Key Performance Indicators

The CFO Program | Japan
Mergers & Acquisitions
Deal or no deal: successfully executing

M&A transactions in Japan
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
2 Global CFO Program | Japan © 2014. For information, contact Deloitte Tohmatsu Consulting Co., Ltd.
Agenda
• M&A market trends in Japan

• M&A lifecycle (managing the deal process)
• Establishing a due diligence scope
• M&A legal considerations
• Post-merger integration
M&A market trends in Japan
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)
 In the past 18 months, the majority of Japan

1. Acquired at least one business in entities represented in the roundtable have
4
Japan not been actively involved in M&A, but:
 Four of the CFOs present have been
involved in acquiring a business in Japan
2. Acquired at least one business
1
outside of Japan  One CFO has been leading the
acquisition of a business outside of
Japan (related to shared services)
3. Divested of at least one business or
product line
6  Some of the CFOs involved in
acquisitions mentioned joint ventures as
a common form to increase their footprint
4. Japan entity has not been involved in Japan
11
in M&A
 Six CFOs have been involved in
divesting a business or product line
N/A 4
0 2 4 6 8 10 12
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)
 The majority of entities represented expect

M&A activity to affect the Japan subsidiary in
3
the next two years:
 Many of the CFOs mentioned they are
exploring business alliances to
strengthen their positioning in Japan
 Some CFOs plan to buy/ sell product
lines
Yes
No  Especially the Life Sciences/ Health
7 N/A
Care industry aims for in-licensing and
out-licensing deals
14
 Only seven out of 24 CFOs answered they do
not expect an acquisition or divestiture in the
near future
Japan M&A market
Japan deal activity snapshot:

 2012 – 1,848 deals worth ¥12.3tn (US$123bn) (Inbound - $5.7bn, Outbound $76.1bn, Domestic $40.9bn)
 2013 – 2,048 deals worth ¥8.5tn (US$85bn) (Inbound - $15.3bn, Outbound $52.4bn, Domestic $17.1bn)
 YTD Mar 2014 - 574 deals worth ¥2.6tn (US$26bn) (Inbound - $1.4bn, Outbound $22.1bn, Domestic $2.8bn)
Recent top deals:
Date Buyer Seller Market Country Value JPY(m)

Oct 2012 Softbank Corp. Sprint Nextel Corp. Outbound USA 1,812,100
Jan 2014 Suntory Holdings Beam Inc. Outbound USA 1,679,360
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
Sep 2013 Lixil Group Grohe AG Outbound Germany 381,600
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%
IN-IN IN-OUT OUT-IN IN-OUT as a % of total
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
IN-IN IN-OUT OUT-IN
Source: MARR database from Recof
Japan M&A deals: by sector (year-to-date – March)
196 volume by sector

200 179
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
3,881 value by sector

4,000
3,366
3,500
2,986
3,000
value (JPY100m)
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
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
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)
Polling Question 3
Acquiring a Business
When considering an acquisition, what activities are often the most
challenging? (mark all that apply, n=24)
 One in four CFOs thinks identifying a target

1. Identify a target to purchase 6
to purchase, poses a challenge
2. Obtain funding for a transaction 0  The next hurdle is negotiating with the seller,
3. Prepare business plan that includes
2 especially starting negotiations and closing
the target's business
the deal with often times inexperienced
4. Obtain approvals of the parent or the
local board
2 “local” counterparts can be difficult
5. Negotiate with the seller 6  More than half of the CFOs consider post-
merger integration as the most challenging
6. Perform due diligence 2
activity, and many think realizing synergies is
7. Employee matters 6 the next major challenge to master
8. Identification of matters requiring
2  Culture, process inefficiencies on the target
transition services from seller
9. Identify a transaction structure that side, and strict employee rights in Japan
2
works best from an… require experienced management to lead
10. Execute Post Merger Integration through the integration
14
(PMI) activities
11. Realize synergies 7
 But the majority of roundtable participants
consider the M&A Lifecycle “manageable”,
12. N/A - Have not been involved with
an acquisition
4 even as a foreign company in Japan
0 2 4 6 8 10 12 14 16
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)
 More than half of the CFOs have not been

