Sell Side M&a

3.
M&A Strategy : The Sell Side TS Process

www.clairfield.com
2010
Contents
Overview The approach Assistance across key stages of the disposal process

Evaluation of options Disposal planning and preparation Competitive auction Completion and post sale actions
Illustrative engagement letter procedures
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Overview
A financial adviser can provide assistance at every stage of the disposal:
EVALUATION OF OPTIONS DISPOSAL PLANNING & PREPARATION COMPETITIVE AUCTION EXCLUSIVITY & COMPLETION POST SALE ACTIONS
What are common issues for Sellers? Many sellers underestimate the time and resources necessary to sell their business The seller must take action to address potential risks proactively by taking the same approach in selling their company as a buyer takes in analyzing potential acquisitions How does a financial adviser sell side assistance differ from that of an investment bank? Investment bankers provide an invaluable service to potential sellers which is generally focused on strategy, position, marketing and negotiation. Most investment banks are not staffed to perform the level of analysis necessary to check and challenge information at the level due diligence will be performed. A financial adviser sell-side assistance focus is geared towards:

Identifying the areas that management needs to address to avoid surprises and subsequent price erosion; Providing deeper insights into the value drivers of the business ; Uncovering favorable and unfavorable deal matters; and Assisting seller in developing the optimal tax structure or transition services requirements.
How does a financial adviser work with Sellers to bring value to the process? The scope of work is flexible and based on assistance with carve-out historical financials (if applicable), Targets financial projections and due diligence assistance type procedures which focus on risks, issues and opportunities from the perspective of a buyers accountant, although sellers must consider the impact of the divested business on the remaining business (e.g. stranded costs).
Buy-side deals are becoming more successful
BUY-SIDE EXPERIENCE Value creation

100% 31% 53% 60% 38% 40% 30% 20% 17% 0% 1999 Enhance value
Source:
SELL-SIDE EXPERIENCE
35% of vendors completed their most recent disposal at a price significantly below their own valuation
32% Deals that do not add value 34%
80%
Of these, an average 20% price reduction from valuation to selling price was experienced
Deals adding value
31%
34%
2004 Neutral
2007 Reduce value
60% of all vendors suffer post deal issues
KPMG survey Beating the Bears - 2008
Source: KPMG survey Increasing value from disposals A case study for professionalising the sell side - 2009
4 but that sell-side activities are becoming more challenging Amsterdam Barcelona Brisbane Brussels Charlotte Frankfurt Milan Moscow New York Paris Sao Paulo Stockholm Warsaw
Vendor frustrations frequently mirror those of bidders
WHAT CAN GO WRONG
BIDDERS EXPERIENCE
VENDORS EXPERIENCE
Unrealistic timetable leads to lack of preparation time
Inconsistencies in financial presentations
Leakage of value during sales process
Lack of central understanding of the business being sold
Poor quality, inconsistent information in the data room
Slow process
IM issued before supporting information is gathered & validated Lack of effective quality control over data room content Lack of robust financial data and adequate support/explanation Inadequate resourcing deflects management team from running the business
A legal data room, no commercial information
Too many surprises
Inability to prepare basic analyses
Extended warranties & indemnities
Lack of access to management
Too much disruption
Poor project management
Initial value expectation not realised
Good preparation is therefore key to addressing these issues

Amsterdam Barcelona Brisbane Brussels Charlotte Frankfurt Milan Moscow New York Paris Sao Paulo Stockholm
5 Warsaw
Transaction Services assistance
EVALUATION OF OPTIONS
DISPOSAL PLANNING & PREPARATION
COMPETITIVE AUCTION
EXCLUSIVITY & COMPLETION
POST SALE ACTIONS
Understand the business Actions required by Seller company and external advisors Sellers strategy developed into M&A agenda
Address value and transaction issues Historical financial information Tax and accounting structure Validate financial model
Internal approval papers Data room Price adjustment mechanism Draft sale agreement Information memorandum Access indicative offers
Data room
Approvals delivery
Collect/ challenge information
Management presentations Assess second round offers Completion mechanics
Pre-sale due diligence Valuation Identify potential purchasers
Review draft agreements
Negotiation
Separation plan
Make contact and assess interest
Deliver information memorandum
Address purchaser enquiries
Separation
Key:
TS can provide assistance at these deal stages Seller responsible for these deal stages
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Amsterdam
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Charlotte
Evaluation of options
OPTIONS DISPOSAL PLANNING & PREPARATION COMPETITIVE AUCTION EXCLUSIVITY & COMPLETION POST SALE ACTIONS
Assistance at this stage Commercial due diligence

