KPMG Survey Report

8/7/2019 KPMG Survey Report

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KPMG Survey Report

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Introduction

Present the findings of KPMG survey into the

surroundings of Merger & Acquisition.

What successful companies are doing rightto increase their shareholder value.

Covers the integrated approaches followed

during the pre-deal period.

Cross-border transactions.


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Objectives

to correlate specific actions with the success

or failure of the transaction

to investigate the relative importance of thedifferent activities

to assess respondents approaches and

attitudes to cultural and people issues


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Benchmarking Success

Success of deals was measured based upon

the increase/decrease in Shareholder value.

Equity performance measured pre and post-deal and compared integrated companys

performance with individual companys

performance.


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Deals categorized into:

Those that failed to create value,

Those that neither created nor destroyed

value Those that created value.


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Keys to Success

Some factors that impact the value realizationof the company.

Hard Keys:

i. synergy evaluation

ii. integration project planning

iii. due diligence

Soft Keys:

i. selecting the management team

ii. resolving cultural issues

iii. communications


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Approach

The Research was conducted into 2 parts:

1. Interviews with directors of participantcompanies.

The sample frame was taken from the top 700cross border deals by value between 1996 and1998.

In total 107 companies participated from aroundthe world

respondents were asked which activities they hadundertaken during the deal process


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2. Analysis against an objective benchmark of

M&A success

Each deal was cate

gorised a

gai

nst a

nobjectivebenchmark of success


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Hard Keys

Synergy Evaluation

Integration project planning

Due dilligence


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1. Synergy evaluation the What

Only by gaining a clear understanding of what and where

value can be obtained from a deal, can companies hope to

avoid bad deals and be in a position to work out how, during

integration planning, this value extraction will be achieved

Such a process involves detailed work with operational

managers to confirm the deliverability of synergy

assumptions and provide the reassurance duringnegotiationsthat the identified benefits are robust.


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Synergy (cont.)


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Synergies were actually delivered in

the following areas:


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Synergy Analysis

Although benefit areas such as procurement, R&D or new

product development and cross-selling feature widely in

synergy papers, but actually they were delivered by less than

half of companies.

Headcount reduction is the area where most companies have

achieved benefits

But headcount reduction is possibly the most difficult to

implement effectively because of the need to be sensitive to

the regulatory and cultural repercussions


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2.Integration project planning - the

how It is critical to work out the mechanics of how

Synergies will be attained

The combined business will be stabilised to preserve current value andensure that one plus one does not make less than two

Given recent high-profile M&A negotiation breakdowns, thetemptation has never beengreater for companies to hold off, orcurtail, their integration project planning activities until the deal iscompleted.

It has been observed that company management have a period ofsome 100 days after deal completion to take hold of the businessand begin delivering benefits. Unless they are in a position to startimplementing the hard mechanics of their M&A aims by this stagethey will lose value from their acquisition.


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3.Due Diligence

Sophisticated and forward-looking acquirers perform due

diligence which often encompasses a range of investigative

tools designed to systematically assess all the facts impacting

on value.

This can include market reviews, risk assessments, and the

assessment of management competencies, as well as areas to

concentrate on for synergies.


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Hard keys: Results


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Results

The survey results suggest that successful companies were

managing to achieve long-term deal success by prioritising

three hard key components in the pre-deal phase

Pre-deal synergy evaluation emerged from the survey as the

prime hard key to deal success, followed by integration

project planning and due diligence

It also offered evidence of where less successful companies

are going wrong, by concentrating on mandatory activities

such as legal and financing


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Soft Keys

selecting the management team

resolving cultural issues

Communications


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Selecting the management team

In case of M&A, how does one select the

management team in a way which does not

have negative effect on the business??

Too quick as well as too slow decisions, both

negatively effect the firm.

Process of selecting management should be

transparent, logical, rational and fair.


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Management of merged or acquired

company?

Should it be asked to leave?

Should it be retained?

Depends:

If the acquirer firm has acquired a badly managedfirm, then its management should be removed.Quick gains can be made by importing a newsophisticated management team.

If the acquirer firm has acquired a small butgrowth firm, with the purpose of diversification,then management can be retained.


