1. Acquisition process in Europe Duncan Gregory Structuring Kathy Gillen
23 September 2011
© 2011 Moore Stephens LLP

2. Agenda Introduction to Moore Stephens Acquisition process in Europe
Duncan Gregory
Structuring
Kathy Gillen

3. Introduction to Moore Stephens
Established in London in 1907 (Jersey: 1968)
Strong financial and operational resources: one of the world’s largest accounting networks
Focus on long-term relationships and adding value
Wide range of skills and sector disciplines
Committed to using the right people on every assignment
Substantial international experience
Proven track record
Dedicated India desk in London

4. Locations World India UK Countries 98 1 1 630 21 37 Offices
Principals and staff
20,864
n/a
1,551
Turnover
$2.1bn
n/a
£138.8m

5. Overview of our services
Audit and accountancy
Business Support and Outsourcing
Corporate Finance (Duncan Gregory)
IT Consultancy
Taxation
Trust and Corporate Services and International Planning (Kathy Gillen)
Wealth Management
Other services including Corporate Recovery, Forensic Accounting and Governance, Risk and Assurance

6. Acquisition process in Europe Duncan Gregory
© 2011 Moore Stephens LLP

7. Moore Stephens Corporate Finance
Specialist division based in London
International remit and active in India
Comprehensive range of lead advisory and transaction support services:
Mergers and acquisitions, MBOs/MBIs and disposals
Capital markets related (AIM, LSE and other regulated markets)
Due diligence
Valuations
Business planning, financial modelling and strategic review
Fund raising
Privately owned and listed businesses
Typical equity value of £1 million to £200 million

8. Indian acquisitions in the UK
UK is a leading destination for offshore acquisitions by Indian companies
Cox & Kings £300m acquisition of Holidaybreak
Essar Energy £775m acquisition of Stanflow Refinery
Sahara India Pariwar £500m acquisition of Grosvenor House Hotel
CORE Projects & Technologies £15m acquisition of ITN Mark Education
Moore Stephens actively working on acquisitions in certain sectors:
Leisure
Pharmaceuticals and distribution
Motor
Infrastructure IT

9. Success and failure in acquisitions
Largest survey of value creation by Moeller, Schlingemann and Shultz
12,000 transactions
Net losses to acquiring firms: $25.2 billion
Key causes of failure
Overpaying
Poor strategy
Financial instability
Inadequate due diligence
Failure to integrate cultures
Failure to integrate operations

10. Why make acquisitions?
Effective acquisition strategy driven by overall growth strategy
Acquisitions used to meet objectives that:
Cannot be achieved through organic growth and development
Can be achieved more quickly and cost effectively with less risk by buying established performer instead of developing from scratch
Strategies fall into 4 broad categories
Consolidation
New markets
New technologies
Industry convergence

11. Key stages of the acquisition process
Strategic
Corporate strategy
Acquisition strategy
Acquisition process
Acquisition criteria
Target search
Appraisal
Value/negotiations
Finance
Due diligence
Legals/completion
Post acquisition integration

12. Developing an acquisition strategy
Integration with overall corporate strategy?
Shareholder value creation?
Are acquisitions the most effective way of achieving objectives?
Feasible strategy?
Are suitable targets likely to exist?
Can they be identified?
Likely to be for sale?
Be careful about:
Pursuing growth for growth’s sake
Deflecting attention from weaknesses in the core business

13. Acquisition criteria? Sector/industry
Competitive position within the industry/product mix
Revenue/size
Valuation
Location of operations
Likely synergies and integration success
A clear acquisition criteria will form the basis of an acquisition search

14. Target search Understanding the target sector is critical
Access to information
Overall sector information (press, trade conferences, databases)
M&A activity reviews (specialist data available)
Information about targets (websites, broker reports, filed information)
Report on shortlisted targets
Target name, location and business description
Summary financial information
Ownership structure
Consider why a match with acquisition criteria
Prioritise targets

15. Planning the approach Why is the current owner a possible vendor?
Non-financial reasons for sale?
Synergistic benefits?
Integration plan?
Critical members of the target management team?
Reaction to new management?
What critical issues need addressing during early discussions?
Maximum likely valuation and to what extent will synergies be shared?
Cash, deferred consideration, own shares or a mixture?
Does finance need to be raised?

