practice makes perfect: preparing to get into m&a arena

Winning after the flood: Turning crisis into

opportunities to challenge the world Management workshop

9 January 2012

127340-04-SET Workshop_Presentation deck-SK-8Jan12-BGK-v2.pptx 1

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Agenda

Time Content

13:00 – 13:15

13:15 – 14:15

14:15 – 15:15

15:15 – 15:30

15:30 – 16:30

16:30 – 16:45

Welcome and opening remarks

Rethinking supply chain after the flood

Companies on the rise: Example of SEA companies challenging the

global champions

– Break –

Practice makes perfect: How companies prepare to get into M&A arena

Key takeaways and closing remarks


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Agenda

Time Content

13:00 – 13:15

13:15 – 14:15

14:15 – 15:15

15:15 – 15:30

15:30 – 16:30

16:30 – 16:45




global champions

– Break –




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Operational

risks

Geopolitical

risks

Catastrophe

risks

Market

risks

Strategic

risks

Financial

risks

Supplier

risks

On the supplier side, companies are facing many types of risk

Political Riots in

Bangkok

Thai

Tsunami

Demand

collapse during

global crisis

Quality issues

in Boeing

supply chain

Monopolistic

supplier with

production

breakdown

Default of 2012

Olympics

supplier

increasing manageability of risk

Source: BCG Automotive / Procurement Practice


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Numerous examples of companies being impacted negatively Examples from Japanese tsunami and Thai floods

Stopped supply of color

pigments "Xirallic"

• Factory damaged by

Japanese quake

• Area close to Fukushima

nuclear incident

• 8-12 weeks closure

assumed

Affected factory only supplier

of "Xirallic" globally!

• Immediate effect on color

range availability for Ford,

GM, Toyota

Stopped supply of low / mid

range SLR Camera

• Thai Factory flooded up to

second storey

• Located in Ayutthaya, 70km

from Bangkok

• Factory closed for ~6

months

Directly affected range of

products available to

consumers during peak

Christmas Season

Halted production due to

shortage of parts

• Factory undamaged by

floods

• Located in Samutprakarn,

25km from Bangkok

• 120 of Nissan's suppliers

affected by floods

• Production loss of 60,000

vehicles resulting in two

month delivery delays to

consumers

Direct customer impact from sudden disruption of supply

chain


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BCG approach to address key risk areas Automotive OEM examples

Commodity

risk map

Module

risk map

Prioritized

supplier risk map

Mitigation

strategies

Identify relevant

commodities

(raw materials and

simple parts)

Assess risks for

commodities

• along defined key

risk dimensions

Associate parts

with modules

Derive risks for each

module

• based on identified

commodity risks

Assess risks for

selected suppliers

• along defined key

risk dimensions

Consolidate single

risks to portfolio

assessment

Develop and implement

mitigation strategies

for suppliers

• based on risk

prioritization

Develop and implement

mitigation strategies

for commodities

• based on risk

prioritization

Aggregate existing risk

data into holistic

cockpit and regularly

monitor

Set up early warning

system

• define / monitor

trigger scenarios /

events

1 2 3 4

5


Early warning

system and

monitoring tool


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Different evaluation criteria to assess risks

Geopolitical

risks

Catastrophe

risks

Market

risks

Strategic

risks

Financial

risks

Operational

risks

Note: Qualitative assessment: 1 = low risk; 5 = high risk Source: BCG Automotive / Procurement Practice

Selected KRIs

Rationale for KRIs

Qualitative

assessment

(1-5)

□Geographic

concentration

□LCC sensitivity

□Country risk

ratings

□Geographic

concentration

□Past incidents

of natural

disasters

□Past incidents

of violent acts

□ Industry

concentration

□Price volatility

□Supply/demand

balance

□ Industry

concentration

□# of alternative

suppliers

□Profitability of

industry

□Financial

stability of

industry

□Payment terms

of industry

□Operating

model of

industry

Regional events

can effect all

major suppliers

Regional events

can effect all

major suppliers

High demand for

certain commo-

dities may restrict

availability

Few alternative

suppliers in case

of disruption

Certain industries

face higher

financial risks than

others

Certain operating

models may be

more vulnerable

than others

Risk score

(1-5)

Risk score

(1-5)

Risk score

(1-5)

Risk score

(1-5)

Risk score

(1-5)

Risk score

(1-5)

Total

material

risk score

Σ Σ = 6-14

Σ = 15-22

Σ = 23-30

any single score = 5

1

low risk

medium risk

high risk

high risk


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Perform a risk analysis for all commodities

Raw material Geopolitical

risks

Catastrophe

risks

Market

risks

Strategic

risks

Financial

risks

Operational

risks Σ

Commo-

dity risk

1 Hot rolled steel 2 3 3 2 3 4 17

2 Cold rolled steel 4 1 1 4 4 3 17

3 Stainless steel 3 1 1 2 3 2 12

4 Aluminum 5 3 3 1 5 3 20

5 Wire rod 3 4 4 4 4 4 23

6 Cast iron 2 3 3 4 3 1 16

7 Copper 2 1 1 2 2 3 11

8 PE 4 5 5 1 4 2 21

9 PP 3 2 2 3 4 4 18

10 PVC 4 3 3 4 4 4 22

11 Rare earths 5 3 3 4 2 3 20

12 Lithium 2 2 2 3 4 1 14

13 Composite materials 1 1 1 1 1 1 6

14 Glass 1 1 1 1 4 4 12

15 Other raw materials 2 1 2 1 4 3 13

Note: Risk score: 1 = low risk; 5 = high risk Source: BCG Automotive / Procurement Practice

1

low risk medium risk high risk


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Derive risk of Modules based on input parts

Aggregation of

commodity risk

assessment

Phase

2


Based on

bottom-up risk

evaluation

Tier 1

"Modules"

Tier ...

Tier n-1

"Simple parts"

Tier n

"Raw materials"

04-Doors

Steel

Stamped parts

Value chain levels Example

Risk

assessment

Pa

rts

Phase 2:

Identify commodities going

into modules and aggregate

risk assessment for module

risk map


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Body

structure

Exterior

body parts

Equip.

exteriorDoors

Equip.

upper

parts

Lids ...... Module n

1 Cast parts

2 Forged parts

3 Stamped parts

4 Welded parts

5 Cold forming

1 Cold rolled steel

2 Stainless steel

3 Aluminum

4 Wire rod

... ...

Commodities

Simple

parts

Raw

materials

Overall Module risk1

Link commodities with each module Risk assessment based on material risk of commodities

2

1. Overall module score: Red: one single input part rated high risk ("red"); yellow: majority of parts rated medium risk ("yellow"); green: majority of parts rated low risk ("green") Source: BCG Automotive / Procurement Practice


Body Modules Electronics Modules


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Supplier 1

Engage in detailed supplier analysis to create discrete

supplier risk profiles

3

Geopolitical

risks

Catastrophe

risks

Market

risks

Strategic

risks

Financial

risks

Operational

risks

Sociopolitical

risks

Environ.

disasters

Macro-econ.

devel.

SC structure Profitability Process / org.

risks

Legal risks

Man-made

disasters

Market price

devel.

Industry

concentr.