Sellers strategy developed into M&A agenda
Benefits Helps Seller uncover the value potential which the business may provide to potential bidders. Helps Seller better understand the impact of the disposal on the Parent Company and therefore anticipate and mitigate such areas of risk. Achieve Sellers objective of exiting a business in the most tax efficient manner, while attempting to maximize the value it receives
Typical TS deliverables Slide pack outlining the impact of potential options
Impact on parent: Assist Seller in understanding the impact that the planned disposal may have on the parent Company. Areas to consider could include possible impact on customers and the Parent Companys ability to deliver services/products. Value capture options: Assist Seller in understanding any further value capture options available to potential bidders that Seller has identified (e.g., areas of the business which may create synergy opportunities or opportunities for operational improvement). M&A Tax Consideration options: Assist Seller in understanding the accounting and tax impact on consideration options:

Cash Acquirer Stock Earn-outs Installment sales
Disposal options: Assist Seller in evaluating the accounting and tax impact on disposal options:

Sale of assets or stock All or part of the business Tax-free reorganization Joint venture / IPO / spin-off Brussels Charlotte Frankfurt Milan Moscow New York Paris Sao Paulo Stockholm 7 Warsaw
Amsterdam
Barcelona
Brisbane
Disposal planning and preparation (1)

Assistance at this stage

Understand the business
Benefits Reduces surprises, provides advance notice of potential issues and provides time to address them or prepare mitigating responses before the sale process begins; thus strengthening Sellers negotiating position Reduces the scope for purchasers altering terms due to new information In a large organization, provides information for management where little is known about a subsidiary Prepares Targets management for questions likely to be raised during the buyers due diligence Carve-out methodology for financial statements and shared service allocations will have support Flags audit related issues and identifies the complexities in preparing carve out financial statements which helps manage bidder expectations in advance Provides a tax opinion or support for prior year tax-filing positions May identify potential tax exposures which Seller was not aware of and which bidders tax due diligence is likely to uncover Minimization or resolution of tax exposures that may exist for past years
Typical TS deliverables Pre-sale due diligence report Periodic Business Issue Framework (BIF) or issues log Status reports: Progress updates on engagement letter work streams Tax opinions
Financial due diligence Understand the business: Meet with management of entity being sold to understand the business; key focus is to:
identify the areas that management needs to
Collect/ Challenge information Pre-sale due diligence Valuation Identify potential purchasers
address to avoid surprises and subsequent price erosion

provide deeper insights into the value drivers of the
business
identify favorable and unfavorable deal matters
which bidders advisers will likely identify during buy side due diligence Challenge information: Challenge financial and operating information collected by management for pre-sale due diligence report and information memorandum prepared by management Pre-sale due diligence: Perform pre-sale due diligence on the target entity to be sold (PSDD report is an internal use only report for Sellers benefit) Accounting advisory Carve out financial statements: Planning for the preparation of carve-out financial statements (prior to or concurrent with conducting due diligence) by identifying and extracting Target specific financials and establishing carve-out methodologies M&A Tax Pre-sale tax due diligence: Understand Targets historical tax posture and perform a pre-sale tax due diligence of Target Assist Target with solutions to minimize past identified tax issues (e.g., entering into voluntary settlements, etc.)
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Amsterdam
Barcelona
Brisbane
Brussels
Charlotte
Frankfurt
Milan
Moscow
New York
Paris

Address value and transaction issues
Assistance at this stage Accounting advisory Carve out plan: Assist management in developing a comprehensive carve-out plan for Target Discuss with Sellers independent auditor, accounting issues relating to the carve out process Carve out financials: Assist with identifying:
Carve out issues and documenting Sellers mitigation
Benefits
Typical TS deliverables Supporting documentation for assumptions and adjustments for carve out / stand alone financial statements Supporting documentation and assessment of normalization adjustments included in carve out financial statements Assistance with management responses for mitigation of adverse deal issues Financial analysis pack containing trends and analysis of historic and projected results Status reports
Historical financial information

