Post-Deal Integration & Synergy Capture

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1 Post-Deal Integration & Synergy Capture As multiples include synergy potential, cracking the code to successful integration & synergy capture becomes even more important Thomas Fossum Partner Head of M&A Integrations and Carve-outs

2 Number of introductions Share of private equity realted introductions LTM to Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Number of deals EV/EBITDA Number of transactions EV/ EBITDA transactions (Sweden, ) 20x 18x EV / EBITDA increasing x 14x Buyers and Sellers meet at high multiples. 12x Average: 10.44x x 8x Analysis of mechanism types month rolling averages 90% 60 6x 80% 40 4x 70% 2x 20 60% 0x YTD % Number of transactions Median EV/EBITDA * Above data represents transactions with publicly disclosed information. Source: MergerMarket, % 30% Locked-box on the rise Fuelled by low interest rates, willingness to take risk, access to capital, and high expectations on IPOs 20% 50 10% Inflation och real interest rate ( ) 5% 5% Inflation and real interest 0% rate low 0 4% 3% 2% 1% 0% (1%) (2%) 1.0% Total Locked Box Completion Accounts Other 0.5% 2.2% 2.4% 2.2% 4.5% 1.9% 0.4% 1.4% 3.4% 3.5% 3.0% 0.5% 2.6% 2.1% 1.7% 1.9% 1.2% 1.4% 1.3% 1.6% 0.0% 0.9% 0.9% 1.3% 0.9% 0.4% 0.6% 0.2% -0.2% -0.3% -0.2% -0.7% -0.9% Real interest rate Inflation Interest rate, 1 year government bond No of IPOs on OMX increases IPOs OMX Stockholm ( ) * The real interest rate has been based on inflation as estimated by SCB and the yearly average of 45a 1 year government bond. 90% ** As of 2011, interest rates for a 1 year government bond have been estimated based on a linnear interpolation of a 6 month treasury bill and Source: Riksbanken and SCB a 2 year government bond % 35 70% % 100% 25 50% 20 40% 15 30% Performed Planned Share PE introductions related (%) 20% 10% 0% * Above data includes transfers between exchanges Source: Nyemissioner.se PwC 2

3 What s new is how often and how much above and beyond stand-alone value the Deal Value is pushed EV/EBITDA ~14X (Transactions, SWE Ytd 15, nov 15) Target s stand-alone value Strategic premium Integration synergies Purchase price PwC 3

4 76% of Buyers say synergies constitute a key deal success factor More than half of the respondents expect synergies between 7 and 12% of the targets revenue What were calculated synergies of target's revenue in per cent? >15% 25% 13-15% 4% 24% 10-12% 33% 76% 7-9% 29% 4-6% 8% Synergies as a success factor Yes No Source: PwC M&A Integration Survey, 2015 PwC 4

5 but, when shifting focus from synergy calculations to synergy realisation, only 46% reach their targets Reasons for failing 54% 46% Synergies achieved Yes No Source: PwC M&A Integration Survey PwC 5

6 WHAT WHEN WHO HOW Synergy potential varies a lot across functional areas, both in amounts, effort and time required Total integration Degree of integration Other corp. functions Finance and treasury After Sales Procurement Marketing IT HR Sales Production R&D Selective collaboration short Effort required long PwC 6

7 WHAT WHEN WHO HOW Deal makers are too optimistic regarding the timing when synergies become effective Postponing difficult discussions during the transaction period, results in significant delays in integration & synergy capture What was your planned timeline to realize the synergies and how long did it actually take? 40% 35% 30% 25% 20% 15% 10% 5% 0% % 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% Achieved time Planned time Source: PwC M&A Integration Survey PwC 7

8 WHAT WHEN WHO HOW Many activities are initiated pre-deal but not approached during the integration Which activities should be of primary focus in an ideal integration and which activities did you actually approach? A significant part of the gaps between planned and did, are found in roles & responsibilities 100% 71% 91% 76% 65% 44% 65% 47% 62% 41% 59% 44% 53% 26% Mgmt commitment/sponsorship Project structure, responsibilities Set Future Org structure and Operating Model No disruption of daily business Selection of the right internal resources Speed in executing Speed in decision making Activities planned Activities actually approached Source: PwC M&A Integration Survey PwC 8

9 WHAT WHEN WHO HOW Degree of integration Selectively integrate Example Integration Fundamentals Take over/absorb Best of both Transform Integration pace Get 100% answers and agreement Faster is better (80/20) The bottom line: Shorter time-to-synergies starts with clarifying the Integration Fundamentals Integration leadership Decision making Source of value Org structure Monitor progress Bottom up, decentralised Cost reduction Keep separate Process manager Regional/BU led Hybrid by BU/geo Revenue Choose one Integration leader Top down, centralised IT/Ops transform Create new Retention Passive, selective Active, targeted PwC 9