-driven Entirely BU-driven Transaction process M&A Strategy Screening Criteria Target screening & selection Methodology of Approach Valuation Due diligence Deal execution Negotiation Integration 0% 25% 50% 75% 100% Level of BU responsibility Large (transformational) deals Small (transactional) deals 41 41

Hybrid Model: Pros and Cons
Builds in-house expertise that can be shared and leveraged Provides ability to manage / control M&A strategy and ensures consistency across portfolio Allows all BUs to be served effectively Provides succession planning and job rotation for staff Ensures M&A staff have deep understanding of industry and BU requirements Capabilities may not always be aligned with needs Risk of M&A strategy being dominated by one group / area Central team regarded as ‘overhead’ - may be costly to keep SMEs who are not fully deployed Requires critical mass to ensure M&A capabilities are not too fragmented Requires open and clear communication between corporate and BU M&A groups Viacom’s hybrid model enables BUs to control their unique strategy. The corporate M&A group provides support on deals and also focus on larger, “game-changing” deals for the company SK Energy often misses out on deals because its hybrid structure is very bureaucratic 42 42

Hybrid Model: Examples
Company LG Electronics SK Energy Newscorp Industry Consumer electronics, home appliances, mobile communications Oil and gas, energy company Media/Entertainment Revenues $54 billion $30 billion $32 billion M&A activity # of deals executed annually = 1 -2 Typical deal size = $26 million Deal value range = $300,000 – $56 million # of deals executed annually = 0 Typical deal size = N/A Deal value range = N/A # of deals executed annually = 15-20 Typical deal size = $800 million Deal value range = $1 million - $10 billion Description / how it works BU M&A groups report to M&A group at corporate; corporate M&A group reports to CFO Corporate M&A group devises strategy and BU M&A group executes transactions Approximately 40 people across all the M&A groups 5 people in BU M&A groups 2 people in M&A group at corporate Corporate M&A group provides support to the BU BU M&A group identifies opportunities, leads diligence, executes transaction Corporate: 5 members at corporate Leads and performs diligence for deals > $150 mm Executes deals identified by Rupert Murdoch BU: 3-5 members per subsidiary Identifies and screens targets Performs valuation and financial analyses Leads and performs due diligence Structures and executes transactions Involves internal advisors as needed (external advisors never used for deals <$150mm) Rationale / Observations BUs manufacture disparate products and each develop unique M&A strategies to compete in their respective markets Misses out on deals because of bureaucracy Moved to holding company structure in 2007; SK Energy is a subsidiary of SK holdings Notification required for deals of any size Each subsidiary has its own deal budget

4/21/2017 5:07 AM Focus on growth through acquisition, strong corporate control, and/or similarity of business units indicates a centralized model Virtual Decentralized Hybrid Centralized M&A activity complements organic growth M&A performed on reactive / ad hoc basis M&A activity as a core competency Growth fueled primarily through M&A-related activities Frequent M&A activity using repeatable, rigorous processes Portfolio approach M&A not a core competence Culture of control Divisions empowered to set strategy Corporate retains approval authority but does not actively determine division strategy Corporate actively participates in or sets divisions’ strategies, whether by direct influence or via economic incentives (e.g., capital distributions) High reliance on external expertise Divisions operate in different industries Little or no overlap in customer segments Wide variation in products or services Strategy dramatically varies by division Business units are geographically dispersed Similarity of business units / divisions Divisions operate in same industry Similar or overlapping customer segments High degree of commonality or complementing products / services Similar divisional strategies NO IMPACT in adoption of virtual model

4/21/2017 5:07 AM Greater scale of deal activity, in terms of both deal volume and typical deal size, suggests selection of centralized over hybrid model Virtual Decentralized Hybrid Centralized Low deal volume Deal Activity High deal volume Larger deals Smaller deals Note: due to sample size, this is indicative, however not statistically significant Average number of deals* Deal Value as % of Gross Profit 60 70% 60% 50 50% 40 40% Avg # of Deals 30 Avg Annual Gross Profit ( ) Avg Annual Deal Value as % of 30% 20 20% 10 10% 0% Virtual Decentralized Hybrid Centralized Virtual Decentralized Hybrid Centralized Corporate Development Structure M&A Structure median maximum minimum 75th percentile 25th percentile Source: CapitalIQ, MergerStat, xx primary research and analysis Notes: * Average is of deals in , except for Wellpoint ( ) *“Typical” is an average over years with major outliers excluded

Factors impacting M&A group model employed: Oil & Gas Industry
Virtual Decentralized Hybrid Centralized M&A activity as a core competency Non core activity M&A fundamental Culture of control Divisions are empowered Control is held centrally Similarity of business units / divisions Different industry, customer, product Similar industry, customer, product, strategy Deal Activity Low deal volume High deal volume Smaller deals Larger deals Key: = Oil Refining Company A = Oil Refining Company B Integrated Oil & Gas Company = Western Refining = SK Energy = BP = Sunoco

Factors impacting M&A group model employed: Companies averaging 0 to 2 deals
Virtual Decentralized Hybrid Centralized M&A activity as a core competency Non core activity M&A fundamental Culture of control Divisions are empowered Control is held centrally Similarity of business units / divisions Different industry, customer, product Similar industry, customer, product, strategy Deal Activity Low deal volume High deal volume Smaller deals Larger deals Key: = Oil Refining Company A = Oil Refining Company B = Consumer Goods Company A = Beverage Manufacturer = Western Refining = LG Electronics = SK Energy = Sunoco

Factors impacting M&A group model employed: Companies with revenues of $10-$15B
Virtual Decentralized Hybrid Centralized M&A activity as a core competency Non core activity M&A fundamental Culture of control Divisions are empowered Control is held centrally Similarity of business units / divisions Different industry, customer, product Similar industry, customer, product, strategy Deal activity Low deal volume High deal volume Smaller deals Larger deals Key: = Thermo Fisher Scientific = Viacom = Beverage Manufacturer

Factors impacting M&A group model employed: Companies with operating margin of 2-5%
Virtual Decentralized Hybrid Centralized M&A activity as a core competency Non core activity M&A fundamental Culture of control Divisions are empowered Control is held centrally Similarity of business units / divisions Different industry, customer, product Similar industry, customer, product, strategy Deal Activity Low deal volume High deal volume Smaller deals Larger deals Key: = Fidelity National Financial = Oil Refining Company B = Sunoco = SK Energy = NCR Corporation

Executive Summary Background Approach Research Results Recommendation and Implications Next Steps Appendix

4/21/2017 5:07 AM Hold Co. portfolio management strategy suggests XXX to adopt a centralized M&A structure, staffed with 2-4 M&A professionals Virtual Decentralized Hybrid Centralized M&A activity as a core competency M&A is not currently a core competency, but through Project X, XXX intends to move toward a portfolio approach in which M&A is necessarily a core competency Culture of control Hold Co. retains significant control over BUs through capital allocation Similarity of business units / divisions XXX’s divisions largely operate at different points in the value chain of the same industry Deal Activity XXX intends to become more active in M&A and execute larger more transformative deals = Less dominant factors for XXX = More dominant factors for XXX = Recommended structure 52

4/21/2017 5:07 AM Implication #1: XXX’s M&A group leads and coordinates all acquisitions regardless of deal size; BU provide operational and integration planning expertise Business Unit Holding company/ Corporate headquarters External Advisor Location of activity Candidate profiles Target screening Valuation Modeling Due diligence: IT Due diligence: HR Due diligence: Market and financial Management of process execution Due diligence: IT Due diligence: Accounting Due diligence: IT Due diligence: Environmental Due diligence: HR Target valuation Process Focused Type of activity Company-wide and BU M&A strategy Screening criteria Universe of candidates definition and selection Methodology of approach Due diligence management Financial forecast assessment Deal structuring Diligence results summary Synergies analysis Integration assessment Deal negotiation BU M&A strategy Potential acquisition candidates identification Due diligence: Market Synergies analysis Financial forecasts assessment Integration assessment Legal: Diligence, deal execution, approvals, close deal Deal structuring Financing options Tax implications/strategy Knowledge / Expertise driven Bold = M&A group activities 53 53