Tax/ accounting structure Validate financial model Separation plan
Facilitates timely preparation of financial data required by buyers Supports analysis of stand-alone operating performance; costs for transition services, etc. Helps Seller prepare a clear and transparent financial track record of the Target business Minimizes disruption to the business, simplifies and accelerates the sale process Ensures Seller controls the process, is well informed of deal issues and is better prepared to deal with purchasers detailed due diligence Proactive responses to mitigate expected deal issues reducing management time dealing with questions later in sale process Providing complete information and mitigation strategies reduces the time taken for bidders to complete due diligence and eliminate surprises
of issues for presenting to bidders earnings adjustments
Carve out adjustments including normalized
Assist in drafting pro forma illustrative carve out financial statements from Sellers underlying financial records Identify and formulate potential GAAP adjustments required Financial due diligence Financial track record: Assist management in structuring and preparing trends and analysis of the historic and projected financial information including sales and EBITDA bridges, cost structure and breakeven analysis, other income and expenses, capital expenditures, working capital, and quality of earnings analysis Commercial due diligence Normalized earnings: Benchmarking proposed stand alone costs against industry standards to support normalized earnings adjustments. Performance drivers: Coordinated with financial due diligence, assist in identifying key value drivers of performance, track and analyze their impact on historical performance. Human resources and M&A Tax Assist with identifying key HR and tax matters that bidders are likely to be concerned about and suggest mitigation solutions Assist with quantifying potential HR and tax compliance liabilities
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Amsterdam
Barcelona
Brisbane
Brussels
Charlotte
Frankfurt

Address value and transaction issues Historical financial information
Benefits Seller retains control of the tax aspects of the transaction Maximizes value from the disposal
Typical TS deliverables
M&A Tax Optimal tax structure: Through discussion with Seller consider the optimal tax structure for the disposal, considering:
The most efficient tax and legal disposal structure to
Slide-pack outlining potential options Tax basis study Section 382 study Valuation study to support allocation of tax bases between retained and disposed business assets Status reports
Tax and accounting structure

Validate financial model Separation plan
Buyer pays additional purchase price for step-up in tax basis in assets Seller is able to use historical NOLs to offset gain on sales Buyer pays additional purchase price for ability to use Targets historical tax attributes postacquisition
support the desired business objective

Sellers preferred form of consideration and
settlement
Whether the Seller is looking to cash out of its
investment in Target or maintain an interest in the Target or acquiring entity

Whether Seller wants to structure the sale as a
taxable or tax--free transaction

Whether the sale should be a sale of assets, stock,
Allows Seller to retain flexibility to deal with proposals from different bidders (e.g. domestic vs. international, strategic vs. financial) Potentially defer taxable gain
or stock with a section 338 election Offset sales gain: Consider tax attributes and Sellers ability to use to offset potential gain on sale Determination of the effective tax rate to be used in normalized financials, where;
tax schemes currently in place are not being
transferred
Target operates in several locations
(countries/states)
legal entities are not being transferred
Accounting implications: Advise on the accounting implications of the proposed disposal Unwanted assets: Comment on whether Target should consider disposing of unwanted assets or subsidiaries pre-sale
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Address value and transaction issues Historical financial information Tax/ accounting structure
Benefits
Typical TS deliverables Status reports
Financial and business due diligence Key assumptions: Assist the seller in identifying and thinking through the key assumptions to be used in the financial model to control disposal activities and expected outcomes in the sales process. Model due diligence: Perform business plan due diligence on managements financial model. Identify key assumptions underpinning the model and highlight areas of risk where appropriate. Benchmark assumptions to both historical performance and external third party data. External third party data may be collected from Sellers customers, suppliers, industry professionals and industry reports. Sensitivity analysis: Assist management in quantifying possible sensitivity in key assumptions or areas of risk. M&A Tax Tax calculation: Consider whether tax consequences from the sale are correctly calculated in managements model Compensation and benefits HR costs: Consider whether HR separation costs are included in managements model Accounting advisory Accounting consequences: Consider potential accounting implications for the transition, e.g. impairment, gain/loss of sale, compensation etc.
Validate financial model
Highlights areas of inconsistency between the key assumptions in the model and external market conditions (e.g., projected market growth or pricing assumptions) and therefore be better prepared for questions arising during buy-side due diligence. Identifies areas in advance with aggressive assumptions and/or areas requiring development of additional supporting documentation to satisfy buyer due diligence and negotiations
Separation plan

