Castellanza Presentation_Final November 07

8/12/2019 Castellanza Presentation_Final November 07

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M&A mandatesBuy Side and Sell SideNovember 2007



21-Nov-07 – 1

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How an M&A idea is generated

M&A DealSell side Buy side

Shareholders/Parent Company Buyer Target

Companies

Industrial/Sectorteam Public AuthorityClients

“Rumours”/“Gossip” on the

market

M&A Department

Other M&Aprocesses



21-Nov-07 – 2

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Acquisition rationale

Acquisitions are aimed at improving company profitability, defending competitive advantages, preservingbusiness positioning and market share in the long term, creating additional value for the shareholders

Galbani/Lactalis, TelecomItalia/AOL, Weather/Wind,Unicredit/HVB

Integration

Rationale Description

Horizontal/lateral integration –

Same customer – Same product – Geographic expansionVertical integration – Acquisition of supplier – Acquisition of customer

AEM/Edison, Luxottica/Cole

Diversification

Product/technology expansion – Different product/technology – Same customersConglomerate (new products, newcustomers, possible new location)Financial sponsors

Saipem/Snam Progetti,Capitalia/Fineco, Erg/Enertad

Benetton/Autostrade,De Agostini/Toro

Defensive Acquisition of direct competitors – Enlarge company size – Anticipate competitors move

Gas Natural/Endesa (pending)ENEL/Endesa



21-Nov-07 – 3

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Divestment rationale

Debt overload (excess in company leverage)

Change of strategy

– Refocus of business

– Refocus of strategy

Succession issues / family disputes

Assets swap

Opportunism

Regulatory / legal issues

Financial sponsors activity



21-Nov-07 – 4

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Participants role in a M&A deal

TargetCompany

Seller

(ShareholdersParentCompany)

Buyer/s



21-Nov-07 – 5

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Roles & responsibilities

Buyer

Business insight/analysis

Jointly with Financial Advisordefine target approach and solvefinancing issuesInvolvement in final negotiation

Top management

BoD membersCorporate development

Target

Cooperation with advisors in

initiation and executionPresentation of activities andeconomic financial data to advisorsand potential bidders

Top management

Divisional functionsFinance and Control functionSeller/Target auditors

Seller (Parent company)

Team members Responsibilities

Supervise the process

Operative coordination of internalresourcesInvolvement in the final phases ofthe negotiation

Top management

BoD membersCorporate development



21-Nov-07 – 6

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Roles & responsibilities (continued)

Professional team specialized inthese kind of transactions

Legaladvisors

Transaction structure and timetableLegal due diligence reportNegotiation activitiesFinalisation of the SPAFulfilment of Authorities’ requests

Financial Advisors

Buyer

Analyse transaction structureCoordinate due diligenceValuation

Assist negotiation phase jointly withlegal advisors

Local professional team(relationship with Buyer)Industry team (sector expertise)M&A team valuation


Financial Advisors

Seller

Approach potential buyers

Definition of transaction structureCoordinate procedure and duediligence

Assist negotiation phase jointly withlegal advisors

Local professional team

(relationship with Seller & Target)Industry team (sector expertise)M&A team coordinates procedureProfessional from global network toidentify potential bidders/partners



21-Nov-07 – 7

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Roles & responsibilities (continued)

Professional team specialized inthese kind of transactionsSpecialist

Advisors(strategic/operational

real estate)

Specific issues analysis (i.e. realestate, IT)

Assessment of assets qualityBusiness due diligence report release

LendingBanks

Transaction structure analysis(buyer and target figures)Negotiate financing terms andconditions with buyers (i.e. covenants)Drafting of reliance lettersIssuance of financial commitment /resources

Lending/Leveraged finance team


Tax andaccounting

advisors

Accounting and tax due diligence

reportsPreparation of pro-forma figures(usually for the closing)Identification of optimal tax structure

Professional team specialized in

these kind of transactions



21-Nov-07 – 8

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Available Process Typology

Driven bySeller

Confidential negotiation

Few parallel private negotiations

Private auction

Public auction

Driven by

Buyer

Unsolicited offers:

– Friendly

–Hostile (only public)



21-Nov-07 – 9

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Procedure selection process

Perfect in presence of a “preferred”

bidder Guarantee of exclusivityEasy to controlRelatively easy to be interrupted

Privatenegotiation

Few parallel

privatenegotiations

Pros Cons

Lower probabilities to maximize the

priceIt could need more time thanexpectedLower seller’s negotiation powerbecause of lack of competition

Lower seller’s negotiation powerbecause of reduced competitionManagement of different bidders,

who ask exclusivity, could resultdifficult to achieveStill low seller and advisor’snegotiation power because of lackof competition

It introduces competition in theprocessHigh level of uncertainty on the

status of the processIt allows to maintain confidentialityRelatively easy to be interrupted



21-Nov-07 – 10

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Procedure selection process (continued)

Perfect in case of numerous

potential biddersGood chance to maximize valueHigh control by the seller innegotiating terms of the agreementRapid process

Privateauction

Public

auction

Pros Cons

Process difficult to be interrupted

Risk of information leakage

Risk of damaging business’sreputation if the sale is notsuccessfully completedLack of flexibility to interrupt theprocess

Open to all potential buyersHighest probability of pricemaximisationHigh perception of “fairness”



21-Nov-07 – 11

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Procedure selection process (continued)

Negotiations efforts with only

controlling counterpart/sPrice offered previously agreedwith controlling shareholders