4/21/2017 5:07 AM Implication #2: The corporate M&A group focuses Hold Co management on long-term portfolio management strategies and fosters an unbiased approach in determining transaction pursuits Benefits Comments Observations Enables assessment and execution of acquisitions in markets in which the company currently does not operate while BUs address specific sectors The corporate group of a consumer goods manufacturer consistently identifies new product lines in unexplored sub-sectors and executes transactions that become new subsidiaries Large, game-changing transactions affect multiple BUs and hence enabling execution by a central team avoids bias in evaluation from individual BUs One serial acquirer uses a central M&A group in place of BU leaders to originate game-changing deals; as one M&A executive said, “…our job is to find the new ideas…to get transformative, game-changing growth” Ensures that acquisitions and investments are executed as part of a portfolio approach as well as for integration with existing operations Defines divestiture points Central M&A groups of PE firms allow them to take an objective view of acquisitions from an investment perspective: continuous portfolio review enables development of clear exit strategies that create value rather than to free up cash Allows M&A group to consider a longer time horizon (5-10 years), while business units (BUs) retain focus on shorter-term operational activities (2-5 years) J&J developed a corporate group to focus exclusively on long-term strategic options in emerging technologies unrelated to its decentralized operating companies; the emerging technologies are not within the 2-5 year time horizon of the BUs, but may become of strategic value to them in the future Expansion into new markets Completion of larger, transformative transactions Investments for financial vs. strategic purposes Focus on longer time horizons 54

4/21/2017 5:07 AM Implication #3: A corporate M&A group improves control of confidentiality in large, transformational deals and mitigates over-exposure to financial risk Benefits Comments Observations A corporate group limits the likelihood that information about a potential, game- changing transaction will be leaked, due to tighter control of documentation, and less widespread involvement of employees Leak of company’s interest in target can lead to higher prices paid for acquisitions Confidentiality is of particular importance for divestitures An insider leaked to five news agencies details of Interbrew’s discussions to acquire SAB Immediately after the leak, SAB’s stock price increased dramatically, while Interbrew’s tumbled Interbrew ended its discussions and could not execute the transaction Decentralized or hybrid structures may result in approval of deals that are on the borderline of acceptable risk tolerance In aggregate, approval of multiple borderline deals can increase overall risk profile to unacceptable levels A corporate level group can ensure that the overall risk for all deals does not exceed a company’s risk tolerance In 4 yrs, Metavante made 17 acquisitions, using a significant amount of its parent company’s, capital, leading to the parent’s board forming a “Metavante Acquisition Review Committee” to keep informed of Metavante’s acquisition plans The pressure on M&I’s capital reduced both M&I and Metavante’s ability to use cash to fund acquisitions; it was also largely responsible for a sponsored spin- off of Metavante with private-equity firm Warburg Pincus LLC Control of confidentiality Limits over-exposure to risk 55

4/21/2017 5:07 AM Implication #4: A corporate group allows development of M&A expertise, ensures BU adherence to M&A strategy and process, and allows efficient execution of deals Benefits Comments Observations Building a concentration of deal experience allows more rigorous strategic assessment of strategic targets resulting in a value creation plan that identifies: Major risks Further opportunities Cost improvements Walk-away points A dedicated corporate M&A group can provide fast track employees valuable experience leading to GM or career corporate development Expertise of a health insurance provider’s centralized group was built over several years - when the company was then acquired, the group was recognized as a center of excellence and retained as the core M&A function Ensures that all transactions further the M&A strategy for both the overall company and its individual business units Smiths’ Group’s centralized M&A group builds business cases for opportunities identified by BUs to test adherence to a well-defined M&A strategy Allows for quicker approval process due to centralized decision making and consistency in the M&A process PE firms with centralized M&A groups typically complete the M&A process in 2-8 weeks while a “typical” strategic buyer without a centralized process averages 6-18 weeks Build M&A transactional expertise Maintain control over M&A strategy Faster execution of large transactions 56

4/21/2017 5:07 AM Implication #5: Cultural considerations strongly impact successful deal execution requiring active management by the corporate development group Risks Leading Practices Observations Limited or no integration between M&A strategy and corporate strategy M&A strategy should be an integral part of the overall corporate strategy Western Refining: Did not consider M&A an integral part of its growth strategy Lacked M&A experience and was hasty in executing the $2 billion acquisition of Giant Industries Now experiencing integration and leverage challenges, and promised revenue synergies are at risk Rigidity of parameters While a detailed M&A playbook is important to develop repeatable processes, each transaction is unique, and the M&A group must have the authority to alter the criteria as necessary Major integrated oil and gas company: Inability to change divestiture parameters set by corporate Parameters sometimes fail to include all factors that could determine metrics and price Often leads to protracted time to completion of deal Slow approval process Well-communicated and commonly understood deal objectives enable the M&A group to research and present information relevant to the board and senior executives when approving a transaction. This allows for a more efficient approvals process Beverage manufacturer: Lack of clear objectives and executive involvement in deal process Results in slow approval process, after M&A group presents the business case and diligence findings to executive board Frequently causes a longer timeframe to execute transactions and potential loss of opportunities especially in auction process Risk aversion Companies must be ready to move fast and aggressively and be willing to “step on toes” to execute transactions Chemicals manufacturer: Identified target that was vital to growth strategy Board was reluctant to approach the target in an unconventional manner Caused the decision to be so delayed that three transactions occurred during the time for a decision to be made 57

4/21/2017 5:07 AM In summary: Our findings suggest XXX employ a centralized group to lead all acquisitions, adopting a portfolio management approach enabling control of confidentiality and enhanced risk management FINDINGS M&A Groups structure their organizations using one of four models, with nearly 60% centralized Regardless of the structure employed, nearly all M&A groups studied, lead and manage 100% of M&A-related activities from minority investment to divestiture M&A teams predominantly have 3-5 dedicated professionals Focus on growth through acquisition, culture of strong corporate control, and/or substantially similar business units indicates a centralized model Greater scale of deal activity, in terms of both deal volume and deal value, suggests selection of centralized over hybrid model RECOMMENDATION Adopt centralized M&A structure Assign 2-4 dedicated M&A professionals This enables Hold Co to: Develop required skills and expertise which will serve as a training ground for a larger team Build a critical mass of deals which will justify a larger M&A group Maintain control of capital allocations which impact BUs’ M&A strategies IMPLICATIONS XXX’s M&A group leads and coordinates all acquisitions regardless of deal size; BU provide operational and integration planning expertise The corporate M&A group focuses Hold Co management on long-term portfolio management strategies and fosters an unbiased approach in determining transaction pursuits A corporate M&A group also limits potential for information leakages in large, transformational deals and mitigates over- exposure to financial risk A corporate group allows development of M&A expertise, ensures BU adherence to M&A strategy and process, and allows efficient execution of larger, transformative deals Cultural considerations strongly impact successful deal execution requiring active management by the corporate development group Centralized Corp BU BU BU 59

