Developing A Corporate Acquisition Strategy: Case Studies, Concepts, and Debatable Ideas

DEVELOPING A CORPORATE
ACQUISITION STRATEGY
Case studies, Concepts, and Debatable Ideas
Kenny Ong
CNI Holdings Berhad
www.myCNI.com.my www.OOBEY.com
1. M&A Trends
2. Rationale for M&As
3. Strategies, Structure, and Optimizing Value in
M&As
4. Considerations, Risks and Pitfalls
Before we start…
• How to fail without trying
The Roadmap to Failure

by Fred Wiersema and Mike Treacy
Fred Wiersema and Mike Treacy
The Moment of
Downpresure of
Truth
Unclear Strategy
X
Performance
ctic s
c Ta
- ho
Ad Performance
Freefall
Today’s
performance
Doom Tomorrow’s
Projections actual
performance
Clear Sailing Denial & Defense Overdue Failure
Time
Denial and Defense
• “It’s not really good value our competitor is
offering, because it doesn’t include a lot of our
features.” - ABC vs Air Asia
• “It’s good value but not in our preferred
customer market.” - ABC vs Toyota
• “Sure they’re hurting us, but with their unfair
advantage, what can we do?” – ABC vs MILO
• “The rules we are playing by have always
worked before” – AMEX vs VISA
The Moment of
Downpresure of
Truth
Unclear Strategy
X
Performance
ctic s
c Ta
- ho
Ad Performance
Freefall
Today’s
performance
Doom Tomorrow’s
Projections actual
performance
Time
Ad Hoc Tactics
• Selectively hold discounts to hold business that has
started to go elsewhere
• Introduce new promotions, terms, conditions, and offers to
confuse and cloud the market
• Beef up customer service by adding people to fix mess-
ups and quicken delayed shipments
• Delay capital investments and adjust accounting methods
to portray quarterly financial results more favorably
• Introduce “new and improved” products that are new in
form, but not in substantive ways that are of consequence
to purchasers
• Merge, Acquire, Joint Venture and Ally out of desperation
or without proper considerations
The Moment of
Downpresure of
Truth
Unclear Strategy
X
Performance
ctic s
c Ta
- ho
Ad Performance
Freefall
Today’s
performance
Doom Tomorrow’s
Projections actual
performance
Time
“What is the moral of
the story?”
What is the Business
Model?
USP
Market
Profit Model
Discipline
Intro: Market Discipline
• Mamak stall
Intro: Market Discipline
Product "They are the most innovative"

Leadership "Constantly renewing and creative"
"Always on the leading edge"
Customer
Operational Intimacy
Excellence "Exactly what I need"
"A great deal!"
Customized products
Excellent/attractive price
Personalized communications
Minimal acquisition cost and "They're very responsive"
hassle
Preferential service and
Lowest overall cost of flexibility
ownership Recommends what I need
"A no-hassles firm" "I'm very loyal to them"
Convenience and speed Helps us to be a success
Reliable product and
service
Strategy: Disciplines,
Priorities, and KPIs
Product Leadership
(best product)
Operational Excellence Customer Intimacy

(low cost producer) (best total solution)
Ref: The Discipline of Market Leaders, Michael Treacy & Fred Wiersema; 1995
The McPlaybook*
Make it easy to eat Make it easy to prepare

• 50% drive-thru • High Turnover
• Meals held in one • Tasks simple to learn
hand & repeat
Make it quick Make what customers want

• “Fast Food” • Prowls market for new
• Tests new products products
for Cooking Times • Monitored field tests
*Adapted from: Businessweek , Februrary 5th 2007
Strategy: Disciplines,
Priorities, and KPIs
Operational
Operational Product
ProductLeadership
Leadership Customer
CustomerIntimacy
Intimacy
Excellence
Excellence •• New,
New,state
stateof
ofthe
the •• Management
Managementbyby
•• Competitive
Competitiveprice
price art
artproducts
productsoror Fact
Fact
•• Error services
services
Errorfree,
free,reliable
reliable •• Easy
Easyto
todo do
•• Risk
Risktakers
takers business
businesswith
with
•• Fast
Fast(on
(ondemand)
demand)
•• Meet
Meetvolatile
volatile •• Have
Haveitityour
yourway
way
•• Simple
Simple customer
customerneeds
needs (customization)
(customization)
•• Responsive
Responsive •• Fast
Fastconcept-to-
concept-to- •• Market
Marketsegments
segments
•• Consistent
Consistent counter
counter of
ofone
one
information
informationfor
forall
all •• Never
Neversatisfied
satisfied-- •• Proactive,
Proactive,flexible
flexible
•• Transactional
Transactional obsolete
obsoleteown
ownand
and •• Relationship
Relationshipandand
competitors'
competitors'
•• 'Once
'Onceand
andDone'
Done' consultative
consultative
products
products selling
selling
•• Learning
Learning •• Cross
Crossselling
selling
organization
organization
Strategy: Value Disciplines
Product Leadership
(best product)

