Strategic Value Consulting: Organic and Inorganic Growth

Transcription

1 Valuation & Strategy Strategic Value Consulting: Organic and Inorganic Growth Technische Universität München Lehrstuhl für Controlling - Prof. Dr. Gunther Friedl Eckhard Späth, Senior Relationship Partner of Munich Transactions Valuation & Strategy

2 Agenda Page 1 Who we are 1 2 Inorganic Growth 6 3 Organic Growth 21 4 Conclusions & Contacts 29

3 Section 1 Who we are 1

4 Have you heard of Strategy&? Dieses Dokument ist vertraulich und nur zur Nutzung und Information für den Adressaten bestimmt.

5 Section 1 Who we are Together we create a new kind of Management Consulting to provide clients unique results Size, outstanding quality, deep relationshsips and industry knowledge Our aspiration: A company that provides consulting, from strategy to implementation. Global strategy model with foresight and market knowledge 3

6 Section 1 Who we are s latest acquisition: strategy& (formerly booz&co) FAZ 04/04/2014 By acquisition of the management consulting firm Booz & Company.. s consulting services rise to a new form of quality. [ ] The market leader McKinsey is increasingly being threatened by, s consultancy approach. Together, we have a once in a lifetime opportunity to reshape the market for consulting services for the next 100 years. ( Management) If a client requires ad hoc 200 Strategy- Experts we re able to deliver instantly, says Winkeljohann. 4

7 Strategy& Section 1 Who we are Deal Services From strategy through execution! Pre deal Deal Post deal Identifying Deals Evaluating Deals Executing Deals Making Deals successful Harvesting Deals Market and industry analysis Target identification Strategy identification and advice Value driver identification Pre-deal target evaluation and value indication Pre-deal purchase price allocation Deal due diligence Financial due diligence Completion accounts SPA support Operational due diligence Synergy review Integration measures Internal and external communication Accounting Integration support Purchase price allocation Strategy implementation Carve-outs Strategic and operational assistance *formerly booz&co combined with strategy consulting 5

8 Section 2 Inorganic Growth 6

9 Section 2 Inorganic Growth Comeback on the M&A-Market? Heinz/Kraft Shell/BG Group MSCI World Index SAP/Fieldglass Infineon/Rectifier Facebook/WhatsApp VW/Porsche Schaeffler/Continental Eon/Thüga Telefonica O2/ Hansenet Linde/Lincare Siemens/Invensys Rail BSH/Zelmer VW/Scania Pfizer/Hospira ACS/Hochtief ZF/TRW Siemens/Dresser Rand Telefonica O2/EPlus Siemens/RollsRoyce Deutsche Bank/Postbank Sparkassen FG/DEKA- Bank ProSiebenSat.1/MyDays McKesson/Celesio Siemens/Rolls-Royce Bayer/Merck Arrow Electronics/ Data Modul Daimler/Tognum Actavis/Warner Chilcott 600 VW/MAN Yahoo/Tumblr Source: Capital IQ 7

10 Jan. 05 Apr. 05 Jul. 05 Okt. 05 Jan. 06 Apr. 06 Jul. 06 Okt. 06 Jan. 07 Apr. 07 Jul. 07 Okt. 07 Jan. 08 Apr. 08 Jul. 08 Okt. 08 Jan. 09 Apr. 09 Jul. 09 Okt. 09 Jan. 10 Apr. 10 Jul. 10 Okt. 10 Jan. 11 Apr. 11 Jul. 11 Okt. 11 Jan. 12 Apr. 12 Jul. 12 Okt. 12 Jan. 13 Apr. 13 Jul. 13 in % Section 2 Inorganic Growth Ratio I: Purchase price and development of interest rate Interest rates on european bonds 2010 to ,0 6,0 5,0 4,0 3,0 2,0 1,0 - Europe IG Corp Industrial A 5 Year in EUR Europe IG Corp Industrial A 10 Year in EUR EUR Europe Industrials BBB- BBB BBB+ 5 Year EUR Europe Industrials BBB- BBB BBB+ 10 Year Implied MRP based on high and low estimates (in %) 14,0% 12,0% 10,0% 8,0% 6,0% 4,0% 2,0% 0,0% high low Spread mean Buyer High cash reserves, returns almost zero or slightly negative Stronger negative returns to come? Companies with good ratings have excellent access to debt financing with low interest rates. Pressure to buy (need for M&A) Seller Shortage of investment opportunities, low demand for cash and cash equivalents. Opportunity decision: even non-core assets with comparatively low returns generate higher returns than liquidity. No pressure to sell Buyers Perspective Sellers Perspective Higher purchase prices observed in the market Willingness to pay depends on expectations of synergies 8

11 Section 2 Inorganic Growth Where does the high purchase price comes from? 1 Future cash flow surpluses Act 2015 Plan 2016 Plan 2017 Detailed planning period Plan 2018 Plan cc. Terminal Value Which parameters justify the observed high purchase prices? 2 Derivation of Cost of Capital E WACC = r E + r D (1- s U ) E+D D E+D Enterprise Value 9