4/21/2017 5:07 AM Next Steps: Define formal processes, responsibilities and approval criteria and identify capability gaps XXX NOW Ad-hoc M&A group with multiple responsibilities Smaller scale and asset purchases rather than large acquisitions with company-wide implications Target or partner identification frequently reactive Evaluation and negotiation processes primarily owned by business units Divestitures conducted opportunistically to generate cash, without continual assessment of portfolio Informal approval process HOW DO YOU GET THERE? Determine and agree relevant M&A group model Develop M&A processes (i.e., M&A playbook) Strategy setting Target screening criteria Due diligence and deal execution processes Corporate governance guidelines Detail roles and responsibilities Responsibilities for each M&A group member Detailed interaction with internal and external functional experts (e.g., tax, legal, and treasury) Role on deal team for business unit managers Implement M&A specific training to develop financial, negotiation, and process management skills XXX FUTURE Centralized M&A group with members Clear corporate strategy and integration with M&A strategy Detailed target screening and selection processes Both small scale and transformative acquisitions with company-wide implications Governance structure with approval levels and processes Long-term financing plan to support M&A strategy 60

Appendices Summary of companies researched
One page summary for companies researched Additional summaries Interview excerpts/quotes Factors impacting the selection of a particular model TMT Financial Services Life Sciences and Pharmaceutical Consumer Packaged Goods Manufacturing Secondary research sources

We considered a wide range of acquisitive companies to identify both good practices and lessons learned Company Name Industry Category Revenue (in $B) Avg # of Deals Avg Deal Size M&A group Structure # of Employees Consumer Goods Company A CPG $59 10 $150 million Centralized 2-5 Consumer Goods Company C $37 3-5 $1.5 billion Hybrid N/A Beverage Manufacturer $16 2 $300 million 6-8 Consumer Goods Company B 0-4 n/a Family-Owned Consumer Goods Company 3 $50 million Deutsche Bank FS $132 29 $575 million 6-10 Large Global Financial Services Center $92 20-25 $350 million 2-10 Global Financial Services Provider $78 20 $700 million 30-35 WellPoint Health Networks $61 $600 million 4-5 American Express $32 10-15 Fidelity National Financial $6 7 $275 million xx LLP 0-2 $20 million 5 Johnson & Johnson Life Sci >6 $500 million Chemicals Manufacturer $44 $2 billion 30-50 Thermo Fisher Scientific $10 $200 million Life Sciences Supplies Manufacturer $1 4 $90 million 5-10

We considered a wide range of acquisitive companies to identify both good practices and lessons learned (continued) Company Name Industry Category Revenue (in $B) Avg # of Deals Avg Deal Size M&A group Structure # of Employees Major Integrated Oil & Gas Company Oil & Gas $405 7 $500 million Decentralized N/A BP $284 10 $800 million Oil Refining Company A $95 2 $1.5 billion Centralized 2-5 Sunoco $45 0-1 $65 million SK Energy $22 $100 million Hybrid Oil Refining Company B 1 $680 million Western Refining $7 $1 billion Virtual Vodafone TMT $71 3 $5 billion 10-15 LG Electronics $57 $24 million Newscorp $29 15-20 5 Viacom $13 8-10 Global Information Services Firm 24 $130 million 3-4 Yahoo! $300 million 30 Clear Channel Inc 14 $60 million NCR Corporation $5 $10 million High Tech Company $1 $30 million General Electric Manufacturing $173 53 Aerospace Manufacturer A 5-8 Aerospace Manufacturer B $8 Meggitt $2 $200 million

Oil Refining Company A 66 Business Units 66 Executive Committee
Industry Oil and Gas Annual revenue $95.3 billion Gross Margin $13.7 billion Market Cap $17.5 billion M&A Activity Summary Size of deals $13 million - $ 8 billion Typical deal size $1 billion - $2 billion # of deals completed annually 2 Centralized Structure – M&A strategy developed almost entirely by corporate Number of Employees: Small team (2-5) Reporting line Reports to CEO Group Responsibilities Develops corporate strategy Identifies and screens targets Performs valuation and financial analyses Leads and performs due diligence Structures and executes transactions Corporate staff performs functional diligence as needed External advisors involved as needed Deal Sourcing Deals sourced by senior executives or M&A Group; learn about refineries available for acquisition through personal networks History/Other Comments M&A Group staffed with people who previously worked in operations with deep industry knowledge and experience Early strategy was to buy old refineries cheaply then upgrade to high yield refinery. Current CEO has stated the company will sell up to 1/3 of its refineries. Current strategy is to have high quality refineries. Lead Due Diligence, Execute Transaction Executive Committee Business Units Determine Corporate Strategy, Identify Acquisitions, Approve Acquisitions Recommend Acquisitions Support Diligence M&A Group Source: xx analysis, Hoover’s, CapitalIQ, MergerStat 66 66

Oil Refining Company B 67 Business Units 67 Executive Committee
Industry Oil and Gas Annual revenue $21.9 billion Gross Margin $1.6 billion Market Cap $2.2 billion M&A Activity Summary Size of deals $33 million - $1.8 billion Typical deal size $680 million # of deals completed annually 1 Centralized Structure – M&A strategy developed almost entirely by Corporate Number of Employees: Small team (2-5) Reporting line Reports to CEO Group Responsibilities Develops corporate strategy Identifies and screens targets Performs valuation and financial analyses Leads and performs due diligence Structures and executes transactions Corporate staff performs functional diligence as needed External advisors involved as needed Deal Sourcing Deals sourced by senior executives or M&A Group; learn about refineries available for acquisition through personal networks History/Other Comments M&A Group staffed with people who previously worked in operations with deep industry knowledge and experience Strategy is to have a regional play and locate assets strategically; not high capacity refineries; retail businesses are strategic to company to lock up distribution Lead Due Diligence, Execute Transaction Executive Committee Business Units Determine Corporate Strategy, Identify Acquisitions, Approve Acquisitions Recommend Acquisitions Support Diligence M&A Group Source: xx analysis, Hoover’s, CapitalIQ, MergerStat 67 67

Thermo Fisher Scientific
Industry Life Sciences Supplies Annual revenue $9.7 billion Gross Margin $3.8 billion Market Cap $23.4 billion M&A Activity Summary Size of deals $1 million - $7 billion Typical deal size $200 million # of deals completed annually (includes divestitures) Centralized Structure – all deal activities performed by central M&A Group Number of Employees: 10-15 (Sr. VP, Director, Associates, Analysts) Reporting line Reports to CFO (dotted line to CEO) Group Responsibilities M&A Related: Identifies and screens targets Performs valuation and financial analyses Leads and performs due diligence Structures and executes transactions Business units perform operational diligence and synergy and projections analyses Corporate staff performs functional diligence External advisors involved as needed Non-M&A Related: Market research and competitive analysis Special projects/requests from executives Deal Sourcing Deal ideas identified by M&A Group and business units; external sourcing provided by investment banks (typically public auctions). Corporate identifies deal ideas for companies unrelated to current businesses. History Thermo Electron and Fisher Scientific merged in November Most of M&A Group is from Fisher. Both Thermo and Fisher were active acquirers before the merger. Thermo Fisher has recently added two in-house lawyers to assist with M&A transactions. Lead Due Diligence, Execute Transaction Executive Committee Business Units Determine Corporate Strategy, Approve Acquisitions Recommend Acquisitions Identify Opportunities Support Diligence M&A Group Source: xx analysis, Hoover’s, CapitalIQ, MergerStat 68 68