1. Prepare carve-out financial results of
the sold business
6 involved with a divestiture
 The CFOs with experience in divesting
2. Allocate employees between sold &
retained entities
4 consider carving out financial results of the
sold business a major challenge
3. Allocate shared assets 1  Especially non-standard items, e.g. the
valuation of intellectual property with
4. Provide services under transition uncertain future returns can pose a challenge
3
services agreement
for CFOs and finance teams
5. Manage sales/auction process for the
business
0  Next high on the list is the proper separation
on an operational level – employees, IT,
6. Separate IT systems & records 5 shared assets need to be reliably allocated to
either side
7. Negotiate terms with the buyer(s) 4
8. N/A - Have not been involved with a

13
divestiture
0 2 4 6 8 10 12 14
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.
Managing the “acquisition” process
Step 1 Step 2 Step 3

Preliminary Consensus Building Definitive Consensus Building Closing
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
 Decision making of fundamental strategies  Preparation of Management Interview  Payment

 Decision making of direction of negotiation  Decision making of direction of negotiation  Realizing asset & liability, transferring share
Client
 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
*1 Services may vary depending on deal type | *2 Letter of Intent | *3 Due Diligence | *4 Definitive Agreement
Managing the “divestiture” process
Step 1 Step 2 Step 3

List-up ～ 1st round 2nd round～Definitive Agreement Closing
Team Building Signing

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
*1 Services may vary depending on deal type | *2 Confidentiality Agreement | *3 Information Memorandum | *4 Transition Service Agreement
Establishing a due diligence scope
Establishing a due diligence scope
So you need to perform due diligence…where to start?
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
Other common types of due diligence – often performed internally or with

consultants:
 Operational and/ or commercial due diligence
 Human capital and organizational due diligence
 IT due diligence
 Forensic due diligence
 Regulatory/ environmental due diligence
 Intellectual property due diligence
Polling Question 5
Performing Due Diligence
Which types of Due Diligence have you performed in the past 2 years for a
potential transaction? (mark all that apply, n=24)
 Most of the CFOs have chosen a broad

1. Financial & Accounting Due Diligence 12 approach to due diligence – looking into all
2. Tax Due Diligence (may include tax relevant areas of the business to at least
7
structuring) some extent
3. Legal Due Diligence 6  The importance of each DD activity differs by
transaction, target country and deemed
4. Operational and/or commercial Due
Diligence
10 reliability of the target’s data - Forensics DD
5. Human Capital and Organizational
plays only a minor role for inbound deals into
7
Due Diligence Japan, but is high on the agenda when
acquiring in China and South-East Asia
6. IT Due Diligence 6
 Finance & Accounting DD is the standard for
7. Forensics Due Diligence 0 any transaction, mostly accompanied by
8. Regulatory/environmental Due
operational and commercial DD
6
Diligence
9. Intellectual Property Due Diligence 5
10. N/A 11
0 2 4 6 8 10 12 14
Financial due diligence
Objectives Common Areas of Focus

 Confirm that the business is  Quality of earnings and adjustments to calculate normalized EBITDA
what the seller has  Revenues and gross margins by product and geography
represented with a focus on  Product pricing and discounting
matters such as:  Major customers/ supplies, concentration risk, obligations in agreements
 Quality of earnings and  Trends in revenue and expenses
cash flows (with a focus on  Operating costs with a focus on fixed and variable costs, hedging and FX impacts
identifying normal,  Nature and breakdown of cost of goods sold by component (materials, direct labor, overhead etc.)
recurring earnings and  Significant non-recurring, unusual, non-cash and out-of-period charges and credits
cash flows)  If a carve-out, focus on allocations and services being provided by parent company
 Quality of assets and  Related party transactions
adequacy of historical  Working capital and cash flows
capital expenditures
 Trends and seasonality of working capital, non-recurring items, understand vendor and customer
 Identify debt-like payment terms, peak/ trough analysis (cash needs), impacts on purchase agreement
obligations
 Capital expenditure requirements
 Identification of hidden
 Maintenance vs. growth and budget vs. actual CAPEX; deferred CAPEX
costs, contingencies and
commitments  Quality of assets
 Understand matters that may  Analysis of the trends in the balance sheet accounts and their compilation
have a material impact,  Nature and timing of recorded liabilities
positive or negative  Contingent or unrecorded liabilities and other debt-like items
 Identify matters that could  Identification of loans, leases, litigation, ARO’s, pension liabilities, taxes, trapped or restricted cash, self-
cause the buyer to walk away insurance, contingent consideration to be paid, change-in-control payments, rebates/ warranties
from the deal, reduce (or
increase) the purchase price,  Provide high-level comments on draft stock purchase agreement
seek additional contractual  Focus on purchase price adjustment mechanism, working capital, debt definition and other financial
protections, or change post- statement related matters
closing plans
Financial due diligence – Normalized EBITDA
Common Normalizing EBITDA Adjustments

