Divesting for value. Asean hub

Transcription

1 Divesting for value Asean hub

2 Pruning non-core units on a regular basis allows companies to reduce complexity and free up capital for growth businesses. For the divested units, they may be a better fit with other firms that are able to help them achieve their full potential. Vikram Chakravarty Asia-Pacific Capital Transformation Leader Contents 1 Why companies divest 2 How to be 3 EY s approach 4 Why EY successful to divestments

3 1Why companies divest Divestment is a natural progression, as companies get more focused and push for growth It creates value and is a growing trend in Asia-Pacific Divestments can create value and other benefits Strategic Non-core business Weak competitive position Unattactiveness of market Fund future growth 86% used funds to invest in future growth Reasons to divest Financial Conglomerate discount unlocking value Distress situation pay down debt Opportunistic sale For 31% companies financial triggers drove divestment Focusing management attention currently spread thin Operational simplicity Operational Limited synergies EY Global Corporate Divestment Study ,600 divestments in Asia-Pacific over the last five years Examples of companies divesting to unlock value China India Malaysia Singapore Property, aviation, beverages, marine services, trading and industrial conglomerate spun off property business Consumer products business spun off of their skincare solution company Conglomerate with interest in plantation, property, pharmaceutical, etc. spun off their pharma business Food and beverage, publishing and printing conglomerate spun off real estate business As the global economy settles into its new growth pattern, companies in Asia-Pacific will need to make informed decisions tied to portfolio rebalancing. Abhay Bangi Operational Transaction Services South Korea Leading consumer electronics company spun off a developer and supplier of inorganic materials for electronics, energy, and environment fields Source : Capital IQ, EY analysis Divesting for value 1

4 2How to be successful Two-thirds of Asia-Pacific sellers enjoyed positive valuation uptick Wide gap between leaders and laggards A complex journey that requires thorough planning and astute decision making Potential value erosion in a divestiture Value Management unprepared for data demand Poorly organized, incomplete or inconsistent dataroom, resulting in excessive buyer demands Price talked-up Actual results below expectations Deal rushed without considering ways to enhance value One-off stranded and stand-alone costs inaccurate Change management not effective IM fails to make strategic case Support for growth drivers insufficient TSAs not well negotiated Historical track record unclear Management presentations off message or not tuned to specific buyer Stand-alone operating model not well defined Appoint M&A advisors IM issued Initial offers Management presentation Dataroom access SPA released Final offer Exclusivity Completion IM: Information Memorandum SPA: Sale and Purchase Agreement TSA: Transitional Service Agreement 2 Divesting for value

5 Divestiture, a primary means of optimizing the portfolio and preserving and raising capital value, deserves greater attention. Joongshik Wang Asean Corporate Finance Strategy Leader Sellers need to tell a strong, credible value story and weigh the opportunity costs of waiting too long for the right price. Luke Pais Asean Mergers & Acquisitions Leader Big divergence between the best and worst performers Change in seller s valuation 1-44% Bottom quartile Mean 14% Top quartile 38% Top quartile performers are 60% more likely to use strong analytical tools than lowerperforming companies EY Global Corporate Divestment Study Art of divestment 1 Informed decision what to sell and how to sell (TSAs etc.) 2 Critical to follow through once intent to sell is announced 3 Understand trade-offs between value, speed and risk 4 Have a dedicated team to manage divestment 1. For divestments in Asia-Pacific Based on % change in valuation (EV/EBITDA) from -3 months from announcement date to +3 months Source: Capital IQ, EY Analysis Divesting for value 3