Address value and transaction issues Historical financial information Tax/ accounting structure Validate financial model
Assistance at this stage Business due diligence Separation plan: Assist in identifying separation issues and develop detailed separation steps. Cost base: Benchmark Target's cost base on a stand alone basis Transition Service Agreements: Planning advice for Transition Service Agreements (TSAs) for shared services, including: transfer pricing options for shared services to be include in TSAs;
Benefits Advances agreement of the responsibilities of Seller and buyer Assists the client with comparing and contrasting different separation/supply agreement pricing strategies striking the right balance between reducing its post divesture procurement costs along with portraying a commercially viable business from the bidders perspective. Identifies the impact of the disposal on the remaining business (e.g. stranded costs) Enhances understanding of the services provided to the entity being sold by the parent company for stand-alone or tuck-in analysis by bidders
Typical TS deliverables Written input to TSAs Documented separation plan Benchmarking study of cost base Proforma financial statement treatment assessment Status reports
Separation plan
quantifying expenses and transition service value to be incorporated into managements model Communication plan: Advise management on communicating separation plan to Target management Supply agreements: If applicable, assess the implications of proposed supply agreements on Seller. Human resources and M&A Tax Severance plan: Assist with the design of employee retention and severance plans Change of control and carve out liabilities: Assistance in quantifying: Change of control obligations Golden parachutes Pension and benefits plan costs and obligations pre and post sale Other employee contractual agreements Structuring alternatives: Consider structuring alternatives for Seller to minimize sale costs, liabilities, change in control costs Assist in preparing information provided to bidders, to support and / or mitigate the issues identified Accounting advisory Assessment of accounting treatment of separation plan and transition services on financial reporting and proforma presentation
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Barcelona
Brisbane
Brussels
Charlotte
Frankfurt

Internal approval papers
Assistance at this stage Financial and business due diligence
Benefits Maintains confidentiality of certain information released later in the process to successful bidders Limits the risk that commercially sensitive information is disclosed inappropriately Avoids bidder frustration by ensuring information disclosed to bidders is consistent with previously released information. Limits bidders opportunities for purchase price reduction through adjustment mechanism in sale agreement Allows Seller to make informed disclosure decisions
Typical TS deliverables Suggested data room index Comments on the consistency and traceability of the data room materials Comments on the financial, benefit plans and tax sections of the sale and purchase agreement Status reports
Data room
Price adjustment mechanism
Data room information: Understand value drivers from bidders perspective and recommend financial, commercial, HR and taxation information to be included in the data room to support financial model. Assist in development of data room index built around value drivers Assist with organization, collection and phasing of data room materials Compare consistency of data room information and content with the information memorandum. Assist with the development of a clear trail between the information presented in the information memorandum and the underlying financial records Price adjustments: Provide input into SPA adjustment mechanism for closing working capital, net worth or other Assist in analysis of historical working capital for assessment of normal working capital levels Assist with identification of potential purchase price adjustments which bidders may use in price negotiations Mitigation strategies: Consider mitigation strategies in response to potential bidder price adjustments Consider potential representation and warranties and assess the impact to Seller
Draft sale agreement
Information memorandum
Deliver information memorandum
Competitive auction

Data room
Benefits Frees up management by reducing time spent coordinating and responding to bidder questions allows continued focus on maintaining the business being sold Ensures that bidders requests are dealt with efficiently Minimizes the number and scope of representations and warranties requested by bidder Avoids major changes to the sale agreement late in the disposal process Simplifies and avoids ambiguity in the sale agreement Provides understanding of tax consequences of the different bids presented
Typical TS deliverables Comments and advice on sale and purchase agreements Slide pack outlining tax consequences of different structures and bids Status reports
Financial due diligence Data room: Control and co-ordinate multiple data rooms (e.g. data room rules, opening and closing, administration of admissions) Collate and organize questions from bidders and their advisors; assist with responses and counter arguments Assist Seller in dealing with reasonable requests from bidders for additional accounting and financial information Manage disclosure of confidential or commercially sensitive information Support Seller in preparing for its management meetings and presentations Draft agreement: In conjunction with Sellers legal advisors, provide input into the completion, accounting, tax, HR and representations and warranty sections of the sale and purchase agreements Identify and understand the value and warranty issues which bidders are likely to raise and assist Seller in establishing a clear negotiating strategy Assist Seller in understanding the buyer positions and typical negotiation responses M&A Tax Tax consequences: Assist Seller with evaluating the tax consequences of different bids and structures presented by the bidders
Management presentations
Review draft agreements
Address purchaser enquiries
Completion and post-sale actions