Life Sciences Supplies Manufacturer
Industry Life Sciences Supplies Annual revenue $1.3 billion Gross Margin $716 million Market Cap $3.6 billion M&A Activity Summary Size of deals $5 million - $382 million Typical deal size $90 million # of deals completed annually 4 Centralized Structure – Dedicated group leads integration efforts Number of Employees: M&A: 5-10 Merger Integration: 6 Reporting line Reports to CEO (dotted line to CFO) Group Responsibilities M&A Group: Identifies and screens targets Performs valuation and financial analyses Leads and performs due diligence Structures and executes transactions Business units perform operational diligence and synergy and projections analyses Corporate staff performs functional diligence External advisors involved as needed Merger Integration Group: Leads integration for large deals Deal Sourcing Deal ideas identified by M&A Group, Corporate, and business units History/ Other Comments M&A Group is staffed mostly with ex-professional services practitioners (e.g. law firms, investment banks, consulting firms) Many are smaller deals to acquire IP or technologies Lead Due Diligence, Execute Transaction Executive Committee Business Units Recommend Acquisitions Identify Opportunities Support Diligence M&A Group Determine Corporate Strategy, Approve Acquisitions Execute Transactions Integration Group Lead integration Source: xx analysis, Hoover’s, CapitalIQ, MergerStat 69 69

Chemicals Manufacturer
Industry Pharmaceutical Annual revenue $44.3 billion Gross Margin $21.9 billion (50%) Market Cap $49 billion M&A Activity Summary Size of deals $500,000 - $16 billion Typical deal size $2 billion # of deals completed annually 15-20 Centralized Structure – Separation of strategy and transaction; specialists dedicated to work with sub-groups but at corporate level Number of employees CD – 20: M&A – 20 Reporting line M&A Group headed by head of Corporate Strategy and Projects – reports to CEO; M&A reports to CD Group Responsibilities M&A Related: CD Group: Determines acquisition strategy Develops target list and initial target screening Approves acquisitions M&A Group: Values target Leads and performs due diligence Executes transactions Non-M&A Related (CD Group): Strategic alliances, JVs Industry and competitor analysis Deal Sourcing CD group determines target list; external advisors pitch deal ideas to M&A Group History/Other Comments Members within both CD and M&A are divided into 3 subgroups (3-5 members per sub-group for CD and M&A, remainder are generalists) to focus on one of the three holding companies; however, all members of both CD and M&A are at the corporate level Positives of Structure Lean organization, few decision makers, fast moving, good communication Negatives/ Ways to Improve Communication from CD to M&A could be improved; involving M&A earlier might speed up the process Executive Committee Determine Corporate Strategy, Approve Acquisitions Recommend Acquisitions Value targets, lead diligence, execute transaction Corporate Development Group Develop acquisition strategy and target list M&A Group Sub-group #1 Sub-group #2 Sub-group #3 Source: xx analysis, CapitalIQ, MergerStat 70 70

Fidelity National Financial
Industry Financial Services Annual revenue $5.5 billion Gross Margin $3.8 billion (70%) Market Cap $2.8 billion M&A Activity Summary Size of deals $21 million - $5 billion Typical deal size $275 million # of deals completed annually 7 Centralized Structure – BU Strategy Groups actively search for acquisition ideas Number of employees 4 (3 deal, 1 legal) Reporting line CEO, dotted line to CFO Group Responsibilities M&A Related: Identifies and screens targets Performs valuation and financial analyses Leads and performs due diligence Structures and executes transactions Involves business units, corporate staff, and advisors as needed Non-M&A Related: Provides market research and competitive analysis to corporate and business units Provides analysis on JVs, strategic alliances, licensing, divestitures, outsourcing, etc. Deal Sourcing Identified by M&A Group and BU Strategy Groups History/Other Comments M&A maintains oversight in the integration and reports back to the Board periodically regarding the achievement of synergies and targets Lead Due Diligence, Execute Transaction Executive Committee Business Units Determine Corporate Strategy, Approve Acquisitions Recommend Acquisitions Identify Opportunities Support Diligence M&A Group Strategy Group Strategy Group Strategy Group Source: xx analysis, Hoover’s, CapitalIQ, MergerStat 71 71

Corporate Strategy Group
Vodafone Industry Wireless Communications Annual revenue $70.8 billion Gross Margin $27.1 billion (38.3%) Market Cap $160 billion M&A Activity Summary Size of deals $10 mm - $400 billion Typical deal size $4-6 billion # of deals completed annually 3-4 Centralized Structure – Division of pre-deal activities between Corporate Strategy, M&A, and Financial Planning & Analysis (FP&A) groups Number of employees 4 – 8 in M&A Group 10-15 Corporate Strategy Group Reporting line CFO, dotted line to CEO Group Responsibilities Corporate Strategy: Identifies and screens targets Sets overall strategy for the company BU Strategy Groups: Identify targets M&A Group: Performs valuation and financial analyses Leads and performs due diligence Structures and executes transactions Involves external advisors in almost every deal FP&A: Reviews valuation models Deal Sourcing Identified by Corporate Strategy Group and BU Strategy Groups History/Other Comments Approval from Executive Steering Committee required for deals >$50 mm; <$50mm approval from BU CEO required but valuation, diligence, and execution still performed by M&A Group Deal teams comprised of 1 person from M&A Group, 1 person from BU, and external advisors Lead Due Diligence, Execute Transaction Executive Committee Approve Acquisitions Identify Opportunities Support Diligence M&A Group Recommend Acquisition Corporate Strategy Group FP&A Recommend Acquisition Review models Business Units Strategy Group Strategy Group Strategy Group Source: xx analysis, CapitalIQ, MergerStat 72 72

Strategy & Corporate Development Group
High Tech Company Industry Technology / Data Storage Devices Annual revenue $975.7 million Gross Margin $319 million (30%) Market Cap $300 million M&A Activity Summary Size of deals $5 million - $200 million Typical deal size ~$30 million # of deals completed annually 3-5 (1 large - $200 million) Centralized Structure – M&A Group heavily involved in developing overall corporate strategy Number of employees ~5 Reporting line Reports to CEO Group Responsibilities Develops overall corporate strategy (including M&A strategy) Identifies and screens targets Performs valuation and financial analyses Leads and performs due diligence Structures and executes transactions Involves business units, corporate staff, and advisors as needed Acts as PMO for integration Deal Sourcing Identified by Corporate, M&A Group, and business units History/Other comments Transactions <$5 million are primarily led by business units; M&A maintains oversight but the deal is typically not a priority to M&A Executive Committee Business Units Determine Corporate Strategy, Approve Acquisitions Recommend Acquisitions Identify Opportunities Support Diligence Strategy & Corporate Development Group Lead Due Diligence, Execute Transaction, Provide PMO support for integration Source: xx analysis, Hoover’s, CapitalIQ, MergerStat 73 73

Corporate Planning and Development
American Express Industry Financial Services Annual revenue $31.6 billion Gross Margin $24.5 billion Market Cap $45.8 billion M&A Activity Summary Size of deals $100 million - $2 billion Typical deal size $700 million # of deals completed annually 2-3 Centralized Structure – M&A Group performs many non-M&A related activities Number of employees 10-15 in Corporate Planning and Development Reporting line Report to CEO Group Responsibilities M&A Related: Identifies and screens targets Leads and performs due diligence Structures and executes transactions Involves business units, corporate staff, and advisors as needed Corporate Finance assists with valuations and relationships with investment banks Non-M&A Related: Develops strategy plans and assess strategy plans for BUs Leads emerging technologies (R&D) projects Leads non-M&A business development opportunities (e.g., alliances, JVs) Deal Sourcing Identified by Corporate Planning and Development Group, business units, and investment banks. Business units identified about 20% of deal ideas. History/Other comments American Express was structured as a holding company with many diverse businesses. It has since moved to an operating company but maintained the deal process that was in place prior to the restructuring. Executive Committee Business Units Determine Corporate Strategy, Approve Acquisitions Recommend Acquisitions Identify Opportunities Support Diligence Corporate Planning and Development Lead Due Diligence, Execute Transaction Corporate Finance Assists with valuations Source: xx analysis, CapitalIQ, MergerStat 74 74