 Changes in business units  Non-cash items
 Acquisition/ divestiture  Stock compensation expense
 Major product launches/ cancellations  Deferred revenues
 Non-recurring/ unusual items  Pension (cash cost versus expense)
 Restructuring activities (i.e. severance)  Out-of-period revenue and expenses
 Legal expenses  Reserve adjustments
 Insurance proceeds  Pro forma adjustments
 Bad debt/ inventory write-offs  Stand alone costs
 Non-operating items  Public to private costs
 Gain/ loss on asset sales
 Components of other income/ expense
 Foreign currency
Tax due diligence (may include tax structuring)
Objectives Common Areas of Focus

 For stock transactions, analyze the  Common areas of focus – national corporate income tax:
Target’s tax situation to determine if  Corporate tax return filing status
reported tax liabilities are accurate or
if there are tax liabilities that may  Material tax issues that significantly affect the tax position
exist that are currently unknown or  Tax audit history including any ongoing tax audits
undisclosed  Material tax positions taken and/ or planned to be taken
 Understand historical compliance  Transfer pricing and related party transactions
with tax laws
 M&A and reorganization history
 Analyze target business to determine
 Availability of NOL’s
a tax efficient structure that achieves
business and operational objectives  State and local tax compliance
 Understand any NOL limitations or  Tax planning currently considered and potential for step up, tax effective financing/ debt
disallowed deductions placement, disposition planning, and utilization of tax attributes
 Identification of trapped offshore  Future reorganization and/ or M&As currently considered
cash and other exposures  Foreign related party’s tax situation
 Other areas of focus for certain transactions
 Local taxes, consumption taxes, tax structuring for the proposed transaction
 Internal tax department operations
 Provide high-level tax comments on draft stock purchase agreement
 Tax warranties and indemnifications
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
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.
Legal due diligence
Objectives Common areas of focus

 Analyze legal documents to confirm  Corporate Organization/ Stock Ledger/ Board & Shareholder Minutes
ownership of key assets (stock, IP,
real properties) (link to valuation
model)  Material Agreements
 Analyze legal documents to

determine potential exposures  Loan Documents and Other Financings
(litigation, environmental, regulatory,
contingent)
 Material Assets/ Intellectual Property
 Analyze material agreements to
determine if the proposed transaction
will trigger a change of control or  Regulatory Matters/ Permits
other counter-party early termination
right  Environmental Compliance
 Analyze material agreements to
determine existence of unfavorable
commercial terms that cannot be  Litigation and Disputes
terminated post-closing
 Analyze legal documents to list  Employee Matters and Work Rules
affiliate transactions (and evaluate
whether post-closing transition
services required from seller)  Related Party Transactions
 Analyze legal documents to identify

jointly owned or shared assets  Prior M&A Agreements
M&A legal considerations
M&A Legal Considerations
General Legal Challenges Faced in Japan M&A Transactions

 Negotiating Dynamics
 Typically the sole responsibility of the Representative Director (takes longer to finalize and may lead to negotiating frustrations)
 Typically senior management sits on the Board of Directors, so directors may seek preservation of Board seat post-closing
 Due Diligence
 No national database for litigation searches
 Greater reliance on discussions with government regulators (Japanese rules and regulations can be vague, so informal discussions +
previewing filings with regulators in advance a common practice)
 Verbal agreements frequently entered into outside the corners of written agreements
 Management interviews common source of information
 Post-Merger Integration
 Only a Japanese organized company can enter into a merger or other statutory combination with a Japanese company, so a buyer may need
to add a layer of control through a wholly-owned subsidiary
 Squeezing out minority shareholders is a time consuming task that requires a change in capital structure
 Japanese labor laws very pro-employee, so restructuring labor force cannot be assured or may require significant severance payments
 Employees retain the right to patent inventions made during the course of employment
 Difficult to terminate long-term contracts (e.g., distribution agreement or franchise agreements), so unfavorable contracts may survive post-
closing
Japan Acquisition Agreements – Tips to Consider During Negotiations