16. Making the approach Initial approach
Write directly to the majority, dominant or controlling shareholder
Confidentiality letters
Vendor quickly asks for indication on valuation range
First proposal will be rejected
However, a process to ensure maximum price achieved may commence
While price will be the biggest factor (usually), consider
Certainty of completion
Speed of completion
Minimisation of hurdles, barriers and deal breakers

17. Understand the sale process
Vendor’s key weapon is information flow
Can be managed for tactical purposes
Vendor may:
Disclose positive information to encourage bidders to commit high prices
Limit site visits
Disclose more information to preferred bidders
Present information in a positive light
Resist requests for detailed analysis
Limit access to second line management
Limit or delay disclosure of prejudicial information

18. Understand the sale process
Acquirer should:
Access as much information as possible
Understand vendor’s key issues
Know the vendor’s decision making process
Assess the attitude of target’s management team
Consider different approach for owner-managed target
UK law requires directors to take into account factors other than price
‘act in good faith’
Project management
Achieve an agreement in principle and draft HOA (with exclusivity period)
After completion of due diligence, negotiate sale and purchase agreement

19. Getting to heads of agreement
Consider valuation, including to purchaser
Information gathering
Information Memorandum, due diligence, data room
Consider how business will fit post-completion
Seeing through the figures
Vendors will try to make the business as attractive as possible
Identifying key issues, including dealbreakers
Modelling is a key tool
Preparing the offer
Draft heads of agreement, including exclusivity ‘lock-out’

20. Types of due diligence Financial due diligence Vendor due diligence
Data room
Vendor due diligence
Commercial due diligence
Management due diligence
Legal and regulatory due diligence
IT due diligence
Technology due diligence
Environmental due diligence

21. Getting to completion Steps to completion
Detailed due diligence
Post completion operating and integration plan
Negotiation of final contracts (including SPA)
Tax planning and off-shore structuring
Finalisation of arrangements for external financing
Advisors can help to ensure that:
Specialist advisors are properly briefed
Reporting deadlines are met
Reports are integrated into the decision making and planning process
Issues, conflicts and disagreements constructively addressed

22. Integration
Post acquisition implementation plan is crucial BEFORE completion
Areas to address include:
Structure
How to capture merger benefits
Payroll
Administration
Sales tactics and product integration
Accounting systems
Many others!
Set milestones and allocate responsibilities

23. Common issues for Indian acquirers
Acquisition process
Sourcing appropriate targets in Europe
European approach different to Indian
Time zone impact
Post acquisition
When value is not created, poor integration is to blame in 70% cases
Talent retention and understanding the people issues
Communication
Synergies not delivered

24. Summary Acquisition process in Europe is well established
Complex and emotive issues can arise
Deadlines and certainty are important
Development of relationships critical
Commitment to the process and planning is essential
Due diligence and good negotiation can improve transaction terms
Local advisors with international experience important to help ensure success

25. Structuring Kathy Gillen
© 2011 Moore Stephens LLP

26. Types of Indian Clients using Jersey
Corporate
Investment
Capital Markets/Corporate Structuring using Jersey (Public) Holding Companies and Cell Companies
Private equity, real estate, hedge and infrastructure investment opportunities using a range of Jersey Funds
Owners of businesses (families):
General asset protection, estate succession and tax planning
Structures are simple or complex depending on clients’ requirements

27. Why Jersey is attractive to Indian clients
Wide range of solutions
Political and Financial Stability
Effective, comprehensive, world class, internationally recognised Regulatory Standards
Robust, modern and sophisticated legislation
Privacy/confidentiality, not secrecy
Tax Neutrality – as investors are outside Jersey there are no domestic taxes
Self-governing UK Crown dependency
In Europe but not in UK or EU
Proven track record in European listings

28. Why Jersey is attractive to Indian clients (cont’d)
Depth and breadth of more than 13,000 finance professionals
One of the first jurisdictions to regulate Trust Company Business
Clarity and quality of products and services offering
Convenient location – 35 minutes by air from London
Time Zone (same as the UK)- able to transact business with Jersey practitioners in the same working day
Excellent Communications
A UK visa is sufficient to travel to Jersey
It is common for companies in jurisdictions with double taxation arrangements with India, e.g. Mauritius, to form part of a Jersey structure