Funding Personnel risks

Infrastructural

risks

Violent acts General strategy

Liquidity Technological

risks


Total supplier risk score



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Develop appropriate mitigation strategies for suppliers /

commodities / parts and raw materials

Actively manage

Reduction of

• probability of risk

occurrence

• potential damage

Transfer / hedge Transfer of risk to external

third parties

Company carries risks that

cannot be reasonably

reduced

Accept

Avoid exposure/

contingency plan

High risk factor, but not

manageable


Type of measure Description

1

2

3

4

4

• Help supplier reduce risk

• Keep inventory buffers

• Insurance companies

• Multiple sourcing

• Prepare fall-back options (dual

sourcing, stock keeping,...)

• Coverage with liquidity and stock

reserves

• Vertical integration

• Multiple sourcing

• Geographic diversity

• Avoid LCC countries / concentration

Sample mitigation actions


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Source: BCG case experience

Price

Quality

1

2

Attractiveness varies by industry dynamics and

competitive advantages of each client

Intellectual

Property

3

Durability of

Mitigant

4

Keep Inventory Multiple Sourcing Vertical Integration

• Quality can be

maintained utilizing

existing QC systems

• QC complexity:

– No. of suppliers

– Technology gaps

– Parts complexity

• Direct QC

• Limited legal recourse

for defects

• Working capital impact

• Storage / maintenance

• Obsolescence

• Purchasing power

• Logistics costs

• Inspection costs

• Investment cost /

goodwill

• No change • Potential IP issues /

import restrictions

• IP transferability

• Short-term solution

• Catastrophic risk

exposure unmitigated

• Depends on

geographic diversity

• Logistics issues

potentially unmitigated

• Still exposed to

catastrophic risk

Attractiveness of alternative mitigation strategies must be

assessed carefully


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Delta Electronics' regional supplier network and consignment

program performed well during the flood

Through combination of mitigation strategies

implemented since 2008,...

1 Formation of strong supplier

network in Asia Pacific for

key component parts e.g.

semiconductors

• Multiple suppliers of the

same part in different

countries 2 Consignment inventory

program with foreign

suppliers

• Enable prompt delivery

upon order

...Delta Electronics was able to respond

quickly to unexpected supply shortage

Geographical allocation of part sourcing (%)

100

80

60

40

20

0

Thai

Suppliers

Supplier

Network

Flood Time

50

50

Normal Time

80

20

Unaffected from shut down of 7 factories

supplying electronic components in Ayudhya and

Pathum Thani provinces

• Maintained 2011 revenue growth forecast of

15-20%, unaffected by flood

• Poised to expand in India and Africa in 2012

Source: Company's annual report; press search

China

Taiwan

Philippines

Vietnam

Malaysia

Singapore


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Cisco's proactive approach on supply chain risk management Risk management organization formally embedded in supply chain operations since 2007

World's leading provider of Internet

protocol-based networking equipment

and services

• Business model entirely outsourced

• Wide range of products, from high-end

routers to mid-range switches

• Constant acquisitions add to complexity

of supply chain management

Exposure to supply chain risk both its

electronic manufacturing services

providers and material suppliers

• Natural disasters

• Global recessions

• Political unrest and terrorism

Risk-agnostic master playbook

• Comprehensive approach for assessment,

mitigation, and resolution of a general supply

chain disruption

• Key checklists, templates, protocols, and

potential mitigation strategies

Incident-specific playbooks

• Risk mitigation guidance to several specific

incidence

• Extensive contact list and identification of

incident response team

"Systemic risk" playbooks

• Focus on recurring risk events e.g. tropical

cyclones and identification of risky areas

• Guidance on established risk mitigation

strategies e.g. build-ahead, ship ahead

strategies

1

2

3

Cisco's playbooks on supply chain risk management

Source: Digi-key Corporation, company website


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Cisco fared well after Japan earthquake with minimal revenue

disruption

Immediate actions taken promptly to address

supply chain disruptions,...

"Within 15 hours of the quake, we had a good

understanding as to which suppliers were impacted. There

were about 160. "

"Sony Ericson revealed first quarter sales were downed by

19% YoY to 1.1 billion due to its supply chain being disrupted by

the Japan earthquake"(Telecomtv.com, April 19th, 2011)

"German carmaker Volkswagen warned of a possible

medium-term components shortage,"

(CNBC, March 19th, 2011)

(Interview excerpt by James Steele, Cisco's value chain

risk manager)

... as compared to peers


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For each identified Scenario

Early warning system uses key trigger events to identify risks Monitoring of key scenario factors necessary

• Identification of potential

scenarios

• Mapping of potential events

Monitor and mitigate KSF

• Monitor and mitigate Key

Scenarios Factors that start

the sequence

Identify scenarios and map events

• Identify key scenario factors

that lead to key events

Identify key scenario factors (KSF)

Key

Scenarios

Factors

Determine sequence of events leading to

scenario

• Determine sequence of

linked events that lead to

specific scenario

Monitor/

mitigate

5


Management change at key Tier 1 supplier

Key Tier 1 supplier starts cost

reduction initiative

Key Tier 1 supplier running out of

stock

• First low severity event

• Management change at

key supplier representing

significant spend volume

• Second low severity event

• Volcanic eruption in South

America

Several days production

downtime at key Tier 1 supplier

Need to find short-term alternative or

production downtime at OEM

Potential Trigger Scenario

Volcanic eruption in

South America

Key Tier 1 supplier reduces number of

Tier 2 suppliers

Key Tier 1 supplier reduces stock

keeping of major commodities

Remaining Tier 2 suppliers

concentrated in South America and

Australia / NZ

Remaining Tier 2 suppliers unable to

deliver major commodity to

key Tier 1 supplier


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Other OEMs already have early-warning systems in place Daimler example: Preventive Supplier Risk Management System

Automated

analysis

System output Supplier Input

- capacity

- inventory

- ...

- capacity

- inventory

- ...

- capacity

- inventory

- ...

- Capacity

- Inventory

- ...

Risk warning

Risk Team

Objectives

Early-warning through continuous monitoring

• Monitor supplier development

• Identify financial difficulties

• Secure supply base through early

identification of risks

Cross divisional monitoring to secure supply

chain of entire business

Generation of standardized and objective view

of tangible supplier data, focusing on

• Security of supply

• Development of working capital

• Continuation of productivity-enhancing

projects

Implementation

Comprehensive online supply chain

monitoring tool covering tier 1 – n suppliers

• OEM input:

– General supplier data

– Supply chain dependencies

• Supplier input: Regular reporting of key

performance indicators such as

– Production capacity

– Inventory size, etc.

• External input: Integration of available supplier

credit ratings

Output / reports accessible to Supplier Risk

Board as basis for risk mitigation measures

5



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red

module

yellow

module

green

module

Parts

risk map

Module

risk map

Prioritized supplier

risk map

Mitigation

strategies

Early warning

system and

monitoring tool

Define responsibilities within organization and externally

5

1 2 3 4

5

OEM Strategic

Purchasing

OEM Operative

Purchasing

Tier 1 Supplier

Sales

Tier 1 Supplier

Procurement

Tier 2 Supplier

Sales

Tier 2 Supplier

Procurement

External experts1

Owner Co-Owner Involved

1. Experts may include functional expertise such as finance, logistics, SQM, or commodity-specific expertise, e.g. for certain raw materials, parts,... Source: BCG Automotive / Procurement Practice


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Top 20 specific levers for adding flexibility Applicability of each lever will vary by company, product, customer, etc.

