m&a integration webinar - deloitte

M&A Integration WebinarSucceeding with acquisitions and integrations during a global pandemic

December 2, 2020

M&A Integration Webinar 2

COVID-19 effects on M&A market and impact on the M&A lifecycle

Debbie Wrench


M&A trends in 2019 and 2020 to date

Source: Trend Summary: Nordics 3Q20/Europe 3Q20 by Mergermarket

Source: Global & Regional M&A Report 1Q-3Q20 by Mergermarket

Nordics

2019

-

2020

• 2019: Fourth successive year with over 1,000 deals

• 2020: Q1 and Q2 lowest deal value on record since 2009

− Q1 20 dropping to ~€3bn versus Q1 19 ~€10bn in deal value

− Q2 20 dropping to ~€6bn versus Q2 19 ~€27bn in deal value

• 2020: Strong Q3 with a 138% jump in deal value from Q2

• 2020 Q4: Lots of activity in Q4, but impacted by second wave?

• The outbreak of COVID-19 and subsequent lockdowns have affected dealmaking

− Several subdued months of M&A activity

− Uncertainty regarding the economic fallout of the pandemic

• Overall Nordic M&A deal value down ~60% Q1-Q3 2020 compared to the same period 2019

• However, dealmakers in the Nordics have started to see a recovery from COVID-19 in terms of M&A activity

Nordic

summary

0

50

100

150

200

250

300

350

400

0

5

10

15

20

25

30

35

Q12018

Q22018

Q32018

Q42018

Q12019

Q22019

Q32019

Q42019

Q12020

Q22020

Q32020

Nu

mb

er o

f d

eals

Val

ue

(EU

Rb

n)

Nordic M&A activity 2018-2020

Deal count Value (EUR)

European

context

• In addition, European dealmakers have also started to see a recovery in M&A activity during Q3 2020

− A handful of large deals were announced after a quiet Q2 2020

− An increase of 45% in deal value compared to Q2 2020

• However, a rise in COVID-19 cases and Brexit uncertainty will be a cause for concern regarding continuing recovery in Q4 2020 and the beginning of 2021


The post COVID-19 world may unleash structural and systematic changes

Recovery could rewrite the rules of M&A

• Transform the business to safeguard market shares

✓ Rebalance the portfolio

✓ Capture additional revenue in adjacencies

• Change the game

✓ Capture new opportunities through partnerships and alliances

✓ Acquire high-growth businesses and curate portfolio of investments on the “edge” of the core business

Offensive M&A

• Salvage value

✓ Identify ways to raise capital

✓ Improve operational efficiency or increase business flexibility

• Safeguard markets to maintain competitive parity

✓ Pursue synergies from recent acquisitions and develop partnerships for non-core capabilities

✓ Pursue deals to safeguard core markets

Defensive M&A

Source: M&A and COVID-19 – Charting New Horizons by Deloitte

• Earlier in the year, Deloitte published a viewpoint on emerging responses in relation to the pandemic

• Building financial resilience is key, with additional pressure on recently completed M&As to accelerate synergies and free up capital

• A combination of defensive and offensive M&A strategies are starting to arise as companies strive to safeguard existing markets,accelerate recovery, and position themselves to capture market leadership


Based on an external survey done in the early stages of COVID-19, effects of the pandemic were starting to emerge in relation to the deal process

Estimated COVID effects on key stages of the transaction lifecycle

Source: The Impact Of The Coronavirus Crisis On Mergers and Acquisitions by Forbes

M&A strategy Target screeningExecution & deal

structuringDue diligence Integration

Announcement Close & executionPre-announcement

Deal timelines starting to be extended due to

• Internal justifications for deals in a crisis need to be more compelling

• M&A agreement terms taking longer to negotiate

• Buyers having have concerns about their ability to properly value an asset

• More difficult to secure financing

Extended timelines

Additional due diligence being undertaken to assess the effects of the virus regarding

• How the market been impacted and assessment of fundamental changes in customer behaviour

• How has the seller’s workforce been impacted by the virus

• Is the seller overly dependent on suppliers in certain geographic regions

New due diligence issues

Building relationships virtually creates new challenges such as

• What strategies should the buyer implement to get to know the seller’s management and key employees?

• What can the buyer do to get comfortable without a physical visit/inspection?

• How do we manage to not decrease productivity when we lose personal connections?

Virtual relationships


For a more recent view, we surveyed our own team to get a flavor of their experiences within this time period. A majority can confirm an increased overall M&A pace and higher optimism amongst PE houses and corporate leaders

Recent COVID experiences and insights on the M&A lifecycle

Source: Deloitte Financial Advisory - Sweden

“Early on after first wave PE houses

switched to a more inward focus

approach on core businesses with

divestments becoming more common.