Strategy: Value Disciplines
Product Leadership
(best product)

Sample KPIs for Each
Discipline
Operational
Operational Product
ProductLeadership
Leadership Customer
CustomerIntimacy
Intimacy
Excellence
Excellence
•• Marketing
Marketing
•• Price •• Functionality
Functionality •• Customer
Price Customer
•• Selection •• ##ofofSuccesses
Successes Knowledge
Selection Knowledge
•• Convenience •• ##ofofFailures •• Solutions
Convenience Failures SolutionsOffered
Offered
•• Zero
ZeroDefects
Defects •• Learn
Learnfrom
fromkey
keyusers
users •• Penetration
Penetration
•• Growth •• Interdisciplinary
Interdisciplinaryteams •• Customer
Growth teams CustomerData
Data
•• Pipeline
Pipeline •• Customer-success
Customer-success
focus
focus
1. M&A Trends
M&A Trends
1. Booming Demand 8. Supply security

2. Supply/Demand shift to 9. Scarcity of Talent
remote, unstable 10. Global labor market
locations 11. New, low cost players
3. Demand shift in Asia 12. Niche companies in new
4. Middle East ‘cheap’ technologies*
energy = diversification 13. Private Equity
5. Natural resources 14. Restructuring
depleting fast undervalued
6. Massive capital required Conglomerates
M&A Trends
15. Record profits, High 21. Alternative Industries –

Prices growth, fragmented*
16. Antitrust Regulations 22. Low R&D, demand for
17. Cross-border new technologies
Regulations 23. Credit Crunch
18. Traditional MNC 24. Foreign entities
consolidation 25. Political instabilities
19. Competition for Assets 26. De-regularization,
20. Rise of Sovereign Funds Unbundling
Biggest Trend
“Earnings Per Share growth expectations

are way above what companies can
achieve in most territories from organic
growth alone”
John McConomy, US Power and Utilities Transaction Services Leader,

PricewaterhouseCoopers
2. Rationale for M&As
Two Major Rationale for
M&As:
1. Cost Reduction
2. Growth
Strategies for Growth
“Double-Digit Growth”, Michael Treacy
1.Base Retention
5.New Business 2.Share Gain
GROWTH
4.Adjacent Market 3.Positioning
Rationale for M&As: Growth
Expansion Transformative
1.Consolidate 1.Portfolio
refocus
2.Geographic
2.Diversification
3.Distribution
4.Compensate
Easier Toughe
r
Rationale for M&As:
Expansion
Expansion 1. Gain Scale to compete
1. Consolidate 2. Integrated Solutions
2. Geographic 3. Financial Growth
3. Distribution 4. Supply (security, mix)
4. Compensate 5. Developing markets

6. High cost of Extra Capacity
7. Private Equity
8. Expanding Sovereign Funds
Rationale for M&As:
Expansion
Expansion 9. De-regularization
1. Consolidate 10.Demand outstrip supply
2. Geographic 11.Revenue Mix – Tax

optimization
3. Distribution
12.Talent
4. Compensate
13.New, Low-cost Entrants
14.Undervalued Big Players
15.Newer Assets
Rationale for M&As:
Transformative
1. New Business Lines
Transformative
2. Selling/Spin-off non-core
1. Portfolio
refocus 3. Increase product line
4. New customers
2. Diversification
5. New technologies*
6. Complementary Business
7. Up-down Supply Chain
8. Patent
9. Convergence anticipation
Rationale for M&As: Cross
Sectors
Traditional
Incremental Alternative
Rationale for M&As: Cross
Sectors
Example: Traditional Utility