 Disclosure agreements - No US-equivalent agreement disclosure requirements (or deal surveys), so ascertaining “current market practice” can
be subjective
 Non-binding LOI - A non-binding LOI can become binding if a party has led the counter-party to reasonably believe that a definitive agreement
would be executed (“breach of trust”)
 Reps & Warranties - buyer’s knowledge of a breach of a R&W or information disclosed to an advisor to buyer during due diligence could prevent
a successful indemnification claim by buyer
 Default payments - charactering default payments as a penalty rather than a liquidated damage could be beneficial to a buyer
 Indemnity caps - Indemnity caps typically higher than US market practice (~20% versus Purchase Price)
 Judicial rulings - No punitive damages + no parole evidence rule in Japan (judges may freely determine the evidence presented and make their
own findings based on sense of fairness)  out of court settlements are common
Regulatory Approvals Commonly Required When Acquiring a Japanese Company

 Antitrust
 Acquire more than 20% or 50% of the outstanding voting shares, then a filing by the buyer is required with the Japan Fair Trade Commission
if during the most recently completed fiscal year, revenues from sales made in Japan by the
I. buyer and its “corporate group” (as defined under Japanese antitrust laws) exceeded JPY 20 billion, and
II. target company and its subsidiaries exceeded JPY 5 billion
 Notification should be filed at least 30 days prior to the target acquisition date
 Foreign Exchange Act Clearance
 If a foreign buyer acquires (either directly or along with its affiliates) 10% or more of the outstanding shares of a Japanese company, then the
buyer must file a notification with Japan’s Ministry of Finance and the Japanese economic ministry overseeing the industry in which the target
company operates by the 15th day of the month after the month in which the acquisition closes
 A filing before an acquisition followed by a 30-day waiting period is required pursuant to Japan’s Foreign Exchange and Foreign Trade Act
depending on the country of origin of the buyer or if the target company or any of its subsidiaries engage in a business that is either deemed
to be critical to Japan’s national security (e.g., weapons, aircraft, and nuclear power) or engage in certain protected industries (e.g.,
agriculture, petroleum, and leather)
 Tender Offer Rules (a company that files a securities report only)
 Buyer should be careful to structure the timing, manner and number of shares that it acquires to avoid triggering the application of Japanese
tender offer rules to its contemplated purchase
 Required to launch a mandatory general offer open to all shareholders if the buyer’s ownership interest in the outstanding voting shares
and certain derivative securities (as defined under Japanese securities laws) of a public target company will exceed one-third as a result
of its acquisition of such company’s shares in an off-market transaction
 Required to launch a mandatory general offer open to all shareholders if a buyer acquires more than 5% of the outstanding voting shares
of a public target company through transactions conducted “outside the market” with more than 10 persons during a rolling 60-day period
 Industry Specific Regulations (e.g., broadcasting, air transportation, telecommunications)
Post-merger integration
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%.
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
Incorrect A lack of Target Valu M&A A lack of planning

DD
M&A strategy selection ation Execution post M&A
process
Acquiring targets becomes the main goal/ objective.
M&A completion M&A success
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
The goal/ objective of M&A is to derive value by acquiring targets which

are consistent with the Company’s business strategy.
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?
0% 20% 40% 60%
Cultural barrier
Post-transaction governance
A lack of information about the target
A lack of human resources for M&A
A lack of information on local markets
Synergy realization after M&A
Lack expertise with negotiations
Language barrier
Others
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
Europe 50% 40% 10% 90%
US 40% 47% 13% 87%
Japan 7% 47% 46% 54%
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
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 a Clear Integration Strategy – Strategic and operational clarity

1 – Establish operational strategies and integration blueprints – Enhanced operating and financial performance levels
– Develop an executable integration roadmap with milestones
Control the Integration

– Clear governance processes and accountability
2 – Develop clear governance and PMO structure and processes
– Speedy integration process
– Establish appropriate cadence for the integration and prioritize
Expanded and Accelerated Synergies Capture

3 – Develop and assign detailed revenue enhancement and cost saving targets – Clear goals and stretch targets
– Develop business cases and implement as soon as possible – Synergies realized as quickly as possible
Rigorously Plan and Prioritize for Day 1 Readiness
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
Jumpstart Information Technology Execution – Clear technology blueprint