12 Section 2 Inorganic Growth Purchase price and synergies (1/2) Established Business ( Stand alone ) Target Incl. market-participant synergies, that can be achieved even without the specific transaction. Marginal price true synergies Incl. buyer-specific synergies, that only can be achieved due to the specific transaction. Favourable market for seller excess demand Agreed transaction price Unfavourable market for seller; forced sales etc. false synergies 10

13 Cashflow Section 2 Inorganic Growth Purchase price and synergies (2/2) Optimistic scenario (incl. buyer-specific synergies) Synergies! Purchase Price In a high purchase price, buyer-specific synergies are reflected. For a successful transaction, synergies have to be consequently monitored after the deal. Pessimistic scenario (no synergies)! Growth projections of the target company have to be compared to the expected growth of the economy. Time 11

14 Section 2 Inorganic Growth Expected synergies of selected transactions Royal Dutch Shell BC Group According to Shell, the transaction should generate pre-tax synergies of around 2.5 billion pounds per year. The merger will give Shell access to BG's operations in Brazil, East Africa, Australia, Kazakhstan and Egypt. Pfizer - Hospira The US pharma giant Pfizer is expecting, that Hospira will contribute to an increase in sales and net income already from the first year onwards. Until 2018, cost synergies of annually EUR 800 m shall be reached with the merger. The product portfolio of Hospira shall be distributed internationally under the head of Pfizer. Siemens Dresser Rand The product portfolio of Dresser Rand is complementing the offer of Siemens regarding compressors and turbines. This is enforcing Siemens position in the compressor and turbine market and the transaction is expected to generate annual synergies of around EUR 150 m until ZF Friedrichshafen - TRW As the both companies are complementary, the main focus lies on growth, whilst synergies in costs are mainly expected to arise from better bargaining power towards suppliers and optimization of internal processes. 12

15 Section 2 Inorganic Growth Conclusion US FED and ECB currently execute a monetary easing policy. Low interest rates favour the acquisition of companies. Enterprise values as well as the bargaining position of sellers have increased significantly due to the low interest rate environment and lack of investment alternatives However, high/very high enterprise values still can in many cases be justified by expected synergies. In order to prevent impairment losses from acquisitions the acquirer has to assure that the expected synergies can be achieved. A thorough analysis of the synergies regarding their identification, valuation is crucial. Performing integration measures and a close monitoring of synergies is necessary, in order to achieve expected synergies. 13

16 Section 2 Inorganic Growth Work Example - Synergy Valuation Benchmarking & Synergy Valuation Tool (1/3) 14

19 Section 2 Inorganic Growth Private Equity as the intersection between Inorganic and Organic Growth Mergers & Acquisition (inorganic growth) Private Equity Strategic Value (organic growth) Building Better Businesses We seek to make the companies we invest in stronger through a bottoms-up strategy of transformation We are a value-oriented private equity investor that seeks returns primarily through improved business operations. 17

20 Section 2 Inorganic Growth Investment Process and Value Creation Investment Process Buy-in Restructuring Sale/Exit Value Creation Channels EBIT/EBITDA x Multiplier - Net Debt - / + Discount / Premium Revenue Growth (new products, geographic expansion) Improving the EBIT/DA Margins (cost management, increasing efficiency) Strategic reorientation time component Flavour of the Day Increasing Cash- Flows (working capital Management) Sale of nonoperational assets Optimizing financial structure Reducing Risks (e.g. dependence on key customers / suppliers; industry cycles) Establishing must have for strategic buyer 18

21 Section 2 Inorganic Growth Private Equity Success Story 3i backs NORMA GROUP in EUR million IPO (Initial Public Offering) 3i supported NORMA s growth from a German regional player to an international leader in its market NORMA Group is a global market and technology leader in Engineered Joining Technology solutions Increased product development capabilities Stronger presence and new plants in India, China, Thailand, Mexico, Russia and Serbia Key facts: Active management: 2006 to 2011 Sales outside GER increased from 41% to 74% EBITDA margin doubled Employee size doubled (1,600 to 3,500) 3i return: 5.5x on initial investment (last shares sold in 2013) 19

22 Section 2 Inorganic Growth Market development and outlook 2015 The private equity industry can look back on a very successful 2014: 81 percent of investment companies saw an increase in new investments, compared to just 37 percent in The vast majority of private equity firms expect the market to improve further in These are the findings of the Private Equity Trend Report for which surveyed 200 private equity firms across Europe. 97 percent of the investment companies surveyed were satisfied with the development of their portfolio companies in the past year. German investment companies were particularly positive: 63 percent indicated that they were very satisfied with the development of their portfolio companies in the past year. Optimism continues to prevail for 2015: I am confident that the positive mood from 2014 will also spill over into the new year. Low interest rates are ensuring that capital is cheap. Buyers from regions with strong currencies will increasingly focus on targets in the Eurozone, predicts Steve Roberts, who heads up the Private Equity practice at Germany. 20