Now, PE houses have accumulated dry

powder and thereby seem more eager to

invest ”

“Buyers have an increased focus on assessing the market

for their acquisitions to understand the likely longer term impact of changes in

consumer behavior.”

“Cross-border deals more complex due to travel

restrictions – see a shifted focus to more domestic

deals rather than investing abroad.”

“We have seen a definite increase in M&A activity in Q3 and Q4 depicting a newfound

optimism among corporate leaders.“

“Virtual ways of working promoting faster decision-

making resulting in an overall increased pace forintegration programmes.”

“We see a larger share of offensiverather than defensive M&A elements

where corporate leaders are attempting to accelerate recovery

and gain market share in the wake of the pandemic.”


Case study from Compass Group

Paul Baker, Integration Director


• Compass – who are we?

• Initial Acquisition Process & Importance

• COVID Impact

• Changed Approach

• Lessons

Agenda


COMPASS GROUP

45Number of countries

we operate in

55,000Number of client

locations we work in

600,000Number of colleagues

5.5 billionNumber of meals served per year

c. 90%Of our revenues come

from food services

WHERE WE WORK

Business &Industry Healthcare & Seniors Education Sports & Leisure Defence, Offshore&Remote


WHY DID WE AGREE TO ACQUIRE FAZER FOOD SERVICES?

STRATEGY QUALITIES

BETTERTOGETHER


c.25Number ofBrands

c.1,700Client locations

c.13,000Colleagues

c.750,000Meals servedper

year

c. €1bnrevenues

OUR NORDICBRANDS

Our combined Nordic business


Workshop inOslowithcirca40 people frommultiplefunctionsfromboth businesses:

• HR, legal,IT,procurement,branding,marketing,communication,finance,changemanagement,sales& retentionandoperations

INTEGRATION PLANNING WORKSHOP


Separation Integration Transformation

Transition to BaUSeparation• Separate Target from Parent

Company• Transitional Services for 18 months –

timeline to exit prevents any pause despite impact of COVID

Integration• Integrate with current Compass Group

Nordics Business• Drive Synergies and growth strategy

Phases of Integration


What do we want to achieve in the first 100 days?

➢ Identify and deliver key tactical activities to support initial integration

➢ Exit short term TSAs and plan the exit approach for all other TSAs

➢ Develop plans/projects to deliver cost and revenue synergies at a workstream level

➢ Develop effective and efficient functional business models for the first 3years (end state will take longer)

One Team One Vision One Business

Objectives and scope of 100 day planning


Did that really happen?

• 1st Feb 2020 – Deal Completed

• 3rd & 10th Feb Communication Roadshow

• 25th/26th Feb – First Integration Session

• 12th - 16th March – Lockdown rules issued cross the Nordic countries


• Resources: Furloughed

• Travel: Prohibited

• Business Model: Severe Impact

• Cash: Liquidity and Cash become #1

Impact


What did we change?

• Early announcement of single leadership teams to give certainty and stability

• Prioritisation of Separation as could not be delayed

• Initiate Country planning process• Focus on current systems/processes

• Leverage synergies

• Limit resource impact to enable business focus oncash

COVID-19Nordic integration process


• Flexibility

• Communication & People

• Value Focus

• Speed

COVID challenged our approach – the outcome was more short term and synergy focus. Did we end in a better place?

Lessons


Case study from Sinch

Roshan Saldanha, CFO


SEK 6.6bnrevenue in the

past 12 months

Consumer penetration

SEK 65bnMarket Cap

1,484people

41 countries with

local presence

107 billionengagements per year

Publicly listed on

NASDAQin Stockholm

SEK 786mAdj. EBITDA in the

past 12 months

Customer engagement through mobile technology

Growing, global, multi-billion USD market

Scalable cloud communications platform for messaging, voice and video

Serving 8 of the 10 largestU.S. tech companies

100%

>650% growth in gross profit since IPO in 2015

Profitable since our foundation in 2008$


Scale and

profitability

Technology &

Go To Market

Founded as CLX

Networks

2017 2018 2020

2008

2016

One brand

2019

Voice, video,

verification

Personalized

video

USA,

Western Europe

Germany,

Central Europe

Australia,

South East AsiaNordics

Rich messaging,

Low code tools

Brazil

IPO

Conversational AI

SMS

Latin AmericaAmericas,

Europe, APAC

SAP Digital

Interconnect

* Acquisition of Wavy pending regulatory approval

India,

Southeast Asia

Innovation

Next-generation

messaging

Strategic acquisitions


3,500

3,000

2,500

2,000

1,500

1,000

500

0

SE

Km

illi

on

ACL

W avy

Synergies

ACL

SDI

Wavy

The acquisition of Wavy is pending regulatory approval. “ACL” includes the last 11months of ACL earnings before the unit

was consolidated on 1September. captured in reported figures. TWW and Chatlayer. Synergies refer to expected synergies

for Wavy and SAP Digital Interconnect, estimated mid-point, at full run rate. Exchange rates as of 2 November 2020.

