Documenti di Didattica
Documenti di Professioni
Documenti di Cultura
April 2014
Topic
Laws and
Regulations Commercial & Operational Diligence
Negotiations Purchase Price
Working Capital
Financial Due Diligence
Financial Model Carve-out
Acquisition Earn-out Spin-off
Divestiture Pro Forma Financials EBITDA
Post-Merger Integration Financial Statements
Synergies Employee Matters Data room
Projections Taxes Information Technology
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Agenda
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M&A market trends in Japan
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Polling Question 1
M&A Experience in Japan
Which types of transactions has your Japanese based entity been involved
with in the past 18 months? (mark all that apply, n=24)
N/A 4
0 2 4 6 8 10 12
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Polling Question 2
M&A Experience in Japan
Do you think your Japan based entity will be involved with an acquisition or
divestiture in the next 2 years? (mark one, n=24)
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Japan M&A market
Sep 2013 Applied Materials Inc Tokyo Electron Ltd Inbound Japan 920,263
Jul 2013 Bank of Tokyo – Mitsubishi UFJ Bank of Ayudhya PCL Outbound Thailand 676,088
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Source: MARR database from Recof and Mergermarket
Japan M&A market trend (1996-) – Deal volume
Despite a decrease in overall M&A deal volume due to the financial crisis in 2008, the outbound deal
volume still increased as a percentage of overall deals – a sign that Japanese companies still need to
invest overseas in order to continue to grow. Currently, approximately 1 of 4 deals involves the
acquisition of a foreign (non Japanese) company.
3,000 50.0%
2,725 2,775 2,696
185
180 45.0%
2,500 309 2,399
2,211 421 40.0%
411 198
367 2,048
211 1,957 35.0%
2,000 377 1,848 149
1,752 1,728 138
320 1,707 1,687 30.0%
1,635 1,653 112
volume
136 299
163 142 146 499
201 174
1,500 264 213 515 25.0%
289 371
1,169 368 455
20.0%
1,000
182 2,129 2,174 2,020
834 1,824 15.0%
753 266 1,680
621 76
110 1,520 574
1,352 1,352 1,400 33
62 224 236
1,066 1,190 1,194 1,086 1,221 10.0%
500 132
239
721 5.0%
453 488 409
320
0 0.0%
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Source: MARR database from Recof
Japan M&A market trend (1996-) – Deal Value
200,000
180,955
180,000
160,000 151,263
140,000
124,938 126,124 122,727
121,832
116,135 117,637
120,000 109,038
JPY 100m
100,000
82,824 84,955
79,807
80,000
67,725
58,007
60,000 49,430
40,000 34,778
22,418 26,265
17,822
20,000
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Source: MARR database from Recof
Japan M&A deals: by sector (year-to-date – March)
139 146
150
121
volume
100 82 IN-IN
38 IN-OUT
50 27
18 20 18 25 OUT-IN
16 12
0
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
MFG CB FS TMT E&R LSHC RE
2,500 2,337
2,000 1,566 IN-IN
1,442
1,500 1,192
990 991 1,003 IN-OUT
1,000 527
329 219 214 OUT-IN
500
0
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
MFG CB FS TMT E&R LSHC RE
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Source: MARR database from Recof | * 2014 results exclude the JPY 1.6 trillion Suntory deal from the CB sector
Japan M&A deals: by region (year-to-date – March)
80
68
60
47 46
44
Volume
40
40 35
IN-OUT
OUT-IN
20
4 4 6 6
2 1 1 0
0
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
Asia Europe Middle East North America Oceania South America Africa
4,000 3,609
Value(JPY100m)
2,838
3,000
2,347
1,918
2,000
1,353
1,000 796
0 0 90 21 134 0 0 0
0
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
Asia Europe Middle East North America Oceania South America Africa
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Source: MARR database from Recof | * 2014 results exclude the JPY 1.6 trillion Suntory deal from North America
M&A lifecycle
(managing the deal process)
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Polling Question 3
Acquiring a Business
When considering an acquisition, what activities are often the most
challenging? (mark all that apply, n=24)
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Polling Question 4
Selling a Business
When selling a business or product line, what activities are often the most
challenging? (mark all that apply, n=24)
0 2 4 6 8 10 12 14
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The M&A lifecycle
Often times Japan CFO’s of foreign owned companies are more involved with the integration portion of
the lifecycle for acquisitions or the carve-out financial statement preparation for divestitures.