6 3EY s approach to divestments Comprehensive approach to complex journey covering the entire lifecycle of the transaction Project start Kick-off workshop Separation scoping workshop Separation planning workshop End of preparation 1. Portfolio review 2. Strategy and concept 3. Planning and preparation Identify non-core business Strategy Options Strategy Define long-term high level goals Financial Commercial Ethical Operating Model Benchmarking Complete picture Standalone Synergies Operating Model Outcomes Identify deal perimeter Decide on deal structure (Trade sale vs. Carve-out vs. Spin-off) Review of key separation dimensions Governance Model Robustness of value story Asset allocation (including. IP or shared technology) Deal structure and timelines Clarity & transparency of financial info Standalone BU capabilities and business services Inter-BU compensation model Plan for standalone operations Entanglement analysis Standalone operating model Financial bridges Business: sales, marketing, customer contracts or channels Operational: manufacturing, supply chain Functional: finance, HR, IT, legal Replicate Optimize TSA Shared corporate costs Standalone costs One-off separation costs Stranded costs Outcomes Core or Non-Core Performing well vs. At risk Options Invest to maintain or grow Divest to realize (outside) value Optimize (within existing model) Restructure (to design new model) IT platform and set up FTE allocation and divisibility of teams Material contracts agreement Operational bridges (Draft TSA) Activities Service levels Duration Fees Deliverable Strategic review Separation scope and concept Separation plan BAU: Business As Usual 4 Divesting for value

7 Proactively establishing a heightened state of readiness to divest is a best practice. Karambir Anand Operational Transaction Services Go public, point of no return Signing Closing Q&A sessions with investors Separation execution kick-off workshop Follow-up workshop Day 1 readiness workshop 4. Investor reporting 5. Separation execution Post-closing phase Detailed view of business for buyers Seller s M&A team BU management The financial Vendor Due Diligence (VDD) is: Factual description of the business Pro-forma separation financials Separation management office (SMO) set-up for business transfer 3 Steering committee Decision making Separation management office Weekly update Separation plan Risks & issues Milestone tracking 1 Deliver transitional services and roll-off TSAs Finance Local BU or country or site management Seller Information Documents (SIDs) for: Tax IT Workstream Business Operations Functional 2 IT HR EY team Operations Finalize TSA to ensure BAU for BU being separated Execution of separation implementation plan Ensuring day 1 readiness and prepare for post-closing support Operations Pro-forma financials VDD, SIDs Business transfer Closing accounts Exit TSAs Divesting for value 5

8 Successful sellers use a combination of data and project management tools 2 EY proprietary divestment tools helping create value for sellers Data management Managing and manipulating large quantities of data Project management Effective project management framework Data room management Design and management Gather and checking Preparation (gap filling) Q&A eplaybook Dynamic project management Real time management Custom to-do lists Alerts and status reports CARVEx CARVEx Carve-out financial statements Scenario planning in offline environment Unlimited data capacity Bridge regulatory and deal financials DivestPro DivestPro Step-by-step divestment guide Issue identification Templates Tips and tricks Financial modelling Business planning Synergy modelling Pro forma adjustments Closing accounts or mechanisms Separation planning and implementation Detailed separation plan Issue or resolution log Project management tools TSA and SLA templates Q&A 2 EY Global Corporate Divstment Study 2015 Leading companies view divestments as a fundamental part of their capital strategy, especially to fund growth. Paul Hammes EY Global Divestiture Advisory Services Leader 6 Divesting for value

9 Paying close attention to tax implications is essential, as they are complex and can add considerable value to a transaction. Russell Aubrey Asean Transaction Tax Leader Case Study: How EY helped a Big Pharma client maximize value through divestment Portfolio review Strategy and concept Portfolio was reviewed carefully in order to maximize the valuation of SpinCo while maintaining RemainCo s strategic focus Decisions related to planning, operational & strategic value drivers were made well in advance of the IPO date Market Cap change for Big Pharma (USD Bn) % 224 Planning and preparation Enhanced go-to-market strategies in 60+ countries with no impact to pricing Investor reporting Accurate estimation of one-time, stranded and standalone costing 3 months pre divestment (Seller) 3 months post divestment (Seller + SpinCo) Tax Separation execution There was simultaneous implementation of customized tax structure into the business unit Company within a company created 3 months prior to IPO The de-layering of the organization reduced G&A by 20% from allocated basis The spin-off leaves us better positioned to focus on our core business by unlocking the value in SpinCo RemainCo CEO Source: Capital IQ, EY Analysis We will continue serving our customers in ways that make a meaningful difference to their businesses and strengthen our position as the world leader in animal health SpinCo CEO Divesting for value 7

