Due Diligence in Corporate Finance Transactions This course is presented in London on: 8 March 2017, 10 October 2017

Transcription

1 Due Diligence in Corporate Finance Transactions This course is presented in London on: 8 March 2017, 10 October 2017 The Banking and Corporate Finance Training Specialist

2 Course Overview There are many definitions for Due Diligence in the context of corporate finance transactions. Out of all of them, the following one captures the essence of our course: A future-oriented super audit to help minimize the risks and maximize the shareholder value creation in an M&A transaction (Business Due Diligence Strategies - Jeffrey Weiner) All the words of Course the definition Overview are important. It definitely needs to be future-oriented, because nobody would buy a business for what it did in the past. Super audit refers to the ample scope and depth required in the exercise. And, finally, let s not forget the objectives of the exercise: minimize the risks - which could ultimately mean you should not do the deal at all - and maximize shareholder value - for instance through adapting the transaction structure, lowering price or seeking contractual protection against findings of the Due Diligence process. Note that the definition was focused on an M&A transaction, while in our course the scope will be broader, including capital markets trades. The course will provide an overview of the typical fields subject to Due Diligence - both in M&A and capital markets situations. It will also look at the different phases of the processes, and will explain how Due Diligence plays a role in each one of them. The course will describe the role that each party plays in the Due Diligence process and of the consequences of lack of accurateness or negligence for companies, managers, advisors and regulators. Given that, for many reasons, the Due Diligence process is often not as complete as the buyer would want, we will also look at the more comprehensive protection that can be obtained through representations and warranties. The course will also look at the rest of the Share Purchase Agreement and other contractual matters around M&A transactions. The course will follow a practical, not theoretical approach. Real life cases will be discussed in order to apprehend the main learning lessons they provide. Learning Objective: This course is designed to provide a general overview of how to approach a due diligence process for advisory professionals and executives of corporations. It will highlight the main areas of focus, the key documents and the most frequent issues to be addressed. In addition, the course will pay special attention to how to translate the findings into price, transaction conditions or contractual protection through reps and warranties. The course will also introduce case studies that will be helpful to relate all the theory to practical examples in actual M&A and capital markets transactions. Learning Pre-requisites: There is no previous knowledge required to be able to follow the course successfully. The provided reading material will help to get up to speed with the main areas of discussion.

3 Course Content An Introduction to Due Diligence What is Due Diligence? How important is Due Diligence? There are processes with and without Due Diligence Who Performs Due Diligence? When do we perform Due Diligence? A continuous process The seller s perspective The output M&A Case Study Astra Bank The C.P. Alstra Bank will highlight how the Due Diligence process will generate significant information and inputs that should be incorporated to the final terms of the transaction through price adjustments, earn outs and/or contractual provisions. Key Due Diligence Areas Strategic Fit in strategy Barriers of entry acquisition vs. organic growth or greenfield SWOT How has the industry changed over the last 5 years? How will it changed in the next 5? Tech disruption threats Commercial Market: size and growth Competitive landscape Products Geographical breakdown Brand Distribution Market share analysis JVs and partnerships. Break up clauses Customers and Suppliers analysis Number of customers Sales for top customers Length of customer relationships Buying dynamics and key factors affecting commercial success Number of suppliers Bargaining power of suppliers Ability to pass price increases through to the customers Synergy potential analysis and estimate of restructuring charges Financial Macro trends Quality of earnings Current capital intensity and capital intensity of future growth Capital structure Credit Ratings Debt calendar Working capital Pending capex Fixed costs and operating leverage Legal Corporate filings Litigation Patents Environmental Activities in complex geographies