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Managing the “acquisition” process
DD *3
Team Building Preliminary
Process
/ Management Interview
/ Kick-off Analysis/ Payment
LOI *2 Signing DA
/ Requesting Preliminary Signing DA / Realizing asset & liability, transferring share
Negotiation LOI Negotiation
Documents & Price Reflecting DD findings certificate/ Procedures required for post-merger
Analysis Simulation to price simulation
/ Determine the structure
Constructing business scenario Draft/ signing DA *4(with the support of external certificate
Draft/ signing LOI (with the support of external legal legal advisors) Procedures required for post-merger
advisors)
Coordination of parties, advising communication skill to develop consensus both in-out of the company, controlling deal process, time management and etc
Advisor Assistance1
Thrashing out tasks at the preliminary stage & Coordination of Management Interview Drafting task list for closing, management of
drafting schedule Coordination of DD schedule, Support in proceeding procedures
Drafting information request list/ managing Restructuring business scenario based upon DD required for post-merger
disclosed information findings, updating price simulation, validation of
Supporting constructing business scenario based optimum structure
upon preliminary disclosed information, preliminary Negotiation of DA/ support in drafting DA
price simulations, validation of optimum structure
Negotiation of LOI/ support in drafting LOI
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*1 Services may vary depending on deal type | *2 Letter of Intent | *3 Due Diligence | *4 Definitive Agreement
Managing the “divestiture” process
/ Kick-off CA *2
Q&A Dispatching DD/ Receipt of consideration
/ Making list of / IM*3、 1st round 2nd round DA
Correspond 2nd round Management / Realizing asset & liability, transferring share
selling candidate Dispatching bid bid negotiation
-ence outline Interview certificate/ Procedures required for post-merger
/ Dispatching 1st round
teaser outline
Decision making of fundamental strategies Preparation of Management Interview Fulfilling CPs/ covenants correspondence
Preparing disclosing documents & determining Decision making of direction of negotiation Approval of change in shareholding structure
Client
business forecast Building strategies on DA negotiation Signing TSA *4(with the support of external legal
Drafting/ signing CA (with the support of external Draft/ signing DA (with the support of external legal advisors)
legal advisors) advisors)
Coordination of parties, advising communication skill to develop consensus both in-out of the company, controlling deal process, time management and etc
Advisor Services1
Thrashing out tasks at the preliminary stage & Coordination of Management Interview Drafting task list for closing, management of
drafting schedule schedule, Support in proceeding procedures
Coordination of DD
Drafting/ updating candidate list required for post-merger
Updating price simulation based upon DD findings,
Contacting the candidate
validation of optimum structure
Arrangement of disclosed documents
Stand-alone cost based price simulation, validation Negotiation of DA/ support in drafting DA
of optimum structure
Drafting Teaser
Drafting IM/ Process letter
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*1 Services may vary depending on deal type | *2 Confidentiality Agreement | *3 Information Memorandum | *4 Transition Service Agreement
Establishing a due diligence scope
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Establishing a due diligence scope
Most companies will perform at least the following types of due diligence and will
often use external consultants:
Financial and accounting due diligence
Tax due diligence (may include tax structuring)
Legal due diligence
10. N/A 11
0 2 4 6 8 10 12 14
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Financial due diligence
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Financial due diligence – Normalized EBITDA
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Tax due diligence (may include tax structuring)
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Points to consider with Financial/ Tax Due Diligence in Japan
Topic Observations
Target personnel with Japan companies often limit the number of people who know about the transaction.
knowledge of the Selling a company to a non-Japanese company can be perceived as a negative event by the employees (fear of
transaction being terminated or having the company operated in a cost-constrained fashion).
CEO/ CFO and other key execs are often the only people initially aware of the transaction often resulting in:
Limited data provided and inadequate explanations to questions
Extended DD process
Target employee’s Often times Japanese employees that are tasked with providing data and answering questions lack the authority to
authority expand on an explanation or provide additional data resulting in:
Extended DD process while permission is requested and granted
Information sharing in a Japanese JV partner may be unwilling to share certain information until the foreign company shares certain
JV arrangement information.
Extended DD process while the parties go back and forth.
Target company’s Buyer and/ or seller don’t always use a financial advisor
financial advisor Given the differences in culture, language, and western business dealings, transactions where the buyer and
seller both have a financial advisor helping them manage the process often times experience a more efficient
deal process.
Data requests Japan culture is one that considers providing quality information as a high priority and this could result in the target
company taking longer than you would expect to prepare diligence materials.
Meetings are often required to clarify any ambiguity with requests.