29. Some examples of the accolades that Jersey has received in recent times
Financial Action Task Force: “close to complete adherence”, Jersey is considered a co-operative jurisdiction
Financial Stability Forum - Jersey is considered to be a group one jurisdiction
International Monetary Fund – ranked number 1 in 2009 – “Jersey has a robust supervisory framework”
The G20 considers that Jersey has a tax regime that meets the highest standards of transparency and regulation. The Island is ranked in the top tier alongside the UK, US, Germany and France
Jersey was named as the top offshore finance centre in the world in recent official rankings by the City of London.

30. Jersey Tax Regime
Standard 0% corporate tax on worldwide income and bank deposit interest paid in Jersey
No stamp duty on share transfers
No withholding tax on dividends paid or received
No capital gains tax
No inheritance or wealth tax
UK VAT is not levied in the Island

31. Example of a (complex) Corporate Structure
 *Source Mourants

32. Why Jersey Holding Companies?
Reputation
Quality of service providers
Tax Environment
A Jersey (Public) Holding Company is comparable to a UK Company (PLC )
Speed of incorporation
If Listed -
Three CREST enabled share registrars.
Ability to trade shares directly through CREST (the UK share settlement system)

33. Facts!
91 Jersey holding companies listed on worldwide stock exchanges from London to New York
Combined market capitalisation of over £157 billion
Jersey is now one of the leading international finance centre jurisdictions to be used for incorporating listing vehicles

34. Most Common Structures used by Owners of Businesses
Trusts
Foundations
(Underlying company/ies e.g. owning UK real estate)

35. Trusts v Foundations: Features
General
Not a separate legal entity - an ‘arrangement’
A corporate body, registered with Jersey Registrar
Assets held in Trustees name
Assets held in Foundations name
Contract/ sue/ be sued in Trustees name
Contract/ sue/ be sued in own name
Must hold property to be valid
Does not have to have property including initial endowment
Fiduciary responsibilities
No fiduciary responsibilities
Requirement to provide beneficiaries with information
No requirement to provide beneficiaries with any information

36. Trusts v Foundations Trust Foundation Key parties Settlor Founder
Protector/ enforcer (if any)
Guardian
Trustees
Council
Beneficiaries
Beneficiaries (if any)
Key documents
Charter (lodged with JFSC – public document)
Trust Deed (not public)
Regulations (not public)
Letter of Wishes (not public)

37. Trusts v Foundations: Benefits and Uses
SIMILAR FOR BOTH!
Key additional benefits of Foundations:
Holding real estate directly
Where there is a single family ‘wasting’ asset

38. Other Vehicles Limited Partnerships - for families
Private Trust Companies
Family Offices

39. Conclusions
Jersey structures can provide a number of solutions for Indian corporate and private clients
Jersey is a well respected and renowned jurisdiction which is attractive to Indian clients
Moore Stephens….. in India, London, Jersey and….. Internationally …….. has a wealth of experience in assisting Indian clients with Mergers and Acquisitions…… and the necessary structuring

40. Profiles Kathy Gillen Duncan Gregory
Partner
Moore Stephens’ Offshore Group
Jersey
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Kathy is a Partner of the Moore Stephens’ Offshore Group (Jersey, Guernsey, Isle of Man and Gibraltar) and Director of our in-house corporate trust and fund companies
She advises international clients, both individuals and corporate bodies, on the establishment and implementation of trusts, foundations and company structures
She is a member of the Institute of Directors and in 2004 was awarded the Institute of Directors’ Chartered Director Status, the first person to have achieved this distinction in the finance sector in Jersey
She is responsible for Indian clients
Duncan Gregory
Partner
Moore Stephens Corporate Finance
London
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Duncan specialises in flotations, financial due diligence and valuations covering a wide variety of sectors on transactions involving UK and overseas companies
He qualified with a Group A firm where he commenced his corporate finance career before joining MSCF. He was awarded the ICAEW’s Advanced Diploma in Corporate Finance in 2006
He has worked with a broad range of corporate clients and is also experienced in dealing with flotations, transaction support, valuations and raising finance