16. Diversify country exposure

17. Hedge or insure against risk

18. Establish strategic stocks

19. Backward integrate for critical inputs

20. Secure preferred status with key suppliers

1. Leverage internal "front lines" information

2. Implement track-and-trace technology

3. Collaborate more closely with suppliers

4. Monitor supply system in real time

5. Create, reevaluate contingency plans

6. Streamline supplier qualification

7. Distribute / localize production

8. Leverage faster transportation

9. Install rearward deployment

10. Standardize, set bounds for customization

11. Build disposable plants (with low capex)

12. Mobilize footprint (plants, storefronts, etc.)

13. Develop backup suppliers

14. Create ability to be flexible with inputs

15. Postpone customization

Hedges 4

Intelligence 1

Speed 2

Options 3


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It's time for a change in the corporate mindset

Static solution

Optimizes only for current conditions

Evaluates only the most likely risks

Focused strictly on

lowest cost solutions

Dynamic solution

Balances high performance in both

current and future conditions

Takes a broader view, managing for a

wide range of potential scenarios

Sets targets on maximizing

long-term profit

vs.

Makes all-or-nothing bets and hopes

to get it right the first time

Diversifies its bets and anticipates the

need to change continually


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Agenda

Time Content

13:00 – 13:15

13:15 – 14:15

14:15 – 15:15

15:15 – 15:30

15:30 – 16:30

16:30 – 16:45




global champions

– Break –




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Post flood challenges are severe

10% of GDP impacted (THB 248 Bn), growth to

slow from 3.8% to 1.5%1 Supply chain needs rebuild & rethink

Agriculture, manufacturing, retailing, utilities

and tourism most severely affected

• Total loss in revenues of THB 500 Bn

• More than 9 Mn rai of rice fields damaged

• Immediate global shortage of electronic parts;

28% decline in 4Q2011 HDD shipments

• Toyota announced earning cut of USD1.55 Bn

Disrupted logistics operations disabled

delivery of finished goods to customers

• Distribution centers of key retailers suspended

• Food shortage and 10-15% price inflation of

fresh food and other consumption goods

15000

Nominal GDP growth (2010–2015 CAGR)

10 9 8 7 0

10,000

5,000

0

Vietnam

Thailand (Before flood)

50,000 Singapore

Philippines

2011 GDP per Capita (US$ at PPP)

Malaysia

Indonesia

Developed

Maturing

Developing

1. Forecasted by National Economic and Social Development Board Source: Economist Intelligence Unit; NESDB; BBC news; Press search; BCG Analysis

Thailand ( After flood)

2010 nominal GDP

(Bubble area shown = US$ Billion)


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Recovery will require sustained, concerted government

support

Wave 1 – Short-term

"Rebuild public confidence"

Wave 2 – Medium term

“Strengthen affected

sector/stakeholders”

Wave 3 – Long-term

“Restructure economic &

social foundation”

Disaster management scheme

reform

• Upgrade disaster management

scheme to global best practice

• Contingency plan and response

management

Communication outreach

• Tailor communication program

to needs of each audience, i.e.

households, SMEs, MNCs, etc.

Potential initiatives for each

stakeholders

• Households: Village of the

future

• SMEs: SME productivity

enhancement

• MNC: Economic cluster

refinement

• Logistics ecosystems:

Hybrid infrastructure

Sustainable development

plan

• Resource management

– Efficiency

– Alternative resources

• Income distribution

• Flexible labor workforce

– Mobility/ immigration

– Capability/knowledge

• Innovation capacity

development

• Adaptive public sector

• Informed citizens

Recovery will take years of sustained effort

Source: BCG analysis


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Single market and

production base

Competitive

economic region

Equitable economic

development

Integration with the

Global economy

Coherent approach

towards external

economic relations Initiative for ASEAN

integration

SME Development

Consumer protection

Recovery must unfold in context of ASEAN economic integration Key initiatives under AEC 2015

Free flow goods

Free flow services

Free flow investment

Free flow capital

Free flow skilled labor

Priority integration

sectors

Food, agriculture,

and forestry

Competition policy

Intellectual property

rights (IPR)

1 2 3 4

Enhanced participation

in global supply

networks

1.1

1.2

1.3

1.4

1.5

1.6

1.7

2.1

2.2

2.3

3.1

3.2

4.1

4.2

Infrastructure

development 2.4

AEC

Source: ASEAN Economic Community Scorecard 2009; SCB Economic Intelligence Center


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AEC presents opportunities and threats to Thai companies

Opportunity

Single market of 10 countries

• Integrated demand of 580 Mn

consumers

• Economies of scale

• Leverage on higher growth

regional markets

Production concentration &

diversification

• Aggressive regional M&A activities

optimize capital investment

• Diversifying footprint to improve

supply chain resilience

• Specialization & division of labor

Competitive advantages against

non- ASEAN competitors within

the region

• Enhanced competitiveness

through zero tariffs and trade

facilitations

Threat

Mobility of skilled professionals to

higher income economies

• Challenging for Thai companies to

attract and retain key employees

Thailand less attractive investment

destination

• Unprepared management and

severe flood impacts

• Political instabilities

• Inferior FDI confidence index

(rankings)1

Regional champions making

inroads into Thai market

• Thai companies slow to react may

become 'prey'

1. 2012 A.T. Kearney FDI Confidence Index Source: ASEAN Economic Community Blueprint, BCG Analysis

S'pore

1.47

Malaysia

(9)

1.41 1.45

Indonesia

(10) (14) (7) 0.5

1.37 1.38

0.0

1.0

Thailand Vietnam

1.5

(16)

AEC

2015


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Some Southeast Asian companies already building strong

regional and global leadership

1. Measured by cost/ASK 2009 (ASK=Available Seat Kilometer) 2. By Ultimate Luxury Travel Related Awards (ULTRAs), Business Traveller Middle East Awards 2011, TravelWeekly China Travel & Meeting Industry Awards 2011 and 2011 Business Traveller Asia Pacific Awards 3. Telecom Asia Award 2010 4. From the 2nd Global Department Store Summit 2010 Source: Press search, Industry rankings, Company websites

Top 5 of the world's

department stores4

#1 low cost airline

worldwide1

#1 flour miller

worldwide

Best global

airport2

#1 listed palm oil trader

world wide and #1 Asian

agro-business

#1 PET producer

worldwide

#1 multi-market

operator in Asia3

Global leader in

agricultural and food

business

#1 widest retail

branch network

across SEA region


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BCG analyzed 50 SEA Companies for growth strategy Selection of SEA Challengers based on strict parameters

SEA Challengers must

meet 4 basic criteria...