10 4Why EY Our sector-focused divestiture advisory services (DAS) professionals have served on many carve-out sales, spin-offs to existing shareholders, IPOs and contributions to joint ventures for domestic and global clients, including Fortune 500, private equity portfolio companies and privately held businesses. EY divestment value proposition Functional specialists Business Operational Supply chain Manufacturing Functional HR IT Finance Integrated service offering across transaction lifecycle #1 in divestiture advisory globally* Dedicated team globally including ASEAN Industry specialists Financial services Oil and gas Resources Consumer goods Life sciences and healthcare Outcomes focused jump-start approach *Source: Blueframe 2014 Our divestiture related thought leaderships Global Corporate Divestment Study 2015 A survey with 800 executives on questions relating to portfolio review and divestment strategies and provides insights on how to maximize divestment success Capital Confidence Barometer Provides a view of executives confidence on real and sustained economic recovery and how it impacts their growth strategy Roadmap to carve-out sale success Illustrates the critical steps to getting a deal signed in six months Exit Readiness Workshop Illustrates the importance of exit readiness workshops, workshops purpose, agenda and its outputs from each workshops 8 Divesting for value

11 EY has buy- and sell-side experience. We carry dedicated divestiture teams who understand the needs of potential buyers (private equity, strategic - public and private). Purandar Rao Singapore Leader Select EY global divestment advisory credentials Transaction type Countries by region Workstreams Sample engagements Carve-out & sale Carve-out & tax free spin # of countries impacted North America Central and South America Europe, Middle East, India and Africa Asia-Pacific Carve-out financial statements preparation Stand Alone one-time/tsa costs Operational separation and stand-up of NewCo PMO Big Pharma spin off and IPO of its animal health unit Multinational consumer goods company spin off of its pharmaceutical unit Leading BioPharma s partial IPO of its Nutrition unit Leading BioPharma s sale of its medical supplies unit Leading FMCG company s carve-out and sale of its pharmaceuticals business Imaging tech company carve out and sale of its healthcare IT platform German car manufacturer s carve-out and sale of its American business Divestiture of logistics BU from a Fortune 500 company Heavy equipment manufacturer carve-out of USD1.2 billion logistics business Global healthcare company s carve-out and tax-free spin of specialty pharma Specialty chemicals sale of its coating business to a PE buyer Fortune 500 company carve-out and sale of a BU American producer of technology-based performance materials - carve-out and sale of 4 BUs, pharma, fine chemicals, plastics and polymers Leading oil company carve-outs and sales of numerous BUs TSA: Transitional Service Agreement PMO: Program Management Office Divesting for value 9

12 Contacts Portfolio and strategy review Vikram Chakravarty Asia-Pacific Capital Transformation Leader Joongshik Wang Asean Corporate Finance Strategy Leader Operational separation Karambir Anand Operational Transaction Services Abhay Bangi Operational Transaction Services Tax Russell Aubrey Asean Transaction Tax Leader Financial VDD Purandar Rao Singapore Leader Advisory (sell-side) Luke Pais Asean Mergers & Acquisitions Leader Valuation and business modelling Andre Toh Asean Valuation & Business Modelling Leader Singapore Swee Cher Choo Indonesia David Rimbo Malaysia George Koshy Thailand Piyanuch Nitikasetrsoonthorn Philippines Renato Galve Myanmar Andre Toh Vietnam Jason Doan EY Assurance Tax Transactions Advisory About EY EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com EYGM Limited. All Rights Reserved. APAC no ED None. In line with EY s commitment to minimize its impact on the environment, this document has been printed on paper with a high recycled content. This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax, or other professional advice. Please refer to your advisors for specific advice. ey.com