M&A DUE DILIGENCE EXPERTISE Canback & Company
M&A DUE DILIGENCE EXPERTISE Canback & Company November 2014 PREDICTIVE ANALYTICS INTEGRATORS CANBACK & COMPANY Cambridge, Massachusetts 42.365869,-71.093471 www.canback.com +1-617-399-1300 Canback & Company prefers fundamental analysis of primary data over conceptual frameworks, achieving greater accuracy in problem solving at a lower cost Performance MANAGEMENT CONSULTING INDUSTRY S-CURVE - Datasets at the center of problemsolving - Repeatability and scalability for efficiency - Conceptually based problem-solving - Experience preferred over hard analysis 1900 1960 Predictive analytics A new paradigm with higher performance Few, if any, breakthroughs since the early 1990s Traditional management consulting 1990 2014 Time “The future is already here, it is just unevenly distributed” - William Gibson 2 Canback & Co has offices in ten key international markets, allowing us direct access to vital centers of economic growth. Boston and Johannesburg are core offices, while the other eight are satellite offices OUR CAPABILITIES OUR GLOBAL OFFICES AND LEADERS Office Management Consulting Predictive Analytics C-GIDD Market Research Boston Japan Johannesburg Shin Ito Tokyo Boston China Beijing Xingxing Liu India Jakarta Aniket Pargaonkar Mexico City Mexico Nigeria Francisco Maciel STREAM Insight Ltd Indonesia Brazil South Africa Kenya Lagos Teddy Purnomo Mark Wopicho Giancarlo Spata Nairobi Arshad Abba We have established satellite offices in key international markets: Brazil, China, Japan, India, Indonesia, Kenya, Mexico, and Nigeria. Our new core office in South Africa opened this month. Pune Sao Paulo For more information about the various offices please visit our website 3 Canback & Co is often cited in the press, research reports, annual reports, and investor presentations by some of the largest companies and organizations in the world Abuja +12: Shaping the Future of Health in Africa (2013) The Shifting Urban Economic Landscape: What Does it Mean for Cities? (2013) Mapping the Path to Future Prosperity - Emerging Markets Inclusive Growth Index (2014) African Cities Growth Index 2013 (2013) Quarterly Divisional Seminar Series — South Africa (2014) Quarterly Divisional Seminar Series — Asia-Pacific (2013) Annual Results Presentation (2013) Entering the African Beer Market: Uncovering the Strategies to Enable Success (2013) NYC Jobs Blueprint (2013) The Future of Retailer Brands (2010) Africans Open Fuller Wallets to the Future (2014) The War for Nigeria (2013) Nigeria - A Nation Divided (2011) Hot Spots - Benchmarking Global City Competitive (2012) 4 M&A due diligence is today our largest practice because of our fast, fact-based and practical approach Market Opportunity Assessment Experience & Approach Target Evaluation M&A due diligence >35% Management consulting >65% Strategy development 30% Canback & Co Tokyo Beijing This used to be our core activity and is still the #1 priority. We work on market entry, brand development, consumer segmentation and other market/marketing efforts in emerging countries We pioneered, and are still the world’s only supplier of GDP and income data at the subdivision and city level: C-GIDD We occasionally conduct standalone market research for existing clients where we know the topic Market/industry research <5% Johannesburg We have a special expertise in quick delivery of M&A due diligence, working with up to 30 team members to evaluate acquisition opportunities from a market and functional perspective Predictive models are almost always part of our management consulting work. We also build them on a standalone basis Predictive modeling 15% Commercial databases 15% Boston Case Studies Jakarta Lagos Mexico City Nairobi Pune Sao Paulo 5 Canback & Co has built its M&A due diligence track record through a combination of experience, technical strengths, and in-market capabilities Market Opportunity Assessment Experience & Approach Target Evaluation CANBACK & COMPANY’S M&A DUE DILIGENCE CAPABILITY Case Studies Click on image below for a copy of Due diligence experience • • Independent decision making Completed over 50 due diligence projects since 2009 Local research • • M&A framework • In-market research merged with local insight International expertise, particularly in emerging markets • Standardized and highly efficient processes Unique due diligence approach emphasizing market potential Quantitative approach • • Unique focus on demand modeling Market sizing and forecasting using rigorous statistical models 6 Since 2009, we have completed over 50 due diligence projects globally, most of which for recurring clients Market Opportunity Assessment Experience & Approach Target Evaluation Case Studies CANBACK & COMPANY’S DUE DILIGENCE WORK Project Mix by Geography 2009-present Europe 9% C. America and Caribbean U.S. Due Diligence Project Examples 3% 12% 37% South America • $5 billion FMCG