• Majority-owner in SEA, HQ

and major operations in

SEA

• Revenue of >USD 500Mn

• Revenue growth >5%

CAGR (2005-2010)

• Profitability >0% (EBITDA)

...and at least 1 "Market

Position" criteria

• Top 5 player in their

respective markets

regionally

• Growth significantly above

the relevant peer group

...and at least 2

internationalization

criteria

• Share of revenue from non-

domestic operations >10%

• Momentum: exhibit strong

internationalization activities

in the past 3 years

• Strong ambition and

position to internationalize

SEA CHALLENGERS Higher Growth than global peers from developed markets

Profitability higher than global peers

TSR Performance above developed and developing market indices


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FPT Vinamilk

Vietnam - 2

ABC Group

Adaro Energy

Aneka Kimia Raya

ASTRA Otoparts

Bayan Resources

Djarum

Garuda Food

Golden Agri-Resources

Indofood

Kalbe Farma

Mayora

WINGS Corporation

Indonesia - 12

Air Asia

Axiata

CIMB

Genting

Hong Leong Asia

IJM

IOI

Parkway Holdings

MayBank

MMC

Sime Darby

YTL

Malaysia - 12

Jollibee

San Miguel

Philippines - 2

Capitaland

Changi Airport

Fraser and Neave

Hyflux

Keppel

Olam

Petra Foods

PSA

Sembcorp

ST Engineering

Wilmar

Singapore – 11

Thailand - 11

Banpu

Central Group

Charoen Pokphand

Indorama

Minor

Mitrphol

Pruksa

PTT

Siam Cement Group

Sri Trang

Thai Union Frozen

Consumer Goods

Resources

Industrial Goods

Transportation & Logistics

Real Estate & Construction

Technology, Media & Telecom

Healthcare

Financial Institutions

SEA Challengers

by industry

14

2 2

8

2

14

4

4

• Agro-commodities (8)

• Oil, Gas & Chemicals (3)

• Minerals (3)

• Food & beverage (11)

• Utilities (4)

• Engineered products (3)

Southeast Asian Challengers represent a diverse set of

geographies and industries; Thailand has 11 SEA challengers

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http://upload.wikimedia.org/wikipedia/commons/4/48/Flag_of_Singapore.svg

http://upload.wikimedia.org/wikipedia/commons/a/a9/Flag_of_Thailand.svg


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2007 2006 2005 2004 2003 2002

Total shareholder return (TSR) index

(Base=100)

700

600

500

400

300

200

100

0

2011 2010 2009 2008

MSCI SEA

MSCI EM

S&P 500

SEA Challengers

Global Peers

Global

Challengers

SEA challengers outperform peers in growth & profitability and

create significant shareholder value

Note: The index base of 100 was set using data for January 1, 2000, and the data were analysed through September 30, 2011. All indices were weighted by the market capitalisation of their constituent stocks. The index is based on data from 41 SEA Challengers that are publicly listed and from 194 global peers.

1 Global peers are multinational companies that are headquartered in developed economies and operate in the same industries as the SEA Challengers. 2 Includes 29 SEA Challengers that have been listed since 2006 Source: Thomson Reuters Datastream; BCG analysis

%

20

15

10

5

0

S&P 500 Global

Challengers

7

18

Global

Peers1

SEA

Challengers

9

18

Annual sales growth

(2001 – 2010)

15% 14% 13% 9%

Average

EBITDA

Margin


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Growth of SEA Challengers fuelled by four key drivers

Rise of the

consumer class

96M people in ASEAN countries to enter ranks of middle class by 2015

• Majority in Indonesia, Philippines and Thailand

Driving and expected increase of 12% CAGR in consumer expenditure

Global demand

for resources

Strong demand for resources from emerging markets, China in

particular

• Oil & Gas, mineral resources, agro-commodities

SEA gaining disproportionally due to rich endowment of resources

LLC production

& outsourcing

Global Trend to relocation of production to LCC expected to continue

• SEA a top destination, esp. as wages in China are increasing

Five out of the top-10 preferred countries for outsourcing in SEA

Growth

conducive gov't

policies

Governments are actively shaping economies

• Increase in government spending across the board; growth conducive

policies laid out in economic development plans

ASEAN 2015 aiming at regional integration to one single market

• Trade barriers being removed

1

2

3

4

Strong and

robust

growth


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Global leader by challenging traditional industry wisdom

Go

West

• IVL focused on the 7.4 Mn MT N. Am. and

EU market growing at 4% CAGR

• Chose to compete in a mature market over

the highly contested growth markets

Acquire

• IVL gained scale and global presence by

acquiring such assets across US, EU and

Asia

• Also, IVL acquired these at a cost much

lower than their replacement costs

Commo

-dity

• IVL continued to be a high volume, low

margin player and focused on gaining scale

• IVL ensured a low cost structure by

optimizing R&D and marketing costs

Focus

on PET

• IVL decided to be a focused PET player

with ~99% revenues coming from PET

value chain

• Focus on PET has ensured availability of

financial resources and talent for PET

Source: IVL investor presentations, annual reports, BCG analysis

Industry strategy IVL strategy

Go East

• Most players were focusing on 4.9 Mn MT

Asian market growing at 12% CAGR

• Planned significant capacity addition to

capture growth in China

Divest

• Earlier PET was a high margin business,

however margins started declining in late 90

• Several players like Eastman and Dow

started divesting their unprofitable PET

assets

Value

Add

• In order to improve margins, players

developed the specialty chemical product

line

• Significant investments made in R&D and

marketing

Multiple

products

• Most players in PET business have a large

product portfolio organized across divisions

• Only 25-30% revenues come from the

polyester value chain


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Serial acquisitions have helped IVL to build scale and

diversify markets

1995-97

Indorama

Polymers,

Thailand

Petform,

Thailand

Siam

Polyester,

Thailand

2003-06

Starpet

acquisition,

US

Orion Global,

Lithuania

Eleme

acquisition,

Nigeria

2008

Indorama

Petrochem,

Thailand

TPT Petrochem

acquisition,

Thailand

Tuntex

acquisition,

Thailand

Eastman

acquisition,

Europe

2009

Alphapet, US

2010

Dow

acquisition,

Italy1

2011

China

Polymers

Trevira

acquisition,

Germany2

SK acquisition,

Indonesia/

Poland

Invista

acquisition,

US/Mexico

2012

Fiber Vision,

USA

PET/Polymers Fiber PTA PET/Fiber and PTA PET and Fiber Packaging

Wellman

acquisition,

Europe

1. 50:50 JV between IVL and PCH Holding SRL 2. 75:25 between IVL and Sinterama Source: IVL annual report and company website



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400% capacity expansion resulted by

aggressive M&A activities

Revenue stream strengthened through

market diversification

M&

G

Equip

oly

mers

San F

ang

Xia

ng

Far

Easte

rn

Invis

ta

Eastm

an

IVL

Nan Y

a

Note: 2010 capacities include Ottana for IVL Source: IVL annual reports and Form 56-1; PCI; SBA CCI; BCG Analysis

Annual PET production capacity ( in 000' tpa)

2,000

1,500

1,000

500

0

450 385

1,025

755

1,505

800 798 800

511

920 858

970

1,268

1,655

404

1,658 2006

2010

Revenue by geography ( in THB Bn)

100

80

60

40

20

0

+44%

Europe

N.A.