Consumer Goods Company A
Industry Process & Packaged Goods Annual revenue $59.1 billion Gross Margin / market cap/ $28.9 billion Market Cap $80 billion M&A Activity Summary Size of deals $1 million - $2 billion Typical deal size $150 million # of deals completed annually ~10 (1 large > $150 million) Centralized Structure – Company is legally structured as a holding company, but Corporate actively manages businesses Number of employees 4-5 Reporting line Reports to CFO Group Responsibilities Identifies and screens targets Performs valuation and financial analyses Supports due diligence Structures and executes transactions Business units lead the diligence process Members of M&A Group are assigned to work on deals for specific geographies Deal Sourcing Identified by Corporate, M&A Group, and business units; M&A Group spends a significant amount of time in assigned region “originating” deals Observations Pros: Strong industry knowledge by assigning M&A members to specific geographies Cons: M&A Group tends to be very slow at moving through a deal (process not in place, approvals are rigid) Unclear relationship between M&A and BUs Executive Committee Business Units Determine Corporate Strategy, Approve Acquisitions Recommend Acquisitions Identify Opportunities Leads Diligence M&A Group Identifies Opportunities, Supports Due Diligence, Executes Transaction Source: xx analysis, Hoover’s, CapitalIQ, MergerStat 75 75

Aerospace Manufacturer A
Industry Automotive and aerospace components Annual revenue $7.7 billion Gross Margin $554 million Market Cap $2.8 billion M&A Activity Summary Size of deals $250,000 - $ 2 billion Typical deal size $100 million # of deals completed annually 2-4 Centralized Structure – BUs heavily involved with diligence Number of employees 5 Reporting line Reports to CFO Group Responsibilities Identifies and screens targets Performs valuation and financial analyses Leads and performs due diligence Structures and executes transactions Involves business units, corporate staff, and advisors as needed Monitors integration but not actively involved Deal Sourcing Identified by Corporate, M&A Group, and business units History/Other comments Business units heavily involved in diligence M&A members rotate out of group into other (typically finance) positions in business units Lead Due Diligence, Execute Transaction Executive Committee Business Units Determine Corporate Strategy, Approve Acquisitions Recommend Acquisitions Identify Opportunities Support Diligence M&A Group Source: xx analysis, Hoover’s, CapitalIQ, MergerStat 76 76

Aerospace Manufacturer B
Industry Defense and aerospace systems Annual revenue $28.6 billion Gross Margin N/A Market Cap $30.7 billion M&A Activity Summary Size of deals $1 million - $3 billion Typical deal size $050 million # of deals completed annually 5 - 8 Centralized Structure – BUs heavily involved with deal sourcing and diligence Number of employees 3 Reporting line Reports to CEO Group Responsibilities Identifies and screens targets Performs valuation and financial analyses Leads and performs due diligence Structures and executes transactions Involves business units, corporate staff, and advisors as needed Deal Sourcing Identified by Corporate, M&A Group, and business units Most deals sourced by BUs History/Other comments Business units heavily involved in diligence Lead Due Diligence, Execute Transaction Executive Committee Business Units Determine Corporate Strategy, Approve Acquisitions Recommend Acquisitions Identify Opportunities Support Diligence M&A Group Source: xx analysis, Hoover’s, CapitalIQ, MergerStat 77 77

Consumer Goods Company B
Industry Processed and Packaged Goods Annual revenue $25 billion Gross Margin N/A Market Cap M&A Activity Summary Size of deals N/A Typical deal size # of deals completed annually 0 - 4 Centralized Structure – all deal activities performed by central M&A Group Number of Employees: 10-12 globally dispersed; all report into Corporate Reporting line Reports to CFO Group Responsibilities Identifies and screens targets Performs valuation and financial analyses Leads and performs due diligence Structures and executes transactions Business units perform operational diligence and synergy and projections analyses Corporate staff performs functional diligence External advisors involved as needed Deal Sourcing Deal ideas identified by M&A Group and business units; Strategy Group (not M&A-related) may sometimes develop acquisition ideas History/Other Comments The M&A team is globally dispersed throughout Europe and North America mainly due to personal reasons (not business-related). M&A Group members typically have strong finance backgrounds. Lead Due Diligence, Execute Transaction Executive Committee Business Units Determine Corporate Strategy, Approve Acquisitions Recommend Acquisitions Identify Opportunities Support Diligence M&A Group Source: xx analysis, Hoover’s, CapitalIQ, MergerStat 78 78

Centralized - Corporate finance assists in valuations
Yahoo! Industry Internet/Media Annual revenue $7 billion Gross Margin $4 billion (57%) Margin Cap $31 billion M&A Activity Summary Size of deals $13 million - $1 billion Typical deal size $300 million # of deals completed annually 12 publicly announced Centralized - Corporate finance assists in valuations Number of employees 30 Reporting line Reports to CEO Group Responsibilities Identifies and screens targets Performs valuation and financial analyses Leads and performs due diligence Structures and executes transactions Involves BU team to develop synergies and financial projections Uses external advisors extensively for capacity and capabilities Deal Sourcing Identified by Corporate, M&A Group, and business units History/Other Comments Corporate Finance assists in valuations The group recently split into strategy and M&A transaction functions – further details not available Lead Due Diligence, Execute Transaction Executive Committee Business Units Determine Corporate Strategy, Approve Acquisitions Recommend Acquisitions Identify Opportunities Support Diligence M&A Group Assists with valuations Corporate Finance Source: xx analysis, Hoover’s, CapitalIQ, MergerStat 79 79

Wellpoint Health Networks
Industry Insurance Annual revenue $61 billion Gross Margin N/A Market Cap $28 billion M&A Activity Summary Size of deals $86 million - $19 billion Typical deal size ~$600 million # of deals completed annually 2 Centralized Structure – M&A strategy integral to growth of company Number of employees 4-5 Reporting line Reports to CFO; dotted line to CEO Group Responsibilities M&A Related: Identifies and screen targets Leads and performs due diligence Structures and executes transactions Involves business units, corporate staff, and advisors as needed Corporate Finance assists with valuations and relationships with investment banks Non-M&A Related: Develops and assesses strategy plans for BUs Leads emerging technologies (R&D) projects Leads non-M&A business development opportunities (e.g., alliances, JVs) Deal Sourcing M&A Group and BUs sourced deals; approached very often by investment banks History/Other comments Went public in 1993 in order to make acquisitions (inorganic growth was key to strategy) Went from regional CA company to national reach through acquisitions Sold for $20 billion in 2004 Acquiring company adopted the M&A Group structure and kept members of the group Lead Due Diligence, Execute Transaction Executive Committee Business Units Determine Corporate Strategy, Approve Acquisitions Recommend Acquisitions Identify Opportunities Support Diligence M&A Group Source: xx analysis, Hoover’s, CapitalIQ, MergerStat 80 80

Beverage Manufacturer
Industry Consumer Packaged Goods Annual revenue $15.8 billion Gross Margin $9.1 billion Market Cap $46.9 billion M&A Activity Summary Size of deals $66 million - $582 million Typical deal size ~$300 million # of deals completed annually 2 Centralized Structure – Weak oversight of deals led to creation of Steering Committee Number of employees 6-8 Reporting line Reports to CFO Group Responsibilities Identifies and screens targets Performs valuation and financial analyses Leads and performs due diligence Structures and executes transactions Business units perform synergy and projections analysis Corporate staff performs functional diligence External advisors involved as needed Deal Sourcing Deals are mostly presented to the company by investment banks History/Other comments Group comprised mostly of ex-bankers Poor decision making and lack of coordination led to development of a Steering Committee to provide oversight to the process BU pulled in very late in the process and perform minimal market diligence Legal and tax issues drive integration decisions Lead Due Diligence, Execute Transaction Executive Committee Business Units/Geography Determine Corporate Strategy, Approve Acquisitions Recommend Acquisitions Support Diligence Analyze synergies and financial forecasts M&A Group Source: xx analysis, Hoover’s, CapitalIQ, MergerStat 81 81