acquisition in Brazil • $2 billion acquisition in the Caribbean 17% Asia • $8 billion acquisition in Mexico/Brazil 23% Africa DUE DILIGENCE EXPERIENCE Since 2009, Canback & Company has completed over 50 due diligence projects internationally • $12 billion acquisition in the United States • JV evaluation in 8 sub-Saharan Africa countries • Commercial due diligence for acquisition in Turkey Over 80% of these projects were engagements for recurring clients 7 The Canback & Co commercial due diligence approach involves two phases over the course of 6 to 8 weeks. Sometimes clients commission both phases, sometimes one or the other. Note that the market opportunity assessment often is done before the kick-off Experience & Approach Market Opportunity Assessment Target Evaluation Case Studies M&A COMMERCIAL DUE DILIGENCE TIMELINE Phase 1: Market opportunity assessment Phase 2: Target evaluation Kick-off Timing Objectives Key tasks Deliverables 3 - 4 weeks 3 - 4 weeks Assess market environment and opportunities Develop commercial strategy Conduct market structure, conduct and performance analyses Identify operational improvement opportunities and quantify synergies Create "as-is" demand model Build "as-is" and "to-be" financial models Analyze macroeconomic environment Perform SCP analysis Create commercial strategy for pricing, sales and marketing, and distribution to capture market potential Conduct in-market research Manage due diligence across functional groups Build "as-is" predictive demand model (10-year forecast) to quantify market potential Collaborate with corporate finance team and investment banking team to build financial models Market analysis and player assessment Operational due diligence report Predictive demand model Post-acquisition strategic blueprint for next 3 years Valuation and financial models 8 The two phases takes us from understanding the current situation (“as-is”) to finding the future potential (“to-be”) Experience & Approach Market Opportunity Assessment Target Evaluation Case Studies CANBACK & COMPANY’S M&A COMMERCIAL DUE DILIGENCE FRAMEWORK M&A commercial due diligence Market opportunity assessment StructureConductPerformance analysis Target evaluation Market demand forecasting Commercial strategy • Combine statistical analyses and managerial insights to assess market opportunities • Use rigorous statistical methods to build "as-is" and "to-be" demand models • Develop mediumand long-term commercial strategies • Manage due diligence processes across functions • Collaborate with clients and investment banks to build financial models • Conduct in-market research to refine models and recommendations • Leverage our income distribution database C-GIDD to quantify market potential • Identify operational improvement opportunities in sales and marketing, as well as distribution • Align functional capability with commercial strategy • Merge our predictive demand model seamlessly with the financial model “As-is" Functional strategies The effort starts with an “as-is” assessment and ends with a “to-be” strategy with financials Financial modeling “To-be" 9 The SCP framework is a standard approach for understanding market dynamics. It is used by corporations and consulting firms all over the world for more than 50 years and is therefore well tested and recognized Market Opportunity Assessment Experience & Approach Target Evaluation Case Studies STRUCTURE-CONDUCT-PERFORMANCE* FRAMEWORK External influences and shocks Structure Conduct Performance Government policies Economics of demand Supply conduct Market performance • • • • • • • • Category consumption dynamics • Growth drivers • Penetration • Production process and scale • Route to market and channel strategies • R&D innovation • Financial resources • Focus and leadership • Industry value and profitability • Relative market share and trends • Product/service quality Regulation Fiscal/Monetary planning Taxes and subsidies Wage regulation Investment incentives Trade rules Antitrust policy Demand conditions • • • • • Demographic trends Consumer preference Market growth Price elasticity Substitutes Supply conditions • • • • • Technology Communication, transport and infrastructure Company legislative environment Raw materials Economies of scale Economics of supply • • • • • • • Level of competition Concentration Brand power and consolidation Barriers to entry Efficiency Capacity Product differentiation Commercial conduct • • • Presence, position and penetration Reach and relations Demand creation tactics Internal performance • • • • • Productive and allocative efficiency Logistics Organizational effectiveness Competitiveness Benchmarks Behavioral conduct Industry chain economics • Procurement/supplier economics • Retail share and concentration • Wholesaler economics • • • Pricing behavior and policies Cartel/Collusion Execution, ethics and objectives Tactics and behavior patterns • Speed, innovation, service • Execution, ethics, focus * The Structure-Conduct-Performance framework was first developed by Joe S. Bain in the late 1950’s and was later popularized through Michael Porter’s Five Forces 10 An important part of the due diligence effort are the market visits. These typically happen early in the process. We follow a rigorous protocol to maximize productivity Experience & Approach Market Opportunity Assessment Target Evaluation Case Studies Canback & Company market visits generate valuable data directly relevant to the acquisition target. To ensure success, we rely on a detailed market visit protocol that has been tested and refined over the past ten years MARKET VISITS Meet with key stakeholders • Meet with local partners, government officials, and competitors • Use meeting takeaways to refine model and long-term strategy • Quantify margins for various product channels Determine margins across value chain • Margins used in financial and demand modeling as well as commercial strategy formation • Collect price points by channel and product or brand Collect price points Understand discounts and promotions Examine RTM and delivery standards • Measure price variation between channels and discover realistic prices facing consumers • Determine how trade discounts and promotions impact retail prices and producer margins • Evaluate effective promotional techniques • Assess RTM strengths and weaknesses • Evaluate product availability and identify strong distribution partners • Determine competitive landscape of international and local players Profile competitors • Identify and quantify competitive trends 11 A detailed “as-is” demand model is developed with a 10 year horizon. It is broken down by specified characteristics like geography and channel Market Opportunity Assessment Experience & Approach Target Evaluation Case Studies DEMAND MODELING OVERVIEW DATA VALIDATION & STRUCTURING • Category data from the client and third party sources is cleaned and integrated with C-GIDD • The category data is combined with macroeconomic variables in a format facilitating statistical analyses • The data is evaluated for normality, colinearity, linearity in order to specify an appropriate model • We always screen for nonsensical outliers and remove when necessary • A demand model is used to create projections using varying statistical techniques including pooled cross sectional models and time series • Models can be granular at the brand, pack type, channel, and region level spanning 5 to 10 years Macro variables PREDICTIVE DEMAND MODEL Product demand Price Momentum 12 Our target evaluation framework develops a commercial and functional strategies, and quantifies the acquisition synergy opportunities and financial implications Market Opportunity Assessment Experience & Approach Target Evaluation Case Studies DUE DILIGENCE TARGET EVALUATION Develop a commercial strategy to capture market opportunities Commercial strategy The functional due diligence identifies opportunities in the following areas: Functional strategy • • • • • • • • • Sales and Marketing Distribution Supply Chain and Procurement Production R&D Information Services Corporate Affairs Taxes Human Resources EXPERT VOLUME ADJUSTMENTS Financial modeling VOLUMETRIC • Brand mix • Item mix FINANCE ASSUMPTIONS • • FINANCIAL Revenue EBITDA • • Meet with the client to develop a commercial strategy to capture post-acquisition medium- and long-term growth opportunities Identify opportunities to enhance pricing, sales and marketing, and distribution strategies • Manage the operational due diligence process across functional groups • Collaborate with client executives who have functional expertise to integrate their recommendations • • Work with client and investment bank as well as other parties to complete "as-is" and "to-be" financial models Integrate our consumer demand forecast model and due diligence improvements into the financial models ACQUISITION SYNERGIES SAMPLE ANALYSES Our due diligence examines the target’s "as-is" operational capability and develops a "to-be" strategy. Acquisition synergy opportunities including: • Organic growth (e.g., new complementary products or sales channels) • Increased customer penetration/cross-selling • New market segments/customers • Strategy for selecting and entering new market segments • Cost-reduction/margin improvement CASH FLOW 13 Canback & Co’s main role during the target evaluation phase is to develop the commercial strategy together our client’s strategists and commercial executives Market Opportunity Assessment Experience & Approach Target Evaluation Case Studies COMMERCIAL STRATEGY DEVELOPMENT CAPTURE MARKET OPPORTUNITIES GENERATE PREDICTED MARKET VOLUME In the commercial strategy, we identify commercial improvement opportunities to capture market potential in areas including: • Route-to market • Product portfolio • Channel strategy • Pricing • Sales and