23 Section 3 Organic Growth 21

24 Section 3 Organic Growth Strategic Value Consulting Theoretical Foundation The value of an investment project equals the sum of all discounted future cash flows minus the initial investment The value of a company (entity value) equals the sum of all investment projects a company performs NPV project = Initial Investment + Equity Value = NPV i Debt n i=0 n t=0 CF t 1 + WACC t Strategic Value Consulting Theoretically every positive change of a project value increases the equity value instantly by the additional project NPV Equity value in mn. 22

25 flexibility & complexity Section 3 Organic Growth Industry 4.0 the next industrial revolution Today 1970s 20 th century 18 th century Industry 1.0 usage of steam engine Industry 2.0 mass production & assembly lines Industry 3.0 automation & robotics Industry 4.0 digitization & networks - between products and value chains - integrated data analysis as a core competency 23

26 Section 3 Organic Growth Industry 4.0 Consulting Potential Within 5 years over 80 % of the companies will have digitized their value-chain Horizontal Integration 86 % Vertical Integration 80 % 40 bn additional annual investment (~ 3.3 % of revenues) expected in German industry 24 % today in 5 years 20 % today in 5 years Industry 4.0 results in a better production and asset use efficiency ~18% efficiency improvement within 5 years expected Source: Studie Industrie 4.0 Chancen und Herausforderungen der vierten industriellen Revolution 24

27 Section 3 Organic Growth Challenges for a successful implementation of industry 4.0 measures Percentage of top-2 answers Uncertain economic benefit due to high investments Underqualified employees Missing standards and norms Uncertain legal situation Low maturity level of techonogies Open questions regarding data security Low priority by top management Slow expansion of basic technologies (e.g. broadband) Insufficient network stability and data storage Top Reason: Uncertainty about the appropriate amount of investment 25

28 Section 3 Organic Growth Industry 4.0 Value Add Potentials NPV (Project) Company Value PV of Investments Cost reduction Sales increase Working capital improvement Improved asset use efficiency etc Company Value post implementation of industry 4.0 measures By means of a value indication the effects of the different drivers of the company value in a project can be made transparent and a realistic and reasonable amount of investments can be derived The valuation provides a first indication for a value-add controlling concept during the implementation of the investment measures 26

29 Section 3 Organic Growth Evaluating the investment Suppliers Politics Subsidies Data security Standard setters Company Customers Shop Floor Office Floor Degree of adaption Digitization of value chain Time-to-Market Mass Customizing Financing Smart Products Web-based services Reducing information asymmtries Better financing conditions leasing Degree of adaption Real-time Feedback Non-exhaustive In order to derive the value of a project it is crucial to identify and address the affected characteristics of the company and interactions with its environment 27

30 Section 3 Organic Growth Evaluating the investment 28

31 Section 4 Conclusions & Contacts 29

32 Section 4 Conclusions & Contacts Conclusion: Creating Value for our Clients From Strategy to Execution Understanding of investor`s and company`s strategy i n o r g a n i c Understanding the business and deal structure Benchmarking the firms performance and identifying improvement potentials Identifying and evaluating synergies Understanding the business and strategic goals Benchmarking the firms performance and identifying improvement potentials Identifying and evaluating internal growth potentials o r g a n i c In order to achieve the expected synergies it is crucial to conduct appropriate integration measures as well as a close monitoring of the synergies after the deal is done 30

33 Section 4 Conclusions & Contacts Thank you for your attention Become a part of our team How to apply: We are looking forward for your application as a: Intern in: Transactions Management Consulting Audit & Assurance Graduate (Bachelor or Master) PhD 31

34 Section 4 Conclusions & Contacts Thank you for your attention Get to know closer Go on a sailing trip with us. meet at one of our upcoming campus events. 32

35 Section 4 Conclusions & Contacts and Strategy& in Munich Your contact Eckhard Späth Senior Relationship Partner Valuation & Strategy Tel.: +49 (0) Mobil: +49 (0) eckhard.spaeth@de.pwc.com Richard Hauser Partner Engineered Products and Services Team Strategy& Tel.: +49 (0) richard.hauser@de.pwc.com Munich Senior Relationship Partner Transactions Valuation Services The Munich office is organized into the audit, tax advice Head and of business advice (transaction and crisis Financial consulting, Reporting Valuation management and business Munich/Germany consulting) divisions, and has around 1,000 employees. We have been located in the heart of Munich, at Arnulfpark, since August By opting to relocate to Tel. the city +49 center, we 6415 send a signal: is where our clients Fax: are +49 central and 5501easy to reach. Mobile: eckhard.spaeth@de.pwc.com 33

36 Section 4 Conclusions & Contacts Thank you 34