Asia

Thailand

ROW

2010

96.9

32%

21%

26%

14%

7%

2009

80.0

38%

16%

23%

15%

8%

2008

53.3

48%

24%

10% 11%

7%

2007

32.3

39%

32%

7% 15%

7%

IVL topped the world's No. 1 PET producer by 2010


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Today, IVL is the only PET player having a

manufacturing presence across US, EU and Asia

PET

PTA

Polyester Fiber

Asheboro, USA

(Acquired from Eastman)

Capacity (K tpa)

PET: 225

Decatur, USA

(Greenfield investment)

Capacity (K tpa)

PET: 432

Workington, UK

(Acquired from Eastman)

Capacity (K tpa)

PET: 155

Klaipeda, Lithuania

(Greenfield investment)

Capacity (K tpa)

PET: 198

Rotterdam, Netherlands

(Acquired from

Eastman)

Capacity (K tpa)

PTA: 350, PET: 200

Ottana, Italy2

(Acquired from

Equipolymers)

Capacity (K tpa)

PTA: 190 PET: 150

Nakhon Pathom, Thailand

(Acquired from Tuntex)

Capacity (K tpa)

Polyester: 100

Lopburi, Thailand

(Greenfield)

Capacity (K tpa)

PET: 180, Packaging1

Map Ta Phut, Thailand

(Acquired from TPT)

Capacity (K tpa):

PTA: 540, PET: 108, Poly: 144

Rayong, Thailand

(Greenfield)

Capacity (K tpa)

PTA: 700

Note: Installed capacity as of June 2010

1. Preforms: 600 MM units, Bottles: 180 MM units, Closures: 1,200 MM units 2. 50/50 JV

IVL Global production footprint – 13 manufacturing plants in 5 countries

across US, EU and Asia

Greenfield

Acquisition

Largely built through acquisition of high cost players


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Competitive position strengthened through vertical

integration

Feed mill Breeding Farming Processing Adding

Value Branding

Feed mill

plants situated

in every region

of Thailand and

over 600

appointed

distributors to

help market and

distribute feed to

small farmers

• Produces parent stocks of chicken broiler, chicken

layer, and swine as well as broiler chick, layer

chick, layer, duck and piglet. Moreover, CP has

aquatic business covering shrimp and fish

• 1st company outside EU to achieve the Animal

Welfare Standard in chicken production for export

(most stringent of industry standards)

• Processed meat will be packed

and distributed to the retailer

throughout the world

• Company-owned distribution

channels: Five Star Chicken

Kiosk and CP Fresh Mart in

Thailand. Moreover, overseas

offices have been set up to

provide better customer

service

Feed

business Farm business Food business

Sources: Annual report, Press search, BCG Analysis


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Hong Kong Australia Indonesia India Singapore Vietnam Laos Malaysia

Philippines Pakistan Bangladesh New Zealand Taiwan Japan Samoa China South Korea

Ireland Italy UK Sweden Spain Russia Germany

France Portugal Belgium Netherlands Turkey Denmark Greece

Finland

Asia-Pacific Europe

United Arab Emirates Lebanon Bahrain Saudi Arabia Kuwait Qatar

Middle East

Presence in 118 countries worldwide 26 subsidiaries for agro-business and 46 subsidiary for export

United States of America Canada South Africa

America Africa

Global Diversification

Sales representatives Export Destination Overseas Operation

Source: Annual report


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Competing for leading position in Asia and global market

Diversified revenue stream...

...with continued plan for

international expansion

1. Quote from CEO to media, Feb 2010 on CP Foods website press release section Source: Company AR, website, Factiva company report

26%

66%

2009

165

2008

66%

15%

19%

156

68%

16%

16%

2007

135

18%

16%

2006

125

70%

18%

12%

+11%

0

2010

189

150

200

14%

Sales revenue by operations (in THB Bn)

100

60% 50

Thailand - Domestic sales Thailand - Export Overseas

" CPF received 2011 ASEAN Business Awards (ABA)

under Growth category... the only large enterprise receiving

such top award"

(CPF Media Center, Nov 23rd, 2011)

http://smeinternational.org/wp-content/uploads/2011/08/asean-business-awards.jpg


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Key success factors of SEA challengers

Optimize operations and organization

• Manage volatility

• Achieve world class productivity levels

Don't hesitate to reach outside continent but carefully manage M&A

• Be bold but diligent in target selection

• Consolidate acquisitions

Make talent management a priority

• Internationalize recruitment

• Attract best resources

Close the brand gap

• Ensure brand value overseas thanks to organic and inorganic investments

Operations

International Expansion

People

Brand

1

2

3

4

http://images.google.co.ma/imgres?imgurl=http://www.julbo-blog.com/uploads/Divers/logo_etiquette.jpg&imgrefurl=http://www.julbo-blog.com/blog/index.php?Divers&usg=__KayAIn1H75IbfMZCPBjdxkk7InE=&h=300&w=434&sz=17&hl=fr&start=58&sig2=s8fq6Nd2x9BOg1DOOf8aJQ&tbnid=eXu_RSYI8EcRcM:&tbnh=87&tbnw=126&prev=/images?q=%C3%A9tiquette+logo&gbv=2&ndsp=21&hl=fr&sa=N&start=42&ei=dX4FS9mqJJGd-AaCs4TWDQ


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Agenda

Time Content

13:00 – 13:15

13:15 – 14:15

14:15 – 15:15

15:15 – 15:30

15:30 – 16:30

16:30 – 16:45




global champions

– Break –




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Practice makes perfect: Preparing to get into M&A arena

What is the context today?

What lessons have we learnt?

What are the challenges faced in M&A?

What does it take to prepare for M&A?


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We are living in "interesting times"...

42


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...on the one hand...

Uncertain Global outlook

Deflation?

European fiscal & monetary crisis, likely protracted

Volatile outlook and valuations

China slowing...?


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...on the other, SE-Asia and Thailand may be set to benefit...

Strong undying growth driven by fundamentals, and a

rising middle class

Continued liberatlisation across the region, foreign

ownership restrictions being reduced

Robust corporate balance sheets.. ..and strong

banking balance sheets

Asia has high equity valuations, relatively speaking,...


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M&A deals in the region are increasing; particularly cross-

border

1. Including M&A deals of 37 SEA Challengers and their subsidiaries, which disclosed deal size according to Thomson Reuters 2. Acquisition of targets outside of the respective Challenger's home country Source: Thomson Reuters, BCG analysis

29 29 51 262 114 83 163 44 106 176 Avg deal value

(US$ Mn)1

Post-crisis Pre-crisis SARs

1.2 1.0 3.0 15.1 7.2 12.4 3.7 5.0 13.0 Total deal value

(US$ Bn)1 3.1

Segment CAGR %

(2001 – 2010)

53

Domestic +1%

112

2010

Cross Border 2 +22%

100

0

+9%

150

# of deals

50

66%

40%

99

60% 56%

2006

44%

2007

109

50%

2009

124

50% 40%

2008

91

34%

60%

21%

79%

2001

49%

56%

51% 44%

57

75

2002 2004

40% 60%

60% 40%

50

67

2003 2005


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% M&A deal value

100%

5%

0%

PE2

SWF1

Strategic3

SE Asia

2.24%

8.66%

89.10%

India

2.24%

8.66%

89.10%

China

3.41%

0.68%

95.91%

Europe

5.39%

3.61%

91.00%

USA

5.15%

0.33%

94.52%

100.0%

# M&A Deals

0.6%

0.4%

0.2%

0.0%

PE2

SWF1

Strategic3

SE Asia

0.26%

0.21%

99.53%

India

0.14%

0.14%

99.73%

China

0.18%

0.09%

99.73%

Europe

0.49%

0.21%

99.31%

USA

0.02% 0.02%

99.96%

However, deals in SE-Asia are small compared to EU & USA...