Family-Owned Consumer Goods Company
Industry Consumer Packaged Goods Annual revenue $8 billion Gross Margin N/A Margin Cap M&A Activity Summary Size of deals $10million - $1 billion Typical deal size $50 million # of deals completed annually 2-3 but very sporadic Centralized/Virtual Structure – Extensively uses outside advisors to execute transactions Number of employees 2 Senior VP and Associate (post-MBA-level) Reporting line Reports to CFO Group Responsibilities M&A Related: Identifies and screens targets Performs valuation and financial analyses Leads and performs due diligence Structures and executes transactions Involves BU team to develop synergies and financial projections Uses external advisors extensively for capacity and capabilities Non-M&A Related: Evaluates alliances and JVs Deal Sourcing Identified by Corporate, M&A Group, and business units History/Other Comments Acquisitions are typically product line extensions About every 5 years, the company completes a large acquisition ($1 billion) Company is privately held and very tightly controlled Lead Due Diligence, Execute Transaction Executive Committee Business Units Determine Corporate Strategy, Approve Acquisitions Recommend Acquisitions Identify Opportunities Support Diligence M&A Group Source: xx analysis, Hoover’s, CapitalIQ, MergerStat 82 82

xx LLP 83 Business Units 83 Executive Committee M&A Group
Industry Professional Services Annual revenue $8 billion Gross Margin N/A Market Cap M&A Activity Summary Size of deals $20 million Typical deal size ~$20 million # of deals completed annually 0 - 2 Centralized Structure – Strategy Group actively involved in determining M&A strategy Number of employees 5 Reporting line Reports to CEO Group Responsibilities Identifies and screens targets Performs valuation and financial analyses Leads and performs due diligence Negotiates transactions Structures and executes transactions Business units perform operational diligence and synergy and projections analyses Corporate staff performs functional diligence Deal Sourcing Sourced by M&A Group and BUs History/Other comments M&A Group formed in 2007 Prior M&A function performed by M&A personnel Transactions >$25 million require xx LLP Board approval All transactions require approval by the Strategy Group to ensure they are in-line with overall strategy Lead Due Diligence, Execute Transaction Executive Committee Business Units Determine Corporate Strategy, Approve Acquisitions Recommend Acquisitions Identify Opportunities Support Diligence M&A Group Source: xx analysis, Hoover’s, CapitalIQ, MergerStat 83 83

Global Financial Services Provider
Industry Financial services Annual revenue $78.3 billion Gross Margin $72.8 billion Margin Cap $40 billion M&A Activity Summary Size of deals $8 million - $1.8 billion Typical deal size $700 million # of deals completed annually 20 -25 Hybrid Structure – Small deals completed by the business units, no dedicated M&A Group at BU level Number of employees 30-35 Reporting line Reports to COO Group Responsibilities M&A Related: Identifies and screens targets Performs valuation and financial analyses Leads and performs due diligence Structures and executes transactions Involves internal advisors frequently Involves external advisors for specific areas of expertise (e.g., HR, legal) Non-M&A Related: Provides market research and competitive analysis Works on special projects for senior executives when not staffed on deals Deal Sourcing Identified by Corporate, M&A Group, and business units M&A and Corporate identified large scale acquisitions BUs identified acquisitions to complement the existing portfolio History/Other Comments Currently trying to expand globally Deals <$50 mm are identified and executed at the business unit level with corporate approval Lead Due Diligence, Execute Transaction Executive Committee Geographic Regions Determine Corporate Strategy, Approve Acquisitions Recommend Acquisitions Identify Opportunities Support Diligence M&A Group Execute transactions <$50 mm; no dedicated M&A group Source: xx analysis, CapitalIQ, MergerStat 84 84

Consumer Goods Company C
Industry Consumer Goods – Food Annual revenue $37.2 billion Gross Margin / market cap/ $12.6 billion (34%) Market Cap $43.9 billion M&A Activity Summary Size of deals $50 million – $7.5 billion Typical deal size $1.5 billion # of deals completed annually 3 – 5 HYBRID – Currently streamlining process Number of employees N/A Reporting line Corporate: M&A and Strategy Groups report to CEO Business Units: M&A and Strategy Groups report to corporate groups and business unit president Group Responsibilities Strategy Group: Develops overall corporate strategy (including M&A strategy) Identifies synergies Responsible for integration M&A Group: Executes transactions Performs valuation and financial analyses Business Unit Groups: Mirror corporate groups Provide support on larger deals Source and execute smaller deals Deal Sourcing Identified by Strategy and M&A groups and business units History/Other comments Historically highly acquisitive, wants to streamline M&A groups Corporate must approve all acquisitions Lead Due Diligence, Execute Transaction Executive Committee Business Unit M&A &Strategy Groups Recommend Acquisitions Identify Opportunities Strategy Group M&A Group Identify Opportunities, Identify synergies Lead Integration Lead Due Diligence, Execute transactions for smaller deals; provide support to corporate groups for larger deals Source: xx analysis, Hoover’s, CapitalIQ, MergerStat 85 85

Large Global Financial Services Center
Industry Financial Services Annual revenue $92.4 billion Gross Margin N/A Market Cap $183 billion M&A Activity Summary Size of deals $1 million - $6 billion Typical deal size $350 million # of deals completed annually 20 -25 Hybrid Structure – Governance procedures create a smooth process Number of employees Small groups (2-10 people ) at various levels of the organization Reporting line Strategy Group reports to Executive Chairman M&A Group – part of finance team Group Responsibilities Target identification performed at BU level Assessment of targets performed by Strategy Group Pre-deal due diligence performed by M&A Group with the help of Bus Deal Sourcing Sourcing done mostly at the business unit (geographical) level History/Other Comments Prior to reorganization, two people worked on M&A part-time, there was no strategy planning function; CEO developed ideas, but regions completed acquisitions without corporate approval. There was little pre-deal diligence and advisors were rarely used. Growth is largely from acquisitions Lead Due Diligence, Execute Transaction Executive Committee Business Units/Geographies Approve Acquisitions Recommend Acquisitions Identify Opportunities M&A Group Strategy Group Assess targets Support Diligence M&A Group M&A Group M&A Group Source: xx analysis, Hoover’s, CapitalIQ, MergerStat 86 86

Newscorp 87 Subsidiary M&A Groups 87 Executive Committee M&A Group
Industry Media/Entertainment Annual revenue $28.7 billion Gross Margin $10 billion Market Cap $38.7 billion M&A Activity Summary Size of deals $1 million - $10 billion Typical deal size $800 million # of deals completed annually 15 – 20 Hybrid Structure – Decentralized business with strong leader involvement Number of employees Corporate - 5 Large subsidiaries – 5 Small subsidiaries – 3 Reporting line Corporate – CEO Subsidiaries – varies (CFO, COO, or Chairman of subsidiary) Group Responsibilities Corporate: Leads and performs diligence for deals > $150 mm Executes deals identified by Rupert Murdoch BU: Identifies and screens targets Performs valuation and financial analyses Leads and performs due diligence Structures and executes transactions Involves internal advisors as needed (external advisors never used for deals <$150mm) Deal Sourcing Identified by subsidiaries or Rupert Murdoch History/Other comments Very decentralized business Subsidiaries always reviewed valuations, assessed synergies, developed pro forma financials on deals >$150 mm Each subsidiary had their own legal department that provided legal support on deals Notification required for deals of any size; each subsidiary had their own deal budget Provide support and review acquisitions >$150mm Executive Committee Subsidiary M&A Groups Identify opportunities Lead diligence and execute transaction for deals <$150mm; support for deals >$150 mm M&A Group Lead Due Diligence, Execute Transaction Recommend Acquisitions >$150 mm Determine Corporate Strategy, Approve Acquisitions > $150mm Source: xx analysis, Hoover’s, CapitalIQ, MergerStat 87 87