Target companies in Japan often prefer to meet advisors in person – generally helps facilitate obtaining data
and receiving responses to Q&A
Public companies are reluctant to provide draft financials until the data is made public
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Points to consider with Financial/ Tax Due Diligence in Japan
Topic Observations
Language preference In general, Japan executives have a basic understanding of the English language and are willing to conduct
meetings in English.
Executing diligence by soliciting lower level personnel in the company to prepare documents is typically done in
Japanese since those employees often have limited English capability.
Data requests and questions are often requested in Japanese for a company to efficiently answer. Translation
may be necessary. Financial advisors can help.
Items below EBIT Japan companies often classify items as non-operational that a buyer might consider as part of operations.
Careful review of the items recorded below EBIT is needed to effectively analyze baseline costs.
EBIT is used more frequently in Japan than EBITDA as JGAAP requires goodwill amortization and management
teams often desire to understand the impact of the amortization on earnings.
Audit workpapers In the US, it is common for the M&A team to review audit workpapers of the Target. This review rarely happens in
Japan.
Employee Employee terminations are difficult and expensive in Japan. May be required to pay for underfunded pension
Terminations benefits in a carve-out and often times have to offer significant severance (6 – 30 months)
May wish to consider specific human capital and legal advice in these situations
Earnouts and working Small and medium sized enterprises in Japan often try to avoid earnouts and working capital adjustments.
capital adjustments Preference is for a known purchase price.
Financial reporting SPA may dictate certain financial reporting post close by Target company management or JV partner.
Even though contractually agreed to in the SPA, local Japanese management may be unable to prepare the
agreed upon financial reports. Often times, practical remedies are limited.
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Legal due diligence
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M&A legal considerations
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M&A Legal Considerations
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M&A Legal Considerations
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M&A Legal Considerations
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Post-merger integration
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Post merger integration
The Japan CFO may not have executed the M&A transaction, but the Japan CFO more than
likely will be responsible for its successful integration.
Q. What percentages of the targeted objectives/ goals has the Company accomplished post-transaction?
Percentage of
100% objectives met:
90% 19% 21% 16%
25% 25% 1. Less than 50%
80%
70%
60% 48%
54% 2. 50%~80%
50% 53% 47%
63%
40%
30%
20% 36%
27% 26% 28% 3. More than 80%
10%
13%
0%
Jan, 2007 Sep, 2008 May, 2010 May, 2010 April, 2013
(All ) (Cross-border)
Takeaways:
A typical success rate for M&A is approximately 30%.
For cross-border deals, that success rate drops to around 13%.
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Source: Deloitte Tohmatsu Consulting (DTC) M&A survey 2010 (170 companies) and 2013 (224 companies) | Note: Successful M&A is defined as achieving more than 80% of targeted objectives/ goals post-transaction
Post merger integration – Methodology for success
PMI, from early consideration to integration execution, is required for a successful integration:
M&A completion
PMI
M&A Strategy DD/ Valuation
(Post Merger Integration)
“Desired”
M&A
process Growth M&A Target Valu M&A Develop
DD integration
strategy strategy selection ation execution Execution
plan
PMI planning
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Post merger integration – Common challenges
Typical issues preventing a successful integration for a cross-border M&A deal
Q. What were the barriers/ obstacles experienced during the planning and execution phases of a cross-border
M&A transaction?
Cultural barrier
Post-transaction governance
Language barrier
Others
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Source: DTC M&A Survey 2010 (170 companies)
Post merger integration – Started planning for PMI
Japan generally lags other countries for PMI planning
Q. When did you start PMI planning in regards to the recent M&A deals? Started PMI
planning before
purchase agreement
signing
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
A ratio of respondents
DD Phase Purchase agreement negotiation phase Between purchase agreement and closing
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Source: DTFA, Merger Market May 2013
Post merger integration – Keys to success
Examining many of our recent mergers and acquisitions, those who have been most successful
focused their integration effort in six key areas
Leading Practice Themes Outcome
– Develop business cases and implement as soon as possible – Synergies realized as quickly as possible
4 – Identify and prioritize systems and processes that must be in place to ensure critical – Clear and focused priorities
process readiness – Issue-free, critical processes in place
– Separate Day 1 vs End State requirements
Address Culture and Human Resources Immediately and Communicate Frequently – Management team alignment
5 – Proactively work to align leaders and individuals – Commitment at all levels
– Develop and deliver proactive communications – Workforce transition and retention
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Contacts
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Contacts
Deloitte
Partner Partner
M&A Attorney M&A Attorney
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