Note: Analysis captures 2 years of transaction data starting from Jan 2009 – Dec 2010 for all disclosed transactions from ThomsonOne 1 SWF is defined as a government controlled investment fund that is funded from foreign reserves or commodities and participates in foreign investment activity with a long-term investment horizon according to ThomsonOne 2 PE defined as financial sponsors that engage in private equity or venture capital transactions using capital raised by investors according to ThomsonOne, which differs from Asian Venture Capital Journal's definition 3 Strategic investors refers to private companies that engage in M&A activities for strategic reasons according to ThomsonOne Source: ThomsonOne M&A Database, BCG Analysis

Total M&A

deal value

'09 –'10 (USD

BN)

1,072 203 89 1,491 41 Total #

M&A Deals 5,357 2,190 1,920 4,571 732

Breakdown of M&A value in USD BN

(2009 - 2010)

Breakdown of number of M&A

transactions (2009 – 2010)


http://upload.wikimedia.org/wikipedia/commons/4/41/Flag_of_India.svg

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...and Singaporean and Malaysian Challengers are currently

the most active with 80% of the aggregate deal value

Note: Analysis based on 37 SEA Challengers and their subsidiaries. Only counting outbound M&A deals with disclosed deal size grouped by acquirer's ultimate parent HQ country according to Thomson Reuters Source: Thomson Reuters, BCG analysis

Deals by investment size

(2006 – 2010)

Major investing countries

(2006 – 2010)

Thailand

Singapore

51% Philippines

6%

Malaysia 27%

Indonesia

5% 11%

Greater than 500 Mn

7%

100 Mn - 500 Mn

Less than 1 Mn 13%

22%

23%

1Mn - 10 Mn

12%

10 Mn - 50 Mn

50 Mn - 100 Mn 22%

100% = 355 deals 100% = US$ 51.5 Bn


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The majority of deals focus are today have focused on

resources, industrial goods and FMCG

Resource, IG & FMCG companies have much

higher cross-border M&A than other industries Emerging as a pan RDE phenomenon

(key examples of recent acquisitions in resource sector)

1. 2010 data includes deals till Sep 3, 2010 Source: Thomson, press search

5033

50

86

54

8899

154

0

50

100

150

200

Resources &

Commodities

Services Consumer

Durables

FMCG

# M&A deals

Industrial

goods

0 2

2006 to 20101 2001 to 2005

CNOOC (China)

• 50% of Bridas Corp. (leading oil & gas player in Argentina) for $3bn in 2010

• 60% of Australia's Straits Resources for coal & salt assets in Indonesia and Australia in 2010

• $2.5bn for a 40% stake in the Australia-based Santos

Gladstone LNG project in 2008

• 100% exploration rights for offshore gas reserves in New Zealand in 2010

• 49% of ISAB oil refinery in Italy for $2.1bn in 2008




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A few Thai companies are engaging in M&A Increasing M&A activity by Banpu, Indorama, SCG and TUF

Source: Thomson M&A, Company website; press search; BCG analysis

2006 2007 2008 2009 2010 2011

2006

Acquired 100% of PPIC

(China power business)

2008

Acquired an additional

78% of AACI

2010

Acquired 100% of

Centennial (Australian

coal business)

2011

Acquired 12.39% of

Hunnu Coal (Mongolian

coal assets)

2007

Stake in TPT

Petrochemicals

(Thailand)

2010

Acquired

Air Products NL

Stake in

TPT Petrochemicals

2011

Acquired

- SK Eurochem,

- PT SK Keris,

- Invista Inc

- Guangdong Shinda

2008

Stake in

- GTC Technology

- Bangkok Synthetics

2008

Stake in

Thai German Ceramic

2007

Acquisition of

Sime Rengo Packaging

2006

Stake in

- Bangkok Synthetics

- Thai CRT

2011

Stake in

- Chandra Asri

Acquired

- Alcamax packaging

2006

Stake in

Juifa Intl Foods

2007

Stake in

High Health (Thailand)

2009

Stake in

Avanti Feeds Ltd.

2010

Acquired

MWBrands SAS





http://upload.wikimedia.org/wikipedia/commons/2/20/Flag_of_the_Netherlands.svg

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http://upload.wikimedia.org/wikipedia/commons/9/9f/Flag_of_Indonesia.svg






http://upload.wikimedia.org/wikipedia/commons/1/12/Flag_of_Poland.svg




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Fact 1: Growth challengers outperform mainly on M&A

Source: BCG Analysis

Percent; Large company sample „average‟ growth decomposition;

Annual growth contribution, CAGR 1999–2004

M&A

Total

growth

trajectory

Portfolio

momentum

Share gain

Challengers Overall sample

9.9 5.6

6.7 2.9

1.7 0.1

And this holds true

across sectors


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Fact 2:Buy anti-cyclical: BCG research shows that downturn

acquisitions outperform

90

95

100

105

110

98.5

99.3

t-3 t+3 Year 1 Year 2

104.3

97.7

107.3

94.8

19

percentage

points

Announcement

window

Cumulative relative-total-

shareholder-return performance

(t-3 = 100)

Downturn mergers create value

Upturn mergers destroy value

Note: Analysis based on median returns per sample; T – 3 is three days before the announcement date, while T + 3 is three days after the announcement date. The number of deals with two-year data available is 1,030 for upturn acquisitions, 560 for downturn acquisitions. Source: Datastream; Thomson Reuters Worldscope; BCG analysis

12% out-

performance


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Fact 3:Serial acquirers outperform

Less than half of M&A dealers

create value for acquirer …

… but highly acquisitive companies

outperform organic growers

Mean

TSR2 (%)

Overall

41.7%

58.3%

% of deals

80

60

40

20

100

0

Value

creating1

Value

destroying1

Asia/Pacific

49.2%

50.8%

North America

37.9%

62.1%

Europe

46.8%

53.2%

15

10

0

Highly

acquisitive

Mixed

strategy

Organic

growth

5

25

20

9.6 9.9

10.8

2nd Quintile

3rd Quintile

4th Quintile

1. Measured by cumulative abnormal returns to acquirers (from 3 days before to 3 days after deal announcement) 2. Total shareholde return Source: SDC; Datastream, Computstat; BCG analysis


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M&A done in size and with sufficient ambition, can change

the game...


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...Jolibee increased profits almost 8x by changing their

approach to M&A

13

28

2000

20

1998

32

1996

30

1995

23

1994

19

1993

Operating

profit ,

USD b

100

75

50

25

+8%

2010

90

2009

78

2008

70

2007

67

2006

55

2005

38

2004

35

2003

+18%

0

4 9 8 12 9 13 17 19 Revenue contribution from international business (%)

1. <10 outlets in China 2. Number of outlets as of 2010 - Yonghe King 200; Hong Zhuang Yuan 52; San Pin Wang 34; exited Chun Shui Tang Tea in 2009 3. Number of outlets as of 2010 - Red Ribbon 221; Manang Pepe's 12; Caffe' Ti Amo 3; Mang Inasal 345; exited Delifrance in 2010 Source: Annual reports; company website; analyst reports; press search; BCG value Science; BCG analysis

4 10

9881 2,350

Listed on

Manila

stock

exchange

Entered

Guam,

Kuwait,

Saudi

Arabia and

UAE

Entered

Bahrain, HK,

Malaysia,

Vietnam;

Acquired

Greenwich

Pizza

Franchisee

of Delifrance

in the

Philippines

Acquired

Chowking

(Philippines)

Acquired

Yonhe King

(China)