6 – Document business processes and supporting applications – Staged implementation approach to accelerate
– Define desired “to-be” state and create strategy to migrate all data and applications synergy and minimize disruption
Contacts
Contacts
Deloitte
Brian L. Lightle Koichi Tamura Michael M. Laurer
Executive Officer Partner Manager

M&A Transaction Services Head of Corporate Financial The CFO Program | Japan
Advisory Services
+81 90 9843 5050 +81 80 1010 3292 +81 80 4363 4814

brian.lightle@tohmatsu.co.jp koichi.tamura@tohmatsu.co.jp mlaurer@tohmatsu.co.jp
Nishimura & Asahi
Stephen D. Bohrer Daisuke Morimoto
Partner Partner
M&A Attorney M&A Attorney
+81 3 5562 8648 +81 3 5562 8374

s_bohrer@jurists.co.jp d_morimoto@jurists.co.jp
Deloitte Tohmatsu Consulting (DTC) is a Japan-based member firm of Deloitte -a worldwide network providing professional services and
advice. As an entity in the Deloitte Touche Tohmatsu Limited providing four professional service areas: audit, tax, consulting, and
financial advisory services, DTC provides consulting services in Japan and to Japanese companies worldwide. DTC’s integrated
services cover strategy through implementation to solve wide-ranging management challenges. DTC works closely with other Deloitte
member firms both in Japan and overseas by leveraging the deep intellectual capital of approximately 200,000 professionals worldwide.
Deloitte provides audit, tax, consulting, and financial advisory services to public and private clients spanning multiple industries. With a
globally connected network of member firms in more than 150 countries, Deloitte brings world-class capabilities and high-quality service
to clients, delivering the insights they need to address their most complex business challenges. Deloitte has in the region of 200,000
professionals, all committed to becoming the standard of excellence.
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The CFO Program | Japan

Mergers & Acquisitions

Deal or no deal: successfully executing

• M&A market trends in Japan

 In the past 18 months, the majority of Japan

 The majority of entities represented expect

Japan deal activity snapshot:

Recent top deals:

Date Buyer Seller Market Country Value JPY(m)

Jan 2014 Suntory Holdings Beam Inc. Outbound USA 1,679,360

Sep 2013 Lixil Group Grohe AG Outbound Germany 381,600

IN-IN IN-OUT OUT-IN IN-OUT as a % of total

IN-IN IN-OUT OUT-IN

196 volume by sector

3,881 value by sector

 One in four CFOs thinks identifying a target

 More than half of the CFOs have not been

8. N/A - Have not been involved with a

Step 1 Step 2 Step 3

 Decision making of fundamental strategies  Preparation of Management Interview  Payment

Step 1 Step 2 Step 3

Team Building Signing

So you need to perform due diligence…where to start?

Other common types of due diligence – often performed internally or with

 Most of the CFOs have chosen a broad

9. Intellectual Property Due Diligence 5

Objectives Common Areas of Focus

Common Normalizing EBITDA Adjustments

Objectives Common Areas of Focus

Objectives Common areas of focus

 Analyze legal documents to

 Analyze legal documents to identify

General Legal Challenges Faced in Japan M&A Transactions

Japan Acquisition Agreements – Tips to Consider During Negotiations

Regulatory Approvals Commonly Required When Acquiring a Japanese Company

Incorrect A lack of Target Valu M&A A lack of planning

Acquiring targets becomes the main goal/ objective.

M&A completion M&A success

The goal/ objective of M&A is to derive value by acquiring targets which

0% 20% 40% 60%

A lack of information about the target

A lack of human resources for M&A

A lack of information on local markets

Synergy realization after M&A

Lack expertise with negotiations

Europe 50% 40% 10% 90%

US 40% 47% 13% 87%

Japan 7% 47% 46% 54%

Develop a Clear Integration Strategy – Strategic and operational clarity

Control the Integration

Expanded and Accelerated Synergies Capture

Rigorously Plan and Prioritize for Day 1 Readiness

Jumpstart Information Technology Execution – Clear technology blueprint

Brian L. Lightle Koichi Tamura Michael M. Laurer

Executive Officer Partner Manager

+81 90 9843 5050 +81 80 1010 3292 +81 80 4363 4814

Nishimura & Asahi

Stephen D. Bohrer Daisuke Morimoto

+81 3 5562 8648 +81 3 5562 8374

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