Global Information Services Firm
Industry Business Services Annual revenue $7.3 billion Gross Margin $2 billion Market Cap $25.9 billion M&A Activity Summary Size of deals $1 million - $15.8 billion Typical deal size $130 million # of deals completed annually 24 Hybrid Structure – Detailed approval process Number of employees 3-4 people in each M&A Group; ~50 in each Strategy Group (corporate and business unit-level groups) Reporting line Corporate: Business Development reports to CSO; M&A Group reports into FP&A (CFO) Business Units: Report to BU CSO Group Responsibilities Business Development: Identifies and screens targets Performs market and competitive analyses Provides services for strategic alliances M&A Group: Performs valuation and financial analyses Leads and performs due diligence Structures and executes transactions BU Strategy Groups: Identify and screens targets Execute transactions less than $25 million Perform market and competitive analysis Deal Sourcing Identified by Business Development and BU Strategy Groups History/ Other Comments Identify Opportunities Lead Due Diligence, Execute Transaction Executive Committee Business Unit Strategy Groups Recommend Acquisitions Business Development Group M&A Group Lead Due Diligence, Execute transactions < $25 mm Source: xx analysis, Hoover’s, CapitalIQ, MergerStat 88 88

Hybrid – BUs heavily involved in M&A process
Viacom Industry Media/Entertainment Annual revenue $13.4 billion Gross Margin $6.0 billion Market Cap $18.3 billion M&A Activity Summary Size of deals $100 million - $1 billion Typical deal size $ 500 million # of deals completed annually ~ 7 Hybrid – BUs heavily involved in M&A process Number of employees 8-10 per brand and 8-10 at Corporate Reporting line Corporate – CEO BU – President of BU Group Responsibilities Corporate: Mostly licensing and large acquisitions not related to any BU Reviews for acquisitions >$50mm BU: Identifies and screens targets Performs valuation and financial analyses Leads and performs due diligence Structures and executes transactions Involves internal and external advisors as needed Deal Sourcing Identified by BU History/Other comments Owned by CBS then split off, recently moved to a holding company structure Corporate is not very involved in the operations of the business units due to the differing nature of the businesses Review acquisitions >$50mm Executive Committee Business Unit M&A Groups Identify Opportunities Lead Due Diligence, Execute Transaction M&A Group Recommend Acquisitions Determine Corporate Strategy, Approve Acquisitions Source: xx analysis, Hoover’s, CapitalIQ, MergerStat 89 89

Clear Channel Communications Inc.
Industry Broadcasting - Radio Annual revenue $6.8 billion Gross Margin $4.1 billion Market Cap $17.7 billion M&A Activity Summary Size of deals $1 million - $1 billion Typical deal size ~$60 million # of deals completed annually 14 Hybrid Structure – Centralized group with local M&A teams in 3 major divisions Number of employees Corporate M&A: 3 3 small local teams (# of members not available) Reporting line Corporate M&A Group reports to CFO Local teams report to divisional finance head Group Responsibilities Corporate M&A Team: Develops metrics for all deals Examines any deal >$100K; executes transactions >$20 million Provides each division with its own standard, 2-page due diligence checklist Local Teams: Identify and screen targets Execute transactions <$20 million Due diligence Synergies analysis Financial projections Deal Sourcing Deal ideas identified by central and divisional teams History/Other comments Deals require approval of operational personnel. 3 local teams divided based on 3 major divisions – radio, outdoor displays, and entertainment. Lead Due Diligence, Execute Transaction Executive Committee Local Teams (Divisional Units) Determine Corporate Strategy, Identify Acquisitions, Approve Acquisitions Recommend Acquisitions Support Diligence Identify targets Corporate M&A Lead Due Diligence, Execute transactions < $20 mm Source: “A simple M&A model for all seasons” 90 90

Johnson & Johnson 91 BU M&A Groups 91 Executive Committee
Industry Healthcare Annual revenue $62 billion Gross Margin $43 billion Market Cap $198 billion M&A Activity Summary Size of deals $60 million - $16 billion Typical deal size ~$500 million # of deals completed annually >6 Hybrid Structure – Centralized group invests in/acquires technologies not yet useful for BUs Number of employees Corporate M&A: n/a BU teams: n/a Reporting line n/a Group Responsibilities Corporate M&A Team: Focuses exclusively on long-term strategic options in emerging technologies unrelated to its decentralized operating companies The emerging technologies are not within the 2-5 year time horizon of the BUs, but may become of strategic value to them in the future BU Teams: Identify and screen targets Execute transactions that are within the 2-5 year time horizon Due diligence Synergies analysis Financial projections Deal Sourcing Deal ideas identified by central and BU teams History/Other comments Lead Due Diligence, Execute Transaction Executive Committee BU M&A Groups Determine Corporate Strategy, Identify Acquisitions, Approve Acquisitions Recommend Acquisitions Support Diligence Identify targets Corporate M&A Source: “Strategy Paradox” 91 91

Major Integrated Oil & Gas Company
Industry Oil & Gas Annual revenue $404.6 billion Gross Margin $171.7 billion (50%) Market Cap $400 billion M&A Activity Summary Size of deals $18 million - $3 billion Typical deal size ~$500 million # of deals completed annually 7 Decentralized Structure – Strategy groups develop plans over the course of several years Number of employees N/A Reporting line Strategy groups report to CEOs of BU M&A teams report to Strategy Groups Group Responsibilities Strategy Group: Develop M&A/divestiture strategy Develop strict metrics to determine M&A/divestiture strategy Determine strict metrics and deal prices for deal teams to follow Develop detailed planning documents for deal teams to follow Identify members of deal team Deal Teams: Perform due diligence Structure and execute transactions Deal Sourcing M&A and divestiture decisions made solely by Strategy Groups; will not source deals from bankers History/Other comments Deal teams comprised of people with functional knowledge of the business, not necessarily M&A or industry experts Parameters (metrics and price) set by strategy group cannot change; deal team must adhere to parameters Observations Pros Unemotional M&A/divestiture decisions Strict guidelines and metrics to assess businesses for divestments Cons Unchanging parameters often lead to long processes Parameters sometimes fail to include all factors that could determine metrics and price Divestments are often halted (e.g., if buyer wants/needs to make changes to business, company often stops the selling process, makes changes, and then proceeds with the sale.) Parent Company/Corporate Headquarters No involvement with BU M&A strategy Lead Due Diligence, Execute Transaction Strategy Group M&A Teams Determine Strategy, Identify Acquisitions, Approve Acquisitions BU #1 Lead Due Diligence, Execute Transaction Strategy Group M&A Teams Determine Strategy, Identify Acquisitions, Approve Acquisitions BU #2 Source: xx analysis, Hoover’s, CapitalIQ, MergerStat 92 92

