Using Commercial Due Diligence To Negotiate Better

Transcription

1 Using Commercial Due Diligence To Negotiate Better For: Stefan Kracht Fiducia Management Consultants October 18 th, 2013 Fiducia Limited and its affiliates exclude all liability for any damages and losses arising out of or in connection with this presentation. The information is for general guidance and does not replace specialised advice. Copyright 2013, Fiducia Limited. All rights reserved. E&OE

2 Agenda Section Page Fiducia Management Consultants 3 Why Commercial Due Diligence 5 Case Studies 9 Q & A 13 2

3 China Consulting Practice Based on reliable commercial advice and practical support, we work with industry leaders to make the right strategic growth decisions in this fast-changing market. Market Maps Core Services Strategy Development & Realisation M&A Support Supply Chain Analysis What we can do for you 1. Market Mapping and Industry Analysis: Size and segmentation Competitive landscape Best practices and business modelling 2. Growth Strategy Development: Location analysis VOC and demand analysis Strategy design Organisational improvement and implementation support 3. Mergers & Acquisitions: Identification and screening of targets Negotiation support Due diligence 4. Supply Chain Analysis and Restructuring: Supply chain analysis Supplier search and evaluation 3

4 Agenda Section Page Fiducia Management Consultants 3 Why Commercial Due Diligence 5 Deal Process and CDD Purpose Scope Key Success Factors Case Studies 9 Q & A 13 4

5 CDD - Deal Process and Purpose Within the deal process, clients use CDD to investigate a target in terms of its strategic, commercial and organisational capabilities relative to its market. Market Mapping & Target Search Buyer and Seller Meeting Commercial Due Diligence Deal Structuring & Negotiation Financial & Legal Due Diligence Closing Confirms basic interest on both sides and further strengthens the partnership with the target Optimises buyer s tactics and negotiation power Reduces transaction risk and limits liabilities Results in a practical and realistic plan for post-acquisition integration including agreement on complementarity and synergies 5

6 Scope Commercial due diligence focuses on the following internal and external factors in order to ascertain the viability of the target post-acquisition. Factors Aims Internal External 1. Organisation (& ownership) understand organisational setup; profile key stakeholders and decision-makers 6. Financials 1. Organisation 2. Strategy 2. Strategy assess the company s current strategy and ability to drive sustainable growth 3. Sales & Marketing review distribution setup and sales performance 5. Staff Target 4. Operations 3. Sales 7. Relationships 4. Operations assess reliability of supply chain 5. Staff evaluate workforce quality (HNTE) 6. Financials probe gaps between commercial and the official data 7. Relationships - understand relationships with government agencies 6

7 Key Success Factors CDD is not only essential in providing information for successful transactions, but sets the groundwork for the post-acquisition business plan and relationship. 4 Deal Breakers Define when to walk away Get funds committed and invest in alternatives 1 WHO - Role Mapping Ensure discussions encompass all levels of the target Familiarise yourself with the relevant people Assure target understands process Explain reasoning of investigation Highlight dangers of manipulation Assure the benefit of cooperation to confirm postacquisition synergies Critical Success 2 Factors 3 WHAT - Ground Rules WHEN - Working Schedule Convince target of your seriousness and assure cooperation in interviews and data room set-up Define priority topics and deadlines Facilitate your internal approval process 7

8 Agenda Section Page Fiducia Management Consultants 3 Why Commercial Due Diligence 5 Case Studies 9 Q & A 13 8

9 Case Study 1/2 Due Diligence in the Metals Industry Fiducia Limited and its affiliates exclude all liability for any damages and losses arising out of or in connection with this presentation. The information is for general guidance and does not replace specialised advice. Copyright 2012, Fiducia Limited. All rights reserved. E&OE 9

10 Project Introduction Fiducia advised the global leader in explosion cladding on entering China via acquisition. Client Background The client is a global producer of metals Based on Fiducia s market map and acquisition target search, the client decided to acquire the target we recommended The client assigned us to carry out a commercial due diligence of the target Fiducia s Approach Conducted primary research including: Internal interviews with the target s shareholders and management team External interviews with main customers, suppliers, local communities, government agencies and associations Cross-checked inconsistencies between the internal and external interviews and identified potential risks and post-acquisition challenges Assignment Assess the feasibility of acquiring the target Understand the shareholder structure, operational capability, business sustainability and reputation in the market Facilitate negotiations Advise on the post-acquisition strategy Photo source: Fiducia 10

11 Project Results Fiducia recommended the client proceed with the acquisition, highlighting the main risks and proposing a negotiation roadmap. Target Positioning Project Findings Volume (k Tons) Existing setup (facilities, shooting sites, permits and customers) provides a sound basis for the client s China operations Target held critical soft strengths including sufficient in-house technical know-how and strong local government relationships Final negotiations should focus on risks and challenges such as financial inconsistencies, raw material supply and recruitment of new management 8 Al Clad Technical Gap Target Al Clad / SS Clad Product Focus Xi an Tianli Ti / Non-ferrous Metal Clad Results Fiducia s findings enabled the client to pursue the acquisition With a clear understanding of the risks involved, the client was able to optimise its tactics and position during the acquisition negotiations Direct Competitors Fringe Competitors 11

12 Agenda Section Page Fiducia Management Consultants 3 Why Commercial Due Diligence 5 Case Studies 9 Q & A 13 12

13 FAQ Discussion Points What is the difference to FDD? Where in the value chain are most acquisitions? What keeps you awake at night during deal negotiations? Assessing quality of management team? Deal timing? Caterpillar-Siwei USD580m writedown? 13

14 What Is Your Next Move? Fiducia Management Consultants Providing China Insight Since 1982 Hong Kong Tel: (+852) Fax: (+852) Shanghai Tel: (+86) Fax: (+86) Shenzhen Visit our homepage: Tel: (+86) Fax: (+86)