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Stats

Those companies that prioritised the

selection of the management team at the

pre-deal planning stage were 26% more likely

to have a successful deal.


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Cultural issues

No two companies are similar

They differ at how they operate at a

corporate or functional level Complexity of cultural challenge depends

upon the nature of M&A.


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If two companies are fully integrated, the bestcultural aspects of both firms need toincorporated into a single new company

culture. If the companies are run to be two different

entities, it is not advisable to integratecultures; however, mutual co-operationbetween two separate cultures must be theirto unlock shareholder value.


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Communication

Communication is essential

Unless key stakeholders, from shareholders to

customers, are appropriately informed during the

merger process, their positive buy-in is likely to

be lost and the merger process may be derailed.

Poor communication to employees will have a

greater detrimental effect on deal success thanthat to shareholders, suppliers or customers


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Stats

Companies which gave priority tocommunications were 13% more likely than

average to have a successful deal


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Integrated approach:

Soft keys with Hard keys

It is misleading to view each area in isolation as there is

inherent overlap between each of these hard keys and soft

keys respectively.In fact if both hard and soft aspects are

handled together within a single process, the acquirer can

maximise the shareholders value

The soft and hard key findings were analyzed for correlation

and the results confirm that when both aspects are given

priority, the success rate is increased.


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Integrated approach: Results


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The impact of cross-border deals


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Language barriers

Different working practices and lack of cultural

understanding


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Cross border analysis


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Analysis Result

The graph brings out some key messages:

US/UK deals benefit from many years of deal experience

same language and culture

high success rates are as expected


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Analysis Result

UK/Europe

the UK has extensive deal experience the proximity between the UK and Europe

means heightened cultural

awareness, as compared with the moredistant US


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Analysis Result

US/Europe

in spite of extensive deal experience, the USfaces greater cultural

differences and challenges in its deals with

Europe


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Increase in M& A

0

100

200

300

400

500

600

700

2006 2007

No. of Deals

Amount (USD million)


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10 Largest M&A deals worldwide since

2000


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Cross-border Merger and acquisition: India

Until up to a couple of years back, the news that Indian companies having

acquired American-European entities was very rare.However, this

scenario has taken a sudden U turn.Nowadays, news ofIndianCompanies

acquiring a foreign businesses are more common than other way round.

Buoyant IndianEconomy, extra cash with Indian corporate, Governmentpolicies and newly found dynamism inIndian businessmen have all

contributed to this new acquisition trend.Indian companies are now

aggressively looking atNorth American and European markets to spread

their wings and become the global players.


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India Inc. Goes Global

Tata Steel acquired UK based Corus for $ 8

billion.

Suzlon Energy Ltd acquired German firmRepower Systems AG for $ 1.7 billion.

United Spirits bought Scotch whisky distiller

Whyte & Mackay for US$ 1.11 billionHindalco acquired Novelis for

$ 6 billion


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India goes global

TATA Chemical acquires US based Soda Ash Maker

General Industrial Products for $ 1 billion

Indian shipping company Great Offshore acquires

UK based Sea Dragon for US$ 1.4 billion

Essar Energy acquires 50% stake in Kenya

Petroleum refineries ltd.

Banswara Syntex to acquire France firm Carreman

Michel Thierry for around US$ 125 million


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Graphical representation ofIndian

outbound deals since 2000.


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Foreign acquisition by Indian firms 2000-

2006


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Conclusion

The companies which did a broad based investigation in thepre-deal period got an assessment of the risks, benefits andoperational impact of the deal. This vital intelligence willstrengthen their hand duringnegotiations and place them in a

good position to deliver shareholder value after dealcompletion

Softer issues too are key to success:

However intensive the planning, however innovative thefinancing, and however watertight the contract, it is thepeople that will be key in implementing the mechanics ofvalue extraction. Softer issues cannot be left to chance.


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Conclusion

During any deal, priorities must be taken The six

areas should be a collective priority; by themselves

they are not enough

Striking the Balance

A balance between the soft and the hard will be

essential to successfully deliver shareholder value.

Documents

KPMG Survey Report