Approvals delivery
Benefits Protects Seller from shifting allegiances of Target management during the exclusivity and completion phase (e.g. defend against bidder attempt to influence Target management in closing balance sheet adjustments) Protects Seller against bidder attempts to negotiate price downwards through working capital adjustments Provides an understanding of the tax procedures and items necessary for closing
Typical TS deliverables Input into responses to bidders closing balance sheet procedures Tax opinion Purchase price allocation Tax elections, notices Status reports
Financial due diligence Update procedures: Update due diligence procedures prior to closing date to ensure financial results are in accordance with expected budget/forecast and historical trends Understand and document the impact on working capital, pre-closing net worth, or other adjustments Assist Seller in preparing responses to bidders closing balance sheet due diligence issues
Completion mechanics
Separation delivery
Closing statements: Perform due diligence and/or coordinate with audit teams performing audit or agreed upon procedures on closing financial statements/working capital statements for consistency with SPA prior to submitting to bidder M&A Tax Assist Seller and bidder with understanding the tax treatment of the proposed transaction Assist Seller with understanding the tax items required for closing Accounting advisory Assist Seller with accounting issues arising from challenges to closing statements, working capital statement etc. Purchase price valuation support and valuation for buyer
Illustrative engagement letter procedures (1)
Financial due diligence General procedures Meet with management of entity being sold to understand the business and rationale for sale Assist with the identification of issues (e.g. carve-out issues, etc) Assist with the preparation and wording of responses to bidders additional information requests; Perform an early assessment of the nature of the financial information to be prepared, based on determination of the end users, need for an audit, public filing requirements etc; Coordinate with bidders and bidders accounting advisers on accounting matters; Determine whether there are issues arising from any external audits, which impact the adequacy of the accounting records or the structure of the proposed transaction Challenge due diligence findings of bidders, if appropriate Read the latest available draft of the purchase and sale agreement and offer commentary to Seller and Sellers attorneys primarily concerning sections relating to accounting and tax matters, based on the results of the assistance provided

Data room preparation and operation Assist in the identification, collection and analysis of information to be provided to bidders and assist in the organization and management of the data room Read information provided by Target to ensure the consistency of information provided in information memorandum, data room and other communications with bidder or bidders advisers Check and challenge information provided by management of the business to be sold At (the/each) data collection site we will:
Provide an assessment, based on our experience, as to whether there is sufficient information in the data room to address the potential bidders enquiries. Provide a list of further information to be considered for inclusion in the data room based on the above assessment Develop a data room index on the basis of the update information request list Receive information into the data collection site Physically place information received into files in accordance with master data room index. Monitor receipt of information and communicate any delay on receipt Read information received and ensure that it is consistent with relevant parts of information memorandum. Maintain and update the above information on a master data catalogue encompassing all locations Ensure that all information is presented on a consistent basis at each data collection site

Financial due diligence (contd) Assistance with analyzing the financial track record Assist management in preparing an analysis of historical sale trends by understanding:

Assist management in preparing an analysis of capital expenditures by understanding:

Sales by core division Customer Churns Volume/Price mix by services & products Product Line and/or key customers for the most significant business centres Organic growth vs. acquisition growth Sales by major customer Backlog by quarter
The breakdown of Capex by maintenance, growth and IT Capex. Managements view of normalized capex by division Managements estimate of the sensitivity of capex to business growth Assets by geographical location / legal entity
Assist management in presenting historical working capital movements by:

Analyzing inventories into quantities by product line, valuation and provision methodology and turnover. Analyzing accounts receivable into the composition of trade accounts receivable, reliance on key customers, ageing, bad debts experience, normal trade terms and credit control, receivable turnover and specifically consider the timing of the recovery of significant receivables, if any Analyzing trade payables and accrued expenses to understand aging of trade creditors, key supplier relationships and turnover/payment terms Analyzing other liabilities Analyzing working capital seasonality by month and division for 200X, 200Y and 200Z
Assist management in preparing an analysis of the change in EBITDA year over year by understanding

Changes in sales Change in gross margin Changes in overheads and impact of cost reduction programs; EBITDA by division and Business centre EBITDA generated from organic growth vs. acquisition One off or unusual items impacting EBITDA

Assist management in preparing an analysis of the cost structure and breakeven analysis by considering:

Cost of goods sold Direct and indirect labour costs R&D costs Other Selling and General administrative costs, variable vs. fixed costs by division

Financial due diligence (contd) Assistance with analyzing the financial track record (continued) Analyze information on commitments, contingencies and litigation, and consider

contractual commitments, including share purchase agreements, capital transactions and operating lease obligations; employment related contingent liabilities including post retirement benefits, pensions and compensation agreements, on the basis of the calculation made by local management and local actuaries, if any; nature of outstanding or threatened litigation; any potential environmental threats and litigation in this area.
Completion assistance Read closing balance sheets prepared by Seller Analyze actual to budget variances for the period between initial due diligence (e.g. financial year end) and latest available financial information, identify and understand reasons for significant variances Analyze capital expenditures in the period to closing and compare to managements capital expenditure forecast Identify and document issues identified in the completion accounts Consider issues raised by bidders due diligence teams and assist management in preparing explanations or mitigating responses Analyze preliminary working capital calculation based on provisions of sale and purchase agreement for discussion with Seller Understand the basis for pre-closing working capital adjustments (e.g. bonus accruals, capital expenditure accruals) Understand the basis for corporate adjustments in the closing balance sheets and discuss with Seller
Commercial and Business due diligence Inquire about the major value-drivers and business assumptions underlying the Companys income and cash-flow projections for the [period] ending [Date]. For each driver and assumption, obtain managements assumed best-case, base-case and worst-case scenarios, and managements business rationale for each. Consider results from other procedures performed, interview the Companys management team and business partners (e.g., customers and suppliers), and read company-specific reports. Comment on the risks and opportunities inherent in managements business plan assumptions and the possible impact of these risks and opportunities on managements financial projections. Interview selected Company managers about the expected value potential of major synergies (including the key drivers and assumptions underlying these expectations) resulting from the disposal. Interview the businesses managers, operational staff, and business partners (e.g., customers and suppliers), and read proprietary reports. Comment on risks in managements synergy assumptions and the possible impact of these risks on value expectations for major anticipated synergies. Understand significant general and administrative requirements of business unit and drivers of G&A expense. Understand nature of allocated costs (variable, fixed, semi) and identify impact on cost allocations of the disposal on the remaining business Utilize benchmarks and business experience to support Sellers quantification of the business operating costs on a stand-alone basis. Identify business critical processes and document their current operating state Document resources required to support business in transition and assist with drafting terms of transition service agreements
Compensation and benefits Participate in discussions with individuals familiar with benefit plans, structures, workforces, and benefits costs to gain an understanding of issues Benchmark compensation and benefit structure and severance and retention programs. Highlight potential severance liabilities and obligations arising as a result of the disposal Consider potential deal pricing/deal limiting issues Analyze preliminary liabilities from change in control and golden parachute provisions and quantification of mitigation strategies Consider transition services to be offered, and appropriate pricing and procedures Benchmark HR administration and personnel structure and costs Read draft sale agreements and comments from bidders and bidders counsel Information Technology Understand managements strategy for the use of information technology in supporting operational, managerial, and financial reporting Benchmark historical IT operational and capital spending Understand Sellers capabilities to meet basic IT infrastructure requirements (i.e. data security, access controls, backup and continuity) Analyze third party agreements (software licensing, outsourcing) and assist in quantifying third party transition costs Analyze necessary tasks in establishing a stand-alone IT structure and assist in quantifying the carve-out costs Consider IT transition services to be provided, the duration of transition services, and assist in quantifying the costs associated with the transition
M&A Tax Meet with Seller and Sellers advisors to discuss possible accounting and tax structuring alternatives relating to matters identified Gain an understanding of the Sellers objective and present Seller with an understanding of the potential tax consequences or alternatives for achieving such objectives Understand Sellers current organizational chart and tax history Meet with Targets management to discuss Targets tax posture Read Targets income tax returns and workpapers for past open tax years Read past tax examination correspondence Assist with voluntary settlements or with settling current tax examinations Assist Seller with determining its tax basis in its Target stock or Targets assets:

