Merger integration. ASEAN hub

Transcription

1 Merger integration ASEAN hub

2 1 Our point of view Our offering Why EY Key contacts

3 1Our point of view Too many companies across the world find themselves tinkering with change by focusing on organic growth and operational improvements. However, organic growth and cost cutting has its limitations. Companies should invest more effort in structural actions like acquisitions or divestments if they desire to achieve breakthrough growth. Companies in Asia are focusing on building scale in its core market through acquisitions and shedding non-core part to fund the ambition. But are we prepared? Scale Growth Top 2 players have two-third of the profit pool Market expansion or entry M&A rebounds strongly to drive corporate growth in Southeast Asia. Deal rationale Synergies Value through M&A EY Capital Confidence Barometer Survey 2014 Capability Gaining access to new technologies, skills, patents and people Think Big and Act Bold. Defence Strategic stakes to offset threat, future bargaining power Vikram Chakravarty The Business Times 17 March % of all merger failures can be attributed to failure in integration Reasons for loss of deal value 20% 14% 66% Failure in strategy Failure in M&A deal Failure in integration Lack of deal strategy or low strategic fit Synergies not achieved Lack of integration plan or philosophy Failure to de-risk the asset Lack of communication Organization misalignment Value is lost from failure of execution, not strategy. Firms need to de-risk the investment, capture value through synergies and control the process through strong governance and control. Vikram Chakravarty EY Merger Integration Lead, Asia-Pacific Source: EY analysis Merger Integration ASEAN hub 1

4 2EY offering a. Integration vision: Strategy and control Integration philosophy and guiding principles Due to the complexity associated with Asian mergers, it is imperative to define the integration vision and strategy early in the deal process. Define integration guiding principles and nonnegotiables before the launch of the integration process. Complete autonomy E.g., Replace the CFO, COO Replace target management Run as a standalone entity E.g., Full integration of back-office Fully integrate Soft approach on people side No change in business model E.g., Reduce headcount E.g., New supply chain model Large synergies planned through lay-offs Optimize business model of the target Typical Asian non-negotiables 1 Control over people, brands, IP etc. Establish control 2 over cash and treasury operations to de-risk the investment Establish governance, 3 compliance and controls to comply with company policies e.g., FCPA 4 Establish financial and executive reporting requirements 5 Early announcement to key stakeholders Adapt a softer 6 approach in integration. E.g., no headcount reduction The lack of clear integration philosophy and plan leads to destruction of value. Vikram Chakravarty EY Merger Integration Lead, Asia-Pacific Planning for integration should begin once you identify the target and continue throughout the deal process. Yew-Poh Mak EY Merger Integration Lead, Greater China and Hong Kong 2 Merger Integration ASEAN hub

5 b. Generate value: Synergies Shareholders have rewarded successful acquirers in the past for realizing synergies from the deal. Acquirers should identify synergies and value drivers well in advance and validate it during the due diligence process. Considering the complex business landscape in Asia, identified synergies should be tied to executable plans and should be tracked and reported on a regular basis. Average announced cost synergies as a percentage of target s revenue 9% 8% 18% 15% 6% 6% 5% 6% 6% 4% 15% 14% The average per industry realized cost synergies range from 4% - 18% of target s revenue CPG Pharmaceuticals Oil and Gas Chemical Utilities Brokerage Achieved cost synergies as % of target s revenue Announced cost synergies as % of target s revenue Sources: Capital IQ, ThomsonONE, company filings, press releases and investor presentations, EY analysis Typical Asian synergy opportunities Longer term Medium term Quick wins Back office Procurement and suppliers Manufacturing and supply chain Sales and marketing Customers Revenue S9 Cross-sell additional volumes S11 New customers Cost S1 Centralization of back-office (HR, IT, finance, procurement) S2 S3 S4.1 Procurement leverage Capacity optimization Quality improvements S7 S4.2 S8 Supply chain optimization - reduce logistics costs through a more efficient utilization of the combined network (transportation contracts, supply chain, warehouse space) Quality improvements Working capital optimization S10 Consolidate sales office locations and facilities S12 Cost to serve for customer portfolio Assets S5.1 Restructuring - review target locations and assets S5.2 Restructuring - review manufacturing assets and facilities S5.3 Restructuring - target sales office assets CAPEX S6.1 CAPEX review S6.2 CAPEX review S6.3 CAPEX review Back office Procurement and suppliers Manufacturing and supply chain Sales and marketing Customers At EY we have detailed understanding of where the synergy can be found by deal and industry type. Karambir Anand EY Merger Integration Partner Seasoned acquirers prioritize on key value drivers and allocate adequate resources to ensure success. Konstantinos Dimitriou EY Merger Integration Specialist Merger Integration ASEAN hub 3

