1. Rubi Suliman, Hi-Tech Leader
The M&A Process
Rubi Suliman, Hi-Tech Leader

2. Agenda
M&A Market Overview Due Diligence process Financial Due Diligence

3. Israeli Hi-tech M&A Landscape
2006: Mercury-HP $4.5B, Msystem - Sundisk 1.55B, Lipman-Verifon $790M= 6.84B
2013: Given Imaging $970M, Waze $966 (published 1.1M), Trusteer $640
2013 IPOs: Wix, Enzymotec, Galtronics, Alcobra, Kadimastem, Somoto (TLV)
Source: PwC Israel 2013 Exit Report

4. Israeli Hi-Tech Trends
הסכומים במיליוני דולרים
LS: 3 IPO (Alcobra, Enzymotek, Kadimastem), 10 M&A, Big ones: Given Imaging, PROLOR, Enzymotec (IPO) dbMotion, Alma Lasers
Internet: Big ones: Waze, Wix (IPO) Adap.tv
IT & Enterprise software, big ones: Trusteer, ScaleIO, Onavo

5. M&A Continuum
The success of a deal is dependent upon effective delivery along the entire M&A deal continuum. Failure at any stage of this continuum can cause negative downstream effects.
LOI/
Term sheet
Due Diligence
Due Diligence
Closing
Signing

6. Failure Drivers
Failure drivers
Strategic Fit
Culture clash
Poor execution
Synergy evaporation
Mismanagement of the integration
Bad deal structure/ valuation
Mergers and acquisitions fail for many reasons. Pre- deal, acquirers can proactively mitigate deal risk by understanding the most common drivers of M&A failure.
אסטרטגיית רכישות של לקנות גדול

7. How to Prepare (Acquirer & Acquiree)
Advisory Team
Legal
Accounting
Banking
Audited Financial Statements
Historical
Forecast
Tax Matters
Personal/Corporate
Document Preparation
Material Contracts & Commitments
Agreement with Suppliers, Employees, and Customers
Human Capital
Retention of Key Employees
Intellectual Property

8. Due Diligence Process Technology/ Pre Significant Revenue
Financial
Legal
Public Company
Due Diligence
Business
Business DD:
Synergy
Business Model
Technology
Competitors
Market

9. The Standard FDD Process
Pre-Fieldwork
Fieldwork
Post-Fieldwork
Read public information
Get up to speed on the relevant market
Set scope and data request list
Prepare the Data room
Management presentation
Data analysis
Go through data room information: legal, accounting etc.
Read audit work papers
Interview target management
Interview clients & suppliers
Draft report
Purchase and sale agreement
Transaction/ integration plan
Term sheet/ No-shop

10. Generic FDD Scope
1. Read and understand the Company’s significant accounting policies 2. Understand the Company’s key performance indicators. 3. Read the external audit work papers of the Company’s auditor 4. Perform a quality of earnings analysis 5. Quality of revenue 6. Perform an analysis of debt & debt-like items 7. Off-balance sheet liabilities 8. Analyze the Company's revenues and gross margins by product line 9. Key employees/ contracts and liabilities 10. Perform analysis of gross sales to net sales and understand the reconciling items 11. Review customer & supplier contracts and key provisions therein 12. Analyze the components and trends of the Company’s cost of goods sold and opex 13. Isolate historical impact of foreign exchange transactions and translations 14. Assess environmental issues 15. Analyze the significant components and trends of the Company’s balance sheet (AR, Invy, AP, reserves, etc.) 16. Analyze monthly or quarterly working capital trends / seasonality – discuss WC adjustment 17. Understand the existence and impact of related party and/or affiliate company transactions. 18. Analyze CAPEX needs

11. Quality of earnings overview

12. Common types of quality of earnings adjustments

13. Quality of earnings examples

14. Net debt adjustment

15. Components of working capital

16. If less than a normal level of working capital is acquired upon close of a transaction, additional cash may be required to finance operations

17. Working Capital Adjustment

18. What is the rationale for having a working capital adjustment mechanism in the SPA

19. The Buyer and Seller have competing objectives with regards to the Working Capital peg

20. Questions?