Acquired

Red Ribbon

(Phillpines)

- Acquired Mang

Inasal

(Phillpines),

San Pin Wang

(China)

- Franchisee of

Caffe' Ti Amo

(Philippines)

Franchisee

of Chun

Shui

Tang Tea

House in

Shanghai

Acquired

Hong

Zhuang

Yuan

(China)

Introduced

Manong

Pepe‟s,

new

restaurant

concept Entered

China and

USA

Jollibee's

debut in

New York

1993 1994

1995 1996

1998 2000

2003

2004 2005

2006 2007

2008 2009

2010

Opened 36

new

Jollibee

branches

• Expanded organically into various markets

• Acquired 2 brands in domestic market

• 3 acquisitions and 1 franchise in China

added 286 outlets2

• 2 acquisitions and 2 new brands in the

Philippines added 581 outlets3

• Have China country office, a team of ~50

staff – mostly local with a few expatriates

Era 1: Broad but thin geographical expansion

(1993 – 2003)

Era 2: Big China push and home market

expansion (2004 – current)

#brands

# outlets

China

#brands

# outlets

http://en.wikipilipinas.org/index.php?title=Image:Chowking.jpg


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Example: TEVA Pharmaceuticals has acquisitive growth as

part of their business model...

Dominate domestic market (Israel)

Enter new markets (US, Europe) and acquire capabilities (APIs, injectables etc)

Consolidate and dominate worldwide generics industry

1985 1988 1990's 2000 2004 2005

Acquires IkaPharma

(Israeli drug company)

and Plantex (API

manufacturer)

Acquires Abic

(2nd largest Israeli

Pharma Company)

Acquires Novopharm

(Canada) and

Honeywell Pharma

Chemical

(API in Italy)

Acquires IVAX to

emerge as the largest

generic company in the

US and the World

Enters US with 50%

stake in WR Grace

Acquires 100% stake in WR

Grace (US), GRY

Pharm/Biogal (Europe) and

launches Copaxone Acquires Sicor

1980

Revenue by market (%)

• 64% North America

• 26% Europe

• 10% RoW (mainly Israel)

Market

• North America

• Germany

• UK

• France and Italy

Market position (sales)

• 1

• Very small (not in Top 10)

• 1

• In Top 10

Source: Company website; Datamonitor

2009

Acquires Barr

(US)

2010

Acquires

ratiopharm (DE)


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... beating the index 6-fold in 10 years!

Teva Pharmceuticals vs. worldwide pharmaceutical stocks

0

100

200

300

400

500

600

2009 2002 2007 2001 2005 2004 2006 2000 2003 2008 2010

Price index

01.01.2000 = 100

MSCI World Pharmaceutical

TEVA Pharmaceutical

Source: Datastream; BCG analysis


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2.0%

1.0%

0.0%

-1.0%

-2.0%

-3.0%

Berkshire

Hathaway

Average CAR

Average CAR1

3.0%

"Serial acquirers" clearly outperform "occasional buyers" In general higher CAR for companies with M&A as core business activity

1. Based on announcement dates of relevant deals (public transaction value > $100M) between 1990 and 2010 Source: Datastream; Thomson ONE Banker; BCG analysis

Average for all

acquirers

-1.3% CAR

Average for

serial acquirers

-0.3% CAR

http://www.ge.com/index.html


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However, many internal M&A teams struggle to perform

"No centralized tools; mainly

depend on individual's

experience. Tools and processes

rises upon live deals of some

BUs"


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Spending lots of time but not getting the deals done is a

particular problem

Number of companies examined

200

150

100

50

0 2

-96%

-30%

-62%

Completed

deals

Ongoing

discussion

9

Bid too low

8

Owners not

interested

in selling

13

Business not

strong, concept

not viable, size

not optimal

14

Phase 3

Shortlist

46

Unlikely to get

majority stake

6

Business not

strong, concept

not viable

14

Phase 2

Shortlist

66

Concept not

viable/ too

small/ unlikely

to get majority%

107

Phase 1

Longlist

173

Quick scan Detailed review Discussed and negotiated 1 2 3


Failure rate

Success rate

62%

38%

30%

70%

96%

4%

~99%

~1%

Overall

Phase

3Close

Phase

23

Phase

12

Completed 4


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The

right goal

The better

approach

What are "serial acquirers" doing better?

The better

engine

Successful acquirers have competitive advantages in three areas:

• Clear responsibilities in hybrid function

• Align size and skills to M&A strategy

• Standardize M&A process

• Strive for efficiency and effectiveness

• Clear performance measurement

• Keep the markets informed

• Beware of timing

• Buy what you know...

1

2

3


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Serial acquirers use different organizational

models for a "dedicated" M&A function

Centralized • Corporate M&A

• No divisional M&A

Decentralized • No corporate M&A

Only advisory/sign-off • Divisional M&A

Centralized • Corporate M&A

• No divisional

M&A

Decentralized • No corporate

M&A; only

advisory/sign-off

• Divisional M&A

Hybrid • Corporate M&A

• Divisional M&A

Hybrid • Corporate M&A • Divisional M&A

Exe

cu

tio

n

Sourcing

Hybrid BD

structure Hybrid M&A

structure

Centralized

M&A

structure

Central exclusively leads

execution activities, sourcing can

be also led outside of the center

Both centralized and decen-

tralized teams can source and/or

execute deals, depending on

thresholds, deal types

Decentralized

M&A structure

Decentralized teams exclusively

lead sourcing & execution

activities, corporate signs-off on

deals

Source: BCG interviews, BCG analysis

1

http://www.cemex.com/index.asp

http://www.ge.com/index.html


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The following responsibility setup has proven to be

successful in mid-size to large deals


1

Management Board

Du

e D

ilige

nce

Te

am

s

Target

Propose

transaction

Report findings &

recommendations

Approval

Challenge

Corporate level

BU level

HR Technical

Environmental ...

Commercial Financial

modelling

Valuation

team Legal/SPA

Deal sponsor

+ Team

• Purely internal

Composition of

team Main responsibilities/activities

• Approve the deal

• Ensure value accretiveness

• BU Head/

Sponsoring board

• Head of Corporate

M&A

• Sponsor:

Suggest/sponsor the deal

Perform rigoros due diligence

Be measure against deal synergies / future

business plan

• Corporate M&A:

Speed up the process

Ensure standardization across BUs

Contact person for target and seller

• Mixed teams

(internal/external) as

standard in some

areas (e.g. legal,

financial, commercial,

pensions ...)

• Perform the analysis

• Challenge seller's plans

• Employ external experts to increase speed and depth

of analysis


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Hybrid function: Serial acquirers are shifting responsibilities

during M&A process

Responsibilities during different

M&A phases

67%

Central

M&A Team

Business unit

CEO/Board

Other1

Final decision

& Signing

Negotiations

78% 44%

Due Diligence

& Valuation

78%

Target search

1. External or other functions Source: BCG survey; BCG analysis

Business units

• Market screening and target

search based on "being close

to market"

Best practice M&A organization

A

Central M&A Team

• Execution tasks: Due diligence,

valuation, synergies etc.