UnsolicitedOffer

(Friendly)

Pros Cons

Execution risk - bidder may not

reach optimum control threshold(i.e. debt push down)If target is public an unconditionalmandatory offer could be requiredCertainty to acquire an identifiedstake of target

Price solely fixed by Buyer on thebasis of its objectivesPossibility of conditional bidCertainty of acquiring desiredcontrol threshold (debt push-down)If successful likely probability oftake-private or free float restoration

UnsolicitedOffer (Hosti le voluntary

offer)

Poison PillsRisk of interlopers and counterbidsUncertainty of results until the endof the bid periodDelicate to be executed





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Buy Side



21-Nov-07 – 14

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Financial advisory role

Advisoractivities

Strategic fit analysis

Target valuation

Synergies analysis – Value (economies of scale, organisational synergies, cross selling opportunities,

etc.) – Timing

Transaction execution activitiesBuyer’s shareholders: value creation analysis (EPS accretion/dilution,etc.)

Buyer re-rating post transaction



21-Nov-07 – 15

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Proposal

Unsolicited bid process

Target analysisStrategic fit

Business analysis

Anti-trust issuePoison pills

Valuation

Synergies

Impact on buyer analysisFinancial analysis

Likely consideration

Financing/credit Accretion/Dilution

Target availability analysisManagement teamassessment

Shareholding analysis“Informal” sounding

Idea



21-Nov-07 – 16

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Hostile vs Friendly target approach

Hostile

Due diligence NegotiationShares

pledged/acquired

Targetacquisition

Offer to shareholdersShares pledged/

acquired Target acquisition

Friendly Boardinvolvement



21-Nov-07 – 17

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Value vs price: a quick lesson to learn

EnterpriseValue

NFP Other liabilities

Fairvalue

Market cap/Valuation

Synergywith buyer

Strategic/control

premium

Buyer bargainpower

Pricepaid

T a r g e

t p r i c e

Over valuation

Under valuation



21-Nov-07 – 18

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Timetable

Regulatory steps

‘Market’ steps

Between 15 and 45working days(to be decidedwith Consob)

Informalmeeting withConsob and

Antitrust

Prospectusdepositedwith Consob

Consobapprovesprospectus

Issuer’s opinion(same day ofOPA’s start)

Announcement ofacquisition oftendered shares

Disclosure requirementsMeeting with Borsa Italia

Prospectuspublished

anddelivered to

issuer

OPA starts Deadline forcounter offer

Announcement ofresults

OPA closesPayment

tendered shares

5 days of openstock exchange

5 days15 – 30 days 5 days 5 days



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Sell Side



21-Nov-07 – 20

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Sell side: key issues to address

Key aspects – Company nature (sale perimeter)

– Transaction structure (majority/minority stake, JV,...) – Timing – Specific elements to address in the industrial sector of reference – Price

– Terms of payment – Privacy – Legal / tax aspects



21-Nov-07 – 21

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Identification of potential buyers

Trade buyers

Private Equity funds (MBO,LBO,MBI,BIMBO)

Institutional Investors

Others



21-Nov-07 – 22

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Timetable (auction)

Preparation and planning of the process

4 – 6 weeks

PreparationCompany analysis

Business comprehensionInformation gathering

Preparation of Business Plan

Preparation of Information Memorandum

Company valuationPreparation of Data Room

Draft of management presentation

Planning Analysis of potential buyers and market

sentimentSimultaneous approach of potential buyers(Teaser)

Distribution and sign off of confidentialityagreement

Draft of Sale & Purchase agreement

Draft of due diligence rules

Preparation of procedure letter





21-Nov-07 – 24

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Timetable (auction)

Final Phase and closingSelection of bidder/s

(Possible competitive auction)

(Possible final choice of the buyer)

Internal approval

Final negotiations

Signing of SPA

Press release

Antitrust approval

4 – 6 weeks 3 – 4 weeks 4 weeks

Selection & closing Auction periodPreparation and planning

4 weeks

Closing









21-Nov-07 – 28

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Timetable - Procedure

F M T W T F M T W T F M T W T F M T W T F M T W T F M T W T F M T W T F

Kick-off meeting

Steering Committee

Equity investment committees

Submission of binding offer

10 13 14 15 16 17 20 21 22 23 24 27 28 29 30 31 3 4 5 6 7 10 11 12 13 14 17 18 19 20 21 24 25 26 27 28



21-Nov-07 – 29

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Timetable - Due diligence


10 13 14 15 16 17 20 21 22 23 24 27 28 29 30 31 3 4 5 6 7 10 11 12 13 14 17 18 19 20 21 24 25 26 27 28

List of attendants sent to advisor

Clarifications on data room contents sent to advisor

Management presentation

Data room and daily meeting

Circulation of draft due diligence reports

Indicative model inputs

Comments to draft due diligence reports

Data room

Final due diligence reports

Site visits

Circulation of site visits report





21-Nov-07 – 31

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Timetable - Legal


10 13 14 15 16 17 20 21 22 23 24 27 28 29 30 31 3 4 5 6 7 10 11 12 13 14 17 18 19 20 21 24 25 26 27 28

Legal due diligence

Circulation of first draft of legal due diligence report

Legal due diligence

Circulation of final due diligence report

Receive SPA from seller

Mark-ups SPA

Finalise SPA

Drafting/mark-ups of the offer letter

Documents

Castellanza Presentation_Final November 07