M&A tax (contd) Assist Targets tax management on how to address past tax positions with potential buyers Assist legal counsel with the stock purchase agreement based upon an understanding of Targets tax posture:
Assist legal counsel with determining the appropriate level of tax representations
Analyze the tax consequences of the competing bids Ensure that Seller is made whole for incremental tax costs presented by the Buyers preferred acquisition structure(s)
Calculating the Sellers tax detriment from selling assets or from selling stock and making a section 338(h)(10) election
Perform a tax basis study Identify excess loss accounts
Coordinate work with the potential Buyer(s) to identify potential Target tax benefits and synergies that can be recognized post-close and which could present the potential Buyers with value Consider and present alternative ways to structure the transaction to achieve both parties objectives. Prepare a closing memorandum that outlines the tax items that need to be addressed prior, on or after closing:

Assist Seller with preparing for the proposed transaction:

Pre-sale restructuring of Sellers group Tax-free spin-offs Disposal of unwanted assets
Assist with the purchase price allocation Assist with determining transfer taxes Assist with bulk sales notices
Consider if any of Targets attributes are subject to any historical limitations Determining deferred inter company transactions that could be triggered by the proposed transaction Read tax assumptions in financial model Assist Target with organizing its prior year tax work papers for the data room Where necessary, produce a tax memorandum to support a tax position taken in a prior year
Prepare and file required tax filings, disclosures and elections Prepare a tax opinion supporting the parties tax treatment of the proposed transaction
Syncap Management gmbh, member of Clairfield Partners
Hans Buysse, Partner
+32 475 44 46 32 www.clairfield.com
2010 21
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3.

M&A Strategy : The Sell Side TS Process

Illustrative engagement letter procedures

Buy-side deals are becoming more successful

BUY-SIDE EXPERIENCE Value creation

2007 Reduce value

60% of all vendors suffer post deal issues

KPMG survey Beating the Bears - 2008

Vendor frustrations frequently mirror those of bidders

WHAT CAN GO WRONG

Unrealistic timetable leads to lack of preparation time

Inconsistencies in financial presentations

Leakage of value during sales process

Lack of central understanding of the business being sold

Poor quality, inconsistent information in the data room

A legal data room, no commercial information

Too many surprises

Inability to prepare basic analyses

Extended warranties & indemnities

Lack of access to management

Too much disruption

Poor project management

Initial value expectation not realised

Good preparation is therefore key to addressing these issues

Transaction Services assistance

DISPOSAL PLANNING & PREPARATION

EXCLUSIVITY & COMPLETION

POST SALE ACTIONS

Collect/ challenge information

Management presentations Assess second round offers Completion mechanics

Pre-sale due diligence Valuation Identify potential purchasers

Review draft agreements

Make contact and assess interest

Deliver information memorandum

Address purchaser enquiries

Assistance at this stage Commercial due diligence

Typical TS deliverables Slide pack outlining the impact of potential options

Cash Acquirer Stock Earn-outs Installment sales

Disposal planning and preparation (1)

Assistance at this stage

address to avoid surprises and subsequent price erosion

8 Sao Paulo Stockholm Warsaw

Disposal planning and preparation (2)

Address value and transaction issues

Historical financial information

of issues for presenting to bidders earnings adjustments

Carve out adjustments including normalized

9 Milan Moscow New York Paris Sao Paulo Stockholm Warsaw

Disposal planning and preparation (3)

Address value and transaction issues Historical financial information

Assistance at this stage

Tax and accounting structure

support the desired business objective

investment in Target or maintain an interest in the Target or acquiring entity

taxable or tax--free transaction

10 Milan Moscow New York Paris Sao Paulo Stockholm Warsaw

Disposal planning and preparation (4)

Assistance at this stage

Typical TS deliverables Status reports

Validate financial model

Disposal planning and preparation (5)

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Disposal planning and preparation (6)