4 Sanctions Key contracts. Guaranteed contracts. Break-up penalties Risk Management IT Sufficiency and suitability of platforms and software Network infrastructure Cyber security Back-up and recovery Scalability Capex plan Compatibility, migration and costs associated Property, plant and equipment Tax Tax structure Tax liabilities Foreign earnings and cash abroad Deferred tax assets HR Compensation: amount and structure Top management contracts Labour law and unions Intellectual property Regulators Regulatory constraints affecting the business Correspondence with regulators Regulatory approvals for the transaction Ability to distribute dividends Anti-trust analysis Other aspects of the Transaction M&A Case Study Glencore s acquisition of Xstrata Glencore made its offer to acquire the shares of Xstrata that it did not own from a privileged situation. The level of information available was uneven. The process triggered an exceptional corporate governance mechanism to protect minority shareholders, and also significant investor scepticism. M&A Case Study Acquisition of TSB by Banco Sabadell The C.P. TSB will highlight how Banco Sabadell detected relevant IT issues in its due diligence for TSB, and ended up negotiating with the controlling shareholder of TSB a transitional mechanism to upgrade and migrate the IT system of TSB in a satisfactory manner. The Case is particularly interesting because despite having a controlling shareholder (Lloyds Banking Group), TSB was listed, and hence there was a third stakeholder in the discussion, which were the minorities of TSB. The Due Diligence Process in the context of a M&A Transaction Transactions with No Due Diligence Pre-transaction Due Diligence The Due Diligence in the different phases of a M&A Transaction Information Memorandum prior to non binding offers Data Room & virtual Data Room Vendor Due Diligence Reports Site visits Management Due Diligence, Q&As and Break-Out sessions Contractual Warranties Irrevocables Role of external advisors

5 Incentives of the management team of the asset being sold From signing to closing Confirmatory Due Diligence Diligencing the minutes of the board Incorporating conclusions of the Due Diligence to the Final Terms of the Transaction Clawbacks and earn outs Specific aspects of due diligence for private equity firms M&A Due Diligence Horror Stories Examples of transactions where due diligence process fails AOL-Time Warner What did it fail? M&A Case Study Acquisition of HBOS by Lloyds TSB The price offered for HBOS was based on a number of assumptions that proved inaccurate. The case study will introduce several due diligence aspects that are worth discussing. Contract Negotiations, SPA, Reps & Warranties Due Diligence exercise vs. Acquisition Agreement SPA Examples of reps & warranties Who is giving the reps & warranties Misrepresentations Claims Extent of liabilities Limitation period Franchise Remedies Escrow Due Diligence and Management Retention schemes Break-up fees Regulatory approvals MAC Introducing warranties in a public tender offer structure? Contingent Value Rights ( CVR ) Capital Markets Case Study IPO of NetMedia plc The C.P. IPO of NetMedia plc will describe the complexity of financial DD in capital markets transactions, the price discovery mechanism, the process of setting the price range / deciding final pricing, and the risk of a drop in share price once the company is listed. The Due Diligence Process in the context of a Capital Markets Transaction Objectives. The Underwriter as the link between investors and issuers Transaction Due Diligence Prospectus / IOC Forward looking statements Access to US investors Reg S / 144A / Fully registered offers. QIBs and Big Boys letters Legal Due Diligence Corporate Governance Publicity guidelines 10b-5 Analyst presentations and research MD&A Force Majeure Role of auditors. Proformas. Comfort letter. Tick and tie. OFAC

6 Sanctions Bring-down Due Diligence Inclusion of retail investors Regular information requirements Regulatory swings Capital Markets Due Diligence Horror Stories Examples of transactions where due diligence process fails IPO Bankia What did it fail? Capital Markets Case Study IPO of Betanzos Bank The C.P. IPO of Betanzos Bank will develop the different phases of Due Diligence during a capital markets transaction, the responsibility of the company and its advisors, the reputational risks and the role of regulators. Latest Trends in Transaction Due Diligence Vendor Due Diligence Paying for buyers Due Diligence Second phase consortiums and pooling Due Diligence inputs Marking up SPA ahead of binding offers Escrows Hostile activity Key areas of Soft Due Diligence Strategy Culture Quality of information Technical differences and interpretation Integration and synergies Big/recent fiascos in M&A Due Diligence Increased number of withdrawn transactions Due diligence of disruptive and tech related business models Wrap-up and Key Conclusions What Redcliffe s clients are saying about the course and our trainer? Easy enough to understand for someone who has limited experience. Trainer kept us engaged and kept it interactive. Experienced trainer, referenced real life situations. Good overall coverage of process in broad scope. Sell side process discussion was very helpful. Very comprehensive, engaging and interesting case studies.

7 09:30-17:00 London 675 +VAT ( 810) Discounts available for multiple participants: 3-4 participants: 15% discount per participant 5-6 participants: 20% discount per participant 7-8 participants: 25% discount per participant 9 or more participants: 30% discount per participant Delivering this course in-house for you to a number of participants could be very cost effective. enquiries@redcliffetraining.co.uk +44 (0)