• Focus on Gross profit since pass-through revenues vary between geographies

• 40% growth in Gross profit and 53% growth in EBITDA in Q3 20

• Acquisitions of Wavy, SDI and ACL Mobile adding significantly to our scale and profitability

2016 2017

Gross profit

2018

Adj EBITDA

2019 L12M

Acquisit ions

Track record of profitable growth

SDI


Countries with transferring SDI business

Countries with deferred transfer of SDI

business

Copyright © 2019 Sinch. All rights reserved. NDA Confidential.

• Legal entities transferred from SAP in 3

countries

• SDI business transferred through carve-

out to Sinch entities in an additional 18

countries, with employees transferred in

14 of these countries

• Deferred transfer of some assets

• Data migrated to 12 different ERP

systems and to a new CRM system

• Transfer of 300 employees with benefit

equalization

• IT Applications, licences anddata

transfer and cutover

• Commercial platform transferred and

continuously used for transferred

customers

The SDI carve-out in short

SDI has been a complex integration with business transferring to Sinch entities in 21 countries


SAP Group

SAP SDI

Group/shared services

SAP Group

SAP

Group/sharedservices

Sinch

SDI Sinch

Build min.requirements

SDI fully integrated to Sinch

according to business

requirements

Sinch

Starting point


Day 1 End state

Overview of the SDI journey


Team integration

• Importance of including and

integrating in planning already

before Day 1

• Understanding the different ways of

working and building on the

strengths

Preparations

• Through thorough preparations we

managed to successfully transfer the

full SDI business and migrate to all

systems overnight – with no TSAs

Stakeholder management

• Cross-functional collaboration

• Collecting input and ensuring

validation from the correct

stakeholders

• Securing employee engagement and

commitment

Way forward

Multiple ongoing initiatives will

enable a further integration of the

SDI business and the realization of

synergies, incl.

• CRM project

• Customer & vendor integration

• Future organization incl

commercial integration

• BSS and ERP migration

• Product portfolio optimization

Successful collaboration

• Good collaboration between Sinch,

SDI, SAP and external support

• Building on timely communication

and everyone assuming

responsibility

• Understanding the importance of

strong project management


Key takeaways and way forward


Golden tips for managing successful M&A integrations in a post COVID world

Leadership• Provide clarity to Integration teams and the

business• Explain what has changed

2

1 Operating model and organisation design• Be flexible• Interim steps or a different focus may be required to

respond to the situation3

4Realisation of value• Speed up delivery of results• Recalibrate value drivers if necessary

Managing people and change• Leverage local leadership teams to support • Clear and regular communication during times of

uncertainty


Thank you!

Debbie Wrench Partner, Deloitte SwedenM&A Integrations and Separations Advisory

Mobile: +46 700 80 29 80E-mail: [email protected]: Stockholm, Sweden

mailto:[email protected]

Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited (“DTTL”), its global network of member firms, and their related entities (collectively, the “Deloitte organization”). DTTL (also referred to as “Deloitte Global”) and each of its member firms and related entities are legally separate and independent entities, which cannot obligate or bind each other in respect of third parties. DTTL and each DTTL member firm and related entity is liable only for its own acts and omissions, and not those of each other. DTTL does not provide services to clients. Please see www.deloitte.com/about to learn more.

Deloitte is a leading global provider of audit and assurance, consulting, financial advisory, risk advisory, tax and related services. Our global network of member firms and related entities in more than 150 countries and territories (collectively, the “Deloitte organization”) serves four out of five Fortune Global 500® companies. Learn how Deloitte’s approximately 330,000 people make an impact that matters at www.deloitte.com.

Our advice is prepared solely for the use of the client. You may not disclose it or its contents to any other person without our prior written consent. No other person may rely on the advice and we accept no responsibility to any other person.

© 2020 For more information, contact Deloitte AB.

http://www.deloitte.com/about

http://www.deloitte.com/

m&a integration webinar - deloitte

Documents