6 c. Fitting it together: De-risking There is a need to de-risk the merger event due to many instances of value leakage in Asia. Detailed functional integration planning and proactive risk mitigation ensures taking control of the target and business continuity post-close. EY tools: Springboard and Merger Integration Playbook 1 Tools and templates (by phase) Operational analysis and diligence 2 Tools and templates (functional areas) Functions Integration readiness and mobilization Finance and treasury Marketing and branding Human resources (HR) Operations IT Corporate services Advocacy and oversight Risk Strategic sourcing Integration planning and analysis Integration execution Cross teams Value realization Customer experience Employee experience Illustrative Organization culture analysis tool Company comparison report External focus Parent company N = 166 N = 121 Flexible Adaptability Creating change Empowerment Customer focus Team orientation Involvement 70 Adaptability 79 Customer focus 81 Organizational learning Capability development Organizational learning Internal focus External focus 96 Strategic direction and intent Beliefs and assumptions Core values Strategic direction and intent Goals and objectives Agreement Goals and objectives Mission Vision and integration Coordination Consistency Mission Stable In this organization... Empowerment Team orientation Quartile Percentile Most employees are highly involved in their work Decisions are usually made at level where the best information is available Information is widely shared so that everyone can get the information he or she needs when it s needed Everyone believes that he or she can have positive impact Business planning is ongoing and involves everyone in the process to some degree Cooperation across different parts of organization is actively encouraged People work like they are part of a team Teamwork is used to get work done, rather than hierarchy Teams are our primary building blocks Work is organized so that each person can see the relationship between his or her job and goals of the organizations 1st 12 Involvement 2nd 3rd 4th 25th 50th 75th 100th Acquired company Flexible Creating change Empowerment Team orientation Involvement 78 Capability development Beliefs and assumptions 38 Core values Agreement Vision and integration Coordination Consistency Stable Capability development Authority is delegated so that people can act on their own The bench strength (capability of people) is constantly improving There is continuous investment in skills of employees The capabilities of people are viewed as important source of competitive advantage Problems often arise because we do not have the skills necessary to do the job Internal focus We have helped clients in de-risking the investments and prevent value loss. Managing cultural difference proactively is critical for deal success in ASEAN. Abhay Bangi EY Merger Integration Specialist Ashutosh Deshmukh EY Merger Integration Specialist 4 Merger Integration ASEAN hub

7 3Why EY 1. Leaders in M&A integration 2. End-to-end approach Involved in top 30/50 deals in Asia Corporate finance strategy Investment strategy Growth strategy Portfolio rationalization Valuation business modeling Transaction tax M&A transaction due diligence Financial Transaction evaluation Integration and divestitures Transaction evaluation Due diligence Carveout and integration diligence and planning Value creation Turnaround Restructuring Value creation Revenue growth EBITDA margin improvement cost reduction Multiple expansion improving exit value Cash flow and working capital 3. Merger specialists ASEAN hub Experienced 30+ merger integration specialists in Southeast Asia (SEA), 100+ in Asia-Pacific and 900+ globally 4. Industry focus (Merger integrations) Industry Global SEA Financial Services Oil and Gas Consumer Products and Resources Select experience M&A strategy Due diligence Integration management office Synergy Integration of two top banks in Philippines Integration of European bank and local bank Integration of an Oil Field Services (OFS) player by European major Asset integration of utility company Integration of Thai LPG company by Korean Player HR due diligence and integration planning for refinery in Vietnam Integration by a US Oral Care company in Myanmar Palm plantation integration Dairy business post-merger integration Functional Merger Integration ASEAN hub 5

8 Key contacts ASEAN merger and divestment hub Vikram Chakravarty Partner, Asia-Pacific Merger Integration Lead Led 15+ merger integrations and is a well-known strategy expert in industry. Extensive experience in consumer goods, retail, commodities, oil and gas and financial services sector. Karambir Anand Partner, Merger Integration karambir.anand@sg.ey.com Led 10+ merger integrations. Synergy and value capture champion for M&A initiatives. Extensive experience in oil and gas, resources and commodities sector. Singapore Swee Cher Choo swee-cher.choo@sg.ey.com Indonesia David Rimbo david.rimbo@id.ey.com Malaysia George Koshy george.koshy@my.ey.com Thailand Piyanuch Nitikasetrsoonthorn piyanuch.nitikasetrsoonthorn@th.ey.com Philippines Renato Galve renato.j.galve@ph.ey.com Myanmar Andre Toh andre.toh@sg.ey.com Vietnam Jason Doan Director, Transaction Advisory Services jason.doan@sg.ey.com Industry Leaders Financial Services Vishrut Jain vishrut.jain@sg.ey.com Oil and Gas and Resources Karambir Anand karambir.anand@sg.ey.com Consumer Products Joongshik Wang joongshik.wang@sg.ey.com Life Sciences Abhay Bangi Director, Transaction Advisory Services abhay.bangi@sg.ey.com 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 Ernst & Young Solutions LLP. All Rights Reserved. APAC no ED None. Ernst & Young Solutions LLP (UEN T08LL0784H) is a limited liability partnership registered in Singapore under the Limited Liability Partnerships Act (Chapter 163A) 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. ey.com 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.