marketing The commercial strategy lays out a post-acquisition strategic blueprint for how to generate the market volume projected by our demand model as well as volume from potential synergies DEVELOP COMMERCIAL STRATEGY We work with the client team to develop an integrated commercial strategy that harmonizes the different value chain components of our client and the target. Specific questions to consider are: Human Resources (HR) Finance Information and Communication Technology (ICT) Other Support Functions Suppliers Procurement and inbound logistics Production R&D Route to Market (RTM) • Sales • Distribution Distributors Marketing • Portfolio • Volume and value projections Service Consumers • • Is there a need to improve current sales and market strategy to support the change in product and pricing strategy? How can the target restructure the distributor footprint and relationship to capture the volume growth? 14 The functional strategies are mostly developed by our client’s executives. Canback & Co’s role is to assist with targeted analyses and to help create meaningful presentations. Our client executives are likely to visit the target’s facilities to inform their functional assessments Experience & Approach Market Opportunity Assessment Target Evaluation Case Studies FUNCTIONAL STRATEGY SAMPLE TOPICS Sales and Marketing Distribution ENHANCE EXISTING FUNCTIONAL CAPABILITY After the commercial strategy is developed, a sound functional strategy is crucial to ensure successful implementation of the commercial strategy. We are experienced in managing this process across functional teams and identifying functional improvements. Supply Chain and Procurement Production R&D Human Resources / Organization Other Functions • • • • Promotion and advertising activities Marketing operations Sales representative training program Sales network • Route-to-market structure • Distributor footprint and operations • Fleet mix • Supply chain model • Facilities/offices (locations, sizes, functions) • Product vendor management • Facilities/offices (locations, sizes, functions) • Production capability • Manufacturing operations and staff • R&D process • New product development • • • • Organizational structure Number of employees by location and functional department HRM policies (e.g. recruiting, comp levels, comp structure, etc.) Incentive plans and employment contracts • IT infrastructure and support • Strategy • Finance, taxes, corporate affairs integration 15 The financial modeling is typically done by our client’s finance experts, with Canback & Co providing inputs and being a sounding board Experience & Approach Market Opportunity Assessment Target Evaluation Case Studies FINANCIAL MODELING OVERVIEW DEMAND MODEL OUTPUT SKU LEVEL P&L FOR TARGET COMPANY TARGET COMPANY DCF • The demand model output can be used to project financial results down to the SKU level for the target company’s products using volume and price forecasts • This SKU level outputs aggregate to a company level income statement that can be used for valuation • We have built numerous discounted cash flow models using our demand modeling output as the basis for revenue projections 16 Canback & Co frequently works with other professional services firms in small and large teams to deliver on due diligence engagements Experience & Approach Market Opportunity Assessment Target Evaluation Case Studies DUE DILIGENCE TEAM STRUCTURES Due diligence steering committee Investment bank(s) • Identify acquisition targets Operational due diligence team Accounting due diligence Legal due diligence • The project team membership varies by acquisition • Size can range from 5 to 50 members • Provide guidance on DCF details, valuation • Provide WACC estimates Canback & Co • SCP analysis before project kickoff – includes market visit Client team • Operate financial model • Functional expertise • Demand modeling • Provide internal data, data from target • Project management during target assessment phase • Set goals / priorities 17 Case study 1: In early 2013, Canback & Co completed a due diligence project in Southeast Asia. We conducted a thorough assessment of local players and partnership opportunities for our client Experience & Approach Market Opportunity Assessment Target Evaluation Case Studies Client: Global beverages client Southeast Asia due diligence effort Target: Large beverage player in Southeast Asia Context: Client is looking to strengthen position in the beverage market through partnership with a large local player. We were engaged to conduct a thorough analysis of the local market and assess JV potential through conducting commercial due diligence Market opportunity assessment M&A due diligence framework Target Evaluation SCP • Assessment of political and economic risks, demographics • Analyze market by category, brand, and player share • With a team of 4, the entire project ran for 8 weeks, including 1 week of