Buy and Build Strategy- Keys to Success Igor Zax, CFA, Sloan Fellow (LBS) Managing Director- Tenzor Ltd © Tenzor Ltd 2009-2015 www.tenzor.co.uk

Buy and Build- Still relevant in the Modern World? Roland Cause (Nobel Prize in Economics 1991)- the only reason firm exists is because of transaction costs-modern technology drives costs down Company "Produces nowhere but sells everywhere... know where the clients are and what they want and where the producers are. Platform companies then simply organise the ordering by the clients and the delivery by the producers (and the placing of their logo on the product just before delivery).“- GaveKal Public companies splitting (HP, GE, etc.) © Tenzor Ltd 2009-2015 www.tenzor.co.uk

Buy and Build- Key Drivers Exit Strategy focused “Farming”. Larger size opens sale to investors (financial and strategic) which have no resources to deal with smaller transactions. Needs to be focused on exit needs Efficient Sales channel. One of the companies (acquirer or acquired) has massively more efficient sales channel in particular market- full replacement vs. attempt to merge. Key factor is improving utilisation of existing channels. Capacity utilisation- manufacturing. Ability to centralise manufacturing- effectively buying just sales, servicing and R&D © Tenzor Ltd 2009-2015 www.tenzor.co.uk

Buy and Build- Key Drivers cont. Vertical integration- especially where there are bottlenecks within industry verticals. R&D driven acquisition- providing acquirer can integrate without destroying the culture or loosing key people Back office synergy- need to be benchmarked against BPO, rarely may be a key driver Procurement efficiencies- normally where is a size difference and significant product overlap Financing efficiencies- platform company needs to have a scalable structure © Tenzor Ltd 2009-2015 www.tenzor.co.uk

Five “C’s” for Buy and Build Team Control Efficient control of merged entity without “killing its soul” Capability The team (existent, new or interim) needs to be capable to manage scale up Credibility Strategy and the team need to have credibility with all stakeholders Clarity Understanding the company’s core business, how it fits with the industry structure and does the combined business model match it Co-operation Ongoing support from suppliers, customers, distributors and others are vital to support the strategy © Tenzor Ltd 2009-2015 www.tenzor.co.uk

Financing Scalability- backbone of buy and build Cash flow lending may be efficient for original purchase, but relatively difficult to scale Asset based structures with robust infrastructure allow easier “digestion” Receivable deals “auto-scale” with extra revenue Credit insurance helps to standardise portfolio and may be an efficient tool to pre-screen acquisition for inclusion On distressed acquisitions, just payables extension often provides critical financing Cross border arbitrage- riskier countries © Tenzor Ltd 2009-2010 www.tenzor.co.uk

© Tenzor Ltd 2009-2012 www.tenzor.co.uk Thank You and Good Luck! Igor Zax, CFA, Sloan Fellow (London Business School) Managing Director, Tenzor Ltd. (London) Tel: +447775708426 E-Mail: igor.zax@tenzor.co.uk Web site: www.tenzor.co.uk © Tenzor Ltd 2009-2012 www.tenzor.co.uk