CEO/Management Board

• Final negotiations and signing

B

C

1


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Size (# FTE) Role

Strategic

Business

Development

(Central M&A)

3–5 per region Management of acquisition process for

large and medium-sized deals

• Responsible for pre-due diligence and contacting the target

companies

• Management of Cemex due diligence teams

Constant monitoring of 5–10 acquisition leads

Planning

(Regional)

Corporate

Planning

(Central)

~ 20 worldwide

~ 5 per region

(plus 1–5 per country)

Periodic deep dive on each geography

• Assessment of Cemex strategic position

• Definition of the target position

• Gap analysis and identification of potential acquisition targets

Regular presentations in the worldwide Executive Committee

Support to central strategic planning team

Competitive intelligence and screening of regional M&A opportunities

Example: Cemex uses hybrid function with distinct

capacity for each level

Source: BCG interviews

1


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Coordination of capabilities is critical for successful deals

1. Lines of Business Source: BCG interviews, BCG analysis

Sourcing Execution Integration Role

Strategic

Thinker

Deal Sponsor

Financial

Analyst

Relationship

Builder

(internal

& external)

• Clear understanding of

industry landscape

• Capable of developing new

business opportunities

• Strategic due diligence

• Drive for shareholder value

• Validating/pressure testing

hypotheses

• Decision on implementation

trade-offs and impact on

expected synergies

• Building and maintaining good

working relationships with

potential targets

• Syndicates ideas internally

• Facilitating valuation and

negotiation with targets

• Ensuring buy-in and support

from LOBs1

• Integration responsibility

• Delivery on synergy promises

• Build operating model

• Assess synergies

• Develop valuation

• Well connected to investment

bankers/broader investor

community

• Suggest deals to strategic

thinker

• Leading without getting caught

by “deal fever”

– how to seal a deal

– when to walk away

On corporate level

1


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1st contact

Example: implementation of standardized process

according to target size

1. Asset vs. company acquisition; producing vs. exploratory; minority interest vs. majority interest, single geography vs. multigeography Source: BCG interviews

Identification of

target

Pre-due

diligence

Preliminary

valuation Due diligence Negotiation

Non-binding offer Firm offer Signing

Resources

Leader Corporate planning Strategic business development

(and corporate planning)

Regional and central

planning teams

Ad hoc support of planning

and operations

Dedicated due

diligence team

• Planning

• Operations

• Legal

• …

Ad hoc support of

planning and

operations

Large

deals

Smaller

deals Resources

Leader Regional management/planning

Regional and central

planning teams

Ad hoc support from

operations

Dedicated due

diligence team

• Planning

• Operations

• Legal

• …

Ad hoc support from

operations

Define standard M&A approach

according to specific deal situation

2


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Reporting &

controlling system

Strategy audit

& definition

Industry research

& expert interviews

Use (also external) help were necessary

– successful M&A is based on well-coordinated team

Deal

identification

Preliminary

screening

Preliminary

due diligence

Full due

diligence

Signing/

Closing

Players Typical activities for external support

Management

consultants

Investment

banks

Accountants

Legal advisors

Developing inputs for

MR's screening

model

Research activities

Database

generation

Industry landscaping

Customer &

Competitor analysis

Initial investor

targeting and

interviews

Detailed review of:

• HR

• Production

• Customer & market

• Suppliers

Financial due

diligence and review

of funding sources

Review of accounting

statements and

forecasts

Business case

development and

synergy assessment

Legal assessment

and insurance

100 day plan and PMI

preparation

Provision of financing

and security issuance

Takeover/

M&A advisory

Establish relationship with external experts and create well-

coordinated, mixed team Source: BCG analysis

Legal execution and

formal closing

Data room

management

Investor road shows

2


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Manage your process tightly – strive for efficient and effective

integration

1. E.g. full consolidation, portfolio purchase, acquisitions with spin-offs, new business additions Source: BCG interviews, BCG analysis

Develop integration strategy and

process early Business plan derived synergies

Efficiency and ... ... effectiveness

• Assess cultural differences and

barriers to integration success

• Select the integration manager Pre-acquisition

• Introduce new executives to

processes/guidelines

• Formulate integration plan, 100 day

plan and communication plan

• Select resources and assign

accountability early

Signing-to-

closing

• Switch to new org model as early as

possible

• Roll-out of integration process

depending acquisition type1

• Conduct regular integration audits

Rapid

integration

2


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Follow hurdle rates & close monitoring upon

deal completion

Hurdle rates for new acquisitions

Hurdle rate may be indicative or

absolute minimum requirements

1. Other aspects included in board papers: investment thesis, strategic logic, risks, contingencies and competitive responses Source: BCG analysis

Typical measures and required levels:

• ROIC exceeds 10%: After 12months

• Earnings accretive: 1yr after acquisition

• Internal rate of return: Min. 15% – 20%

• Integration time: Max. 18 months

• Payback period: Max. 5-6 years

• Present value/net purchase price: Min. 120%

• Terminal value/present value: Max. 60%

Monitoring of post-merger success

Metrics to be tracked and reported in

addition to PMI milestone

planning/tracking • Internal: revenue, unit sales, efficiency

• External: market share, market positioning

Regular reporting on progress • Reviewed by management board; may be

forwarded to supervisory board

• Investment committee may ask to review

reports with sponsors in person

• Quarterly meeting schedule

Standardized assessment of risk-return

trade-off

Principle

Client

Exampl

e

2


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Provide quantification before and after acquisition

1

2

Commitment to clear-cut investment

criteria

• Strategic AND financial critera

provide decision support and

tracking criteria

Monitor realized synergies

• Valuation of realized and expected

synergies

• Explanation of transaction rationale

2


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Don't forget to keep the capital market informed

– ideally a series of "over-delivery"

1

Source: Bayer AG German Corporate Governance Conference June 2007, Investor Conference Call Nov. 2006, Investor Handout June 2006

2

Business impact (November

2006)

• Influence on main financials:

Sales, EBITDA and EBIT,

etc.

3

Transaction highlights (June

2006)

• Purchase price

• Expected synergies etc.

• Valuation etc.

Synergy potential (June 2007)

• Tracking of Schering

integration success

• Realized Synergies

2


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Routine is key: Buy only what you know...

Average RTSR[2yr]1 %

Near-core Non-core Core industry

1. RTSR[2yr] = Relative Total Shareholder Return 2 years after the announcement date. 2. Non-core industry: No match in SIC code; Near-core industry: Match of first 2 digits in SIC code; Core industry: Exact match of SIC codes Source: Thomson Financial M&A database; BCG analysis

Acquirer's long-term value creation

dependent on industry proximity

Therefore: Be sure to know what you're

buying!

Industry proximity2

0

-7.5%

-1.7%

2.0%

-8

-10

-6

-4

-2

2

"What doesn't work is when you start doing things that you don't understand or because they worked last week for somebody else"

"Risk comes from not knowing what you're doing."

Warren Buffet

"Investment Legend"

3


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Summary: what to learn from serial acquirers

Can you tick all of these?

Put the responsibility where the capability is

Ensure coordination between BUs/Corporate M&A and Board

"Cobbler, stick to your lasts"

Buy what you know

Standardization and routine is key

Define clear process and criteria, establish well-attuned teams

You can beat the market

M&A creates value, if integration is managed efficiently and effective


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Agenda

Time Content

13:00 – 13:15

13:15 – 14:15

14:15 – 15:15

15:15 – 15:30

15:30 – 16:30

16:30 – 16:45




global champions

– Break –



practice makes perfect: preparing to get into m&a arena

Documents