Additional Examples Company Meggitt Deutsche Bank Industry
Aerospace components Financial Services Revenue $1.8 billion $131.9 billion M&A activity # of deals executed annually = 2 Typical deal size = $200 million Deal value range = $5 million – $1 billion # of deals executed annually = 29 Typical deal size = $575 million Deal value range = $8 million - $5 billion Description / how it works Centralized M&A Group Portfolio approach Acquisitions are not integrated BUs not involved in the M&A process (including diligence, synergies analysis, etc.) Develops corporate strategy Identifies and screens targets Performs valuation and financial analyses Leads and performs due diligence Structures and executes transactions Corporate staff performs functional diligence as needed External advisors involved as needed Centralized M&A Group reports to CEO 6-10 people in M&A Group staffed with analysts and MBAs with finance and strategy skills Rationale / Observations Meggitt’s growth strategy is largely M&A-based Strategy is to grow through acquisitions of small, high-growth companies Typically the group executes transactions and then moves on to the next deal; there is no accountability or knowledge if synergies are achieved

Interview Excerpts / Quotes: Leading practices
Don’t follow a plan that hinges on a single set of business conditions The M&A Group must put a stop to bad deals. …only 32% of low achievers chose defining the acquisition strategy as a crucial pre-acquisition task, whereas, for high achievers, it was 47%. The five playbook secrets of successful acquirers are: Get into the game in good times and bad Start small Create a core deal team Pull line management in early Chill deal fever … for a company that is planning to make strategic transactions, an in-house team is a worthwhile investment. At GE, the CEO requires all business units to submit a review of each deal. In addition to the financial justification, the review must articulate a rationale that fits the storyline of the entire organization and spells out the requirements for integration Many of the ideas about which companies to acquire come from within the divisions. At every divisional planning conference, there will be acquisitions in the funnel – we’re assessing it all the time. We actively monitor the performance of acquired companies. The M&A Group periodically reports synergy achievement and integration to the Board.

Interview Excerpts / Quotes: Leading practices
The pro forma financial model is only as good as the data that feeds into it – namely, the financial and operational due diligence, integration planning and projections. Communication is vital. M&A groups, functional experts, and BU managers need to work together and be aware of all issues. M&A groups largely report to the CEO because the CEO’s perspective is longer than others’ in the company. Transactions are often short-term dilutive but long-term accretive, so deals must be analyzed on a long-term basis. Successful acquirers put more effort up front in the M&A life-cycle and gain business unit buy-in well before integration. The business units must be on-board with the deal since they are the ones executing the deal. BUs set all of the synergy targets. Ensure that the staff doing the due diligence is also tasked with integration people – since they’ll be responsible for the business post-close, they’ll give greater focus to the diligence process ; if something is missed, they’ll be the ones cleaning up the mess. The more you look, the more you find; the more you look the more you learn; the more you look, the more you test your strategies

Interview Excerpts / Quotes: Challenges
…keeping BU management out of belligerent portions of the negotiation, and hence giving them plausible deniability to “blame the M&A Group” for harsh stances or tactics taken, can prevent hostile relationships during integration Failing to give line staff visibility to executive management lowers their incentive to work with you and support a deal ...most common challenge executives face are remaining involved with the deal and being accountable for its success from inception through to integration… The M&A Group needs to avoid advocating for the deal instead of for the company

Factors impacting M&A group model employed: Technology, Media, Telecom Industry
Virtual Decentralized Hybrid Centralized M&A activity as a core competency Non core activity M&A fundamental Culture of control Divisions are empowered Control is held centrally Similarity of business units / divisions Different industry, customer, product Similar industry, customer, product, strategy Deal Activity Low deal volume High deal volume Smaller deals Larger deals Key: = Vodafone = High Tech Co. = Yahoo! = Newscorp = Global Information Services Firm = Viacom = LG Electronics = Clear Channel Inc. = NCR Corporation

Factors impacting M&A group model employed: Financial Services Industry
Virtual Decentralized Hybrid Centralized M&A activity as a core competency Non core activity M&A fundamental Culture of control Divisions are empowered Control is held centrally Similarity of business units / divisions Different industry, customer, product Similar industry, customer, product, strategy Deal Activity Low deal volume High deal volume Smaller deals Larger deals Key: = Fidelity National Financial = American Express = Deutsche Bank = Global FS Provider = Large Global FS Center = Wellpoint Health Networks = xx LLP

Factors impacting M&A group model employed: Life Sciences & Pharmaceutical Industry
Virtual Decentralized Hybrid Centralized M&A activity as a core competency Non core activity M&A fundamental Culture of control Divisions are empowered Control is held centrally Similarity of business units / divisions Different industry, customer, product Similar industry, customer, product, strategy Deal Activity Low deal volume High deal volume Smaller deals Larger deals Key: = Thermo Fisher Scientific = Chemicals Manufacturer = Johnson & Johnson = Life Sciences Supplies Manufacturer

Factors impacting M&A group model employed: Consumer Packaged Goods Industry
Virtual Decentralized Hybrid Centralized M&A activity as a core competency Non core activity M&A fundamental Culture of control Divisions are empowered Control is held centrally Similarity of business units / divisions Different industry, customer, product Similar industry, customer, product, strategy Deal Activity Low deal volume High deal volume Smaller deals Larger deals Key: = Consumer Goods Co. A = Consumer Goods Co. B = Family-Owned Consumer Goods Co. = Consumer Goods Co. C = Beverage Manufacturer

Factors impacting M&A group model employed: Manufacturing Industry
Virtual Decentralized Hybrid Centralized M&A activity as a core competency Non core activity M&A fundamental Culture of control Divisions are empowered Control is held centrally Similarity of business units / divisions Different industry, customer, product Similar industry, customer, product, strategy Deal Activity Low deal volume High deal volume Smaller deals Larger deals Key: = General Electric = Aerospace Manufacturer A Aerospace Manufacturer B = Meggitt

Appendices 105 Summary of companies researched
One page summary for companies researched Additional summaries Interview excerpts/quotes Factors impacting the selection of a particular model TMT Financial Services Life Sciences and Pharmaceutical Consumer Packaged Goods Manufacturing Secondary research sources 105

Our secondary research includes the following sources:
Year Title Author / Publisher 2007 What public companies can learn from private equity Andreas Beroutsos, Andrew Freeman, and Conor F. Kehoe: McKinsey & Company 2008 Running a winning M&A shop Robert T. Uhlaner and Andrew S. West: The McKinsey Quarterly 2005 Reducing the risks of early M&A discussions Seraf De Smedt, Vincenzo Tortorici, and Erik van Ockenburg: McKinsey & Company 2006 Managing for growth: An interview with former Emerson CEO Chuck Knight R. Michael Murray Jr. and Warren L. Strickland: The McKinsey Quarterly Maintaining discipline in M&A Richard Dobbs, Hannu Suonio, and Vincenzo Tortorici: The McKinsey Quarterly Habits of the busiest acquirers Robert N. Palter and Dev Srinivasan: McKinsey & Company Creating value from mergers Richard Dobbs: The McKinsey Quarterly Better strategy through organizational design Lowell L. Bryan and Claudia I. Joyce: The McKinsey Quarterly M&A a new game as big players raise the bar Chris Gentle and Dwight Allen: Financial Executives International Key to success: Learning from best practice Dr. Elisabeth Denison: Internal xx Resources 2004 Do you need in-house dealmakers? Michael E.S. Frankel: Wiley Periodicals Avoiding M&A Disconnect Punit Renjen and Dwight Allen: The Deal Strategy Paradox Michael Raynor Chris Gentle and Dwight Allen: xx Research A simple M&A model for all seasons Sam Rovit, David Harding, Catherine Lemire: Bain & Co. Corporate Fightback: Five disciplines to win in M&A John Connelly and Chris Gentle: xx Research Strategic decisions amid business uncertainty: Charting a course for your company’s M&A Dwight Allen: xx Research 106 106

Developing and Delivering Successful M&A Capability

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