in-market research • Worked on the ground and remotely with local researchers who assisted with translation and in-market visits Demand modeling • Model demand at the regional level, over a 10 year time horizon • Modeling done at the SKU level and includes value and volume • Demand is forecasted on both an “as is” (organic market growth) and “to be” (organic growth with strategic initiatives) scenario Due diligence team room Commercial due diligence • Collaborated closely with client’s management team based in Southeast Asia • Assessed multiple local players and profiled most attractive player for potential partnerships • Analyzed partnership opportunities for client and target local player to jointly improve market positions, value chain performance, and profitability • Identified specific partnership opportunities for client and local player such as portfolio improvement, new category rollout and value chain improvements Value chain analysis 18 Case study 2: In early 2014, Canback & Co completed a lengthy due diligence project in West Africa, assisting our client with negotiation and valuation of a joint venture Experience & Approach Market Opportunity Assessment Target Evaluation Case Studies Client: Global FMCG client based in Africa West Africa due diligence effort Target: Distribution company Context: Client is looking to enter a West African market. JV partner – distribution company – has been identified and parties have engaged in substantial talks. Our key tasks were to quantify future demand, value the venture, and negotiate distribution fees Market opportunity assessment M&A due diligence framework SCP • Assessment of political and economic risks, demographics • Analyze market by category, brand, and player share • Walk the ground to understand consumer behavior, establish prices, and frame competitor conduct • Analytical framing of market using Canback toolbox Demand modeling • Model demand for current and new product recommendations over a 10 year time horizon and 3 phases • Modeling done at the SKU level and includes value and volume • Demand is forecasted on both an “as is” (organic market growth) and “to be” (organic growth with strategic initiatives) scenario Due diligence meeting Commercial due diligence • Route to market challenges and distribution gaps were identified due to nature of JV partner business • Proposal of a new sales and service model was introduced to minimize partner shortcomings and maximize value Target Evaluation Financial modeling • Demand projections and costs were input into Canback financial model to determine payback period and valuation • Financials led to a need for distribution fee renegotiation • Canback team present during final negotiations to offer strategic advice and update financial model RTM evaluation 19 Canback & Company contact information –––––––––––––––––––––––––––––––––BOSTON HEADQUARTERS––––––––––––––––––––––––––––––––– Canback & Company LLC 210 Broadway, Suite 303 Cambridge MA 02139-1944 42.365869,-71.093471 Tel: +1-617-399-1300 Fax: +1-617-553-4500 Web: http://canback.com C-GIDD Dr Staffan Canback Managing Director Tel: +1-617-399-1300 Ext. 201 Cell: +1-617-818-4963 Email: [email protected] Jesse Logan Vice President Tel: +1-617-399-1300 Ext. 202 Cell: +1-781-640-7458 Email: [email protected] Jonathan Mayes Engagement Manager Tel: +1-617-399-1300 Ext. 203 Cell: +1-412-901-8213 Email: [email protected] Irina Blinova Office Manager Tel: +1-617-399-1300 Ext. 202 Cell: Email: [email protected] BRAZIL JOHANNESBURG Arshad Abba Country Manager – South Africa Tel: +27-11-083 5890 Cell: +27-83-786 2450 Email: [email protected] MEXICO CHINA Canback Analytics LLC 210 Broadway, Suite 303 Cambridge MA 02139 http://cgidd.com Canback do Brasil Rua Com. Miguel Calfat 128 1101 Vila Olimpia São Paulo - SP 04537-080 Canback Mexico Bosque de Ciruelos 160-7 Bosques de las Lomas 11700 México, D.F. Canback China Suite 903B, Rongxin Tower S. Square, Beijing W. Station Beijing, 100055 Bobo Shen Tel: +1-617-399-1300 Ext. 210 Email: [email protected] Giancarlo Spata Tel: +55-11-3846 9668 or 8187 7801 Email: [email protected] Francisco Maciel Morfin Tel: +52-155-4354-9806 Email: [email protected] Dr Xingxing Liu Tel: +86-10-8399 3522 or 3523 Email: [email protected] INDIA SOUTHEAST ASIA JAPAN WEST AFRICA Canback Research c/o ValueNotes Database Pvt Ltd 1 Bhuvaneshwar Society Abhimanshree Road Pashan, Pune 411 008 Maharashtra Canback Southeast Asia Jl. Tiang Bendera 5 no. 2A DKI Jakarta 11230 Canback Japan Ginza Wall Building UCF 5F 6-13-16 Ginza, Chuo-ku Tokyo 104-0061 STREAM Insight 7A, Ikorodu Road Maryland Lagos Aniket Pargaonkar Tel: +91-20-5601-0423 or 24 Email: [email protected] Teddy Purnomo Tel: +62-812-8743 7578 Email: [email protected] Shin Ito Tel: +81-3-6338-0002 Email: [email protected] Adewale Opawale Tel: +234-710-30 51 40 Email: [email protected] 20
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