Energy Sector Oil, Gas,
Electricity, Coal
Technology Energy
Biomass, Nuclear,
New Delivery, New Sources,
Ethanol, Wind, Solar
Existing Resources
Possible ‘Outside’ Acquirers
or Investors
Institutional
Fund Managers Financial (Loans) Gov. VCs
Corporations JV Partners Supply Chain
Sovereign Funds M&A Gov. Partnership
VCs Social VCs Non-Profit Org
NGOs Holding Co. Competitors
Why do ‘Outsiders’ Acquire
or Invest?
1. Return/Profit 8. Contractual
2. Risk Management/ obligation
Hedging 9. National Agenda
3. Tax-benefits
10.Control Supply Chain
4. CSR/Image
11.R&D portfolio
5. Diversify revenue
12.Control Management
6. Counter-cyclical
balance 13.Alternative Cash
7. Support ‘Mission’ Flow
8. Exclusive rights 14.M&A
3. Strategies, Structure, and
Optimizing Value in M&As
Strategies for Growth
“Double-Digit Growth”, Michael Treacy
1.Base Retention
5.New Business 2.Share Gain
GROWTH
4.Adjacent Market 3.Positioning
How Markets determine
Growth Strategies (1)
• Growth Rate
Growth Strategy Why?
Rate
Fast 1. Market •Maintain market share in strategic
Positioning segments
2. Share Gain •Prepare for market decline
3. Base •Competitors focus too much on
Retention getting new customers
Flat 1. Base •Lose customers slower than
Retention competitors
2. Share Gain •Create scale economics, squeeze
(Acquisitions) costs
• Churn Rate
Churn Strategy Why?
Rate
Low 1. Share Gain •Buying customer base is cheaper
(Acquisitions) than own efforts
2. Adjacent •New products, old customers
Markets strategy
High 1. Base •Lose customers slower than

Retention competitors
2. Share Gain •Customers are always open to the
3. Adjacent best value and offer
Market •Desperate to gain revenue
•Example: Energy Sector

Fast Growth, 1.Market Positioning
Low Churn 2.Share Gain (M&A)
3.Base Retention
4.Adjacent Markets (M&A)
Strategy 2: Share Gain
• Create better ‘Value’ proposition
• Neutralize competitor advantages
• Buy Market Share outright

– Price Premium
– Operating Model
– Integration
Buying Market Share:
Acquisition strategy
Net Cost per
Price Customer <
Premium Direct Acquire
Buying
Market
Share Operating
Integration
Model
One Kingdom No evidence of
Pre-integration Blueprint previous company
Slow Trigger, Fast Bullet

Buying Market Share: Side
notes on Funding
Preferable OK, but not preferred
1. Cash from Earnings 1. Cash from Stock sale

2. Cash from Borrowings 2. Issue more stock
*Adapted from Warren Buffet’s acquisition strategies
Strategy 4: Invade Adjacent
Markets
Adjacent Market = Important Similarities and
Large Differences in:
1. Cost Structure
2. Competitors
3. Customers
4. Critical Capabilities
Markets
Traditional
Markets
Example: Traditional Utility
Energy Sector
Technology Energy
Markets
Upstream Midstream Downstream
Raw Mat Conversion Distribution
Vendors/Services
Markets
• Is it a promising market?
– Best when market is new and not stable
– You must time your entry carefully
– Entrenched companies usually delay embracing new technology or process
• Can you win in this market?

– Must be built on advantages that are tangible, practical and easily implemented
Markets
• Can you match the Standards of
Competition in this Market?
– You do have to meet the quality level that is
common in the market
– Three Standards:- Technology,
Relationships, Business-model
– You must have 80 percent of the capabilities
you need to match competitor’s Standards
Markets
• Make or Buy?
1. It is easier to meet the standards of
competition if you buy an existing player
2. Adjacent acquisitions must remain as a
separate enterprise
3. Integrate Management Control (systems,
technology)
4. Inter-transfer of management talent,
knowledge and capability are important
Strategy 5: Acquire new
Business
• No core advantage to bring in
• Investors mind-set vs. Managers mind-set
• Value unlocking via operational
improvements
• Invest in Management/Leadership
• Premium = Combined value > stand alone
Linking BSC to M&A
Strategy
Financial
Revenue Growth Productivity Market Value
Customers
Base Share Gain Positioning Adjacent New

Retention Market Business
Internal
Process
Operational Product Customer Investment
Excellence Leadership Intimacy Strategy
Learning & Growth
Competencies Information Motivation,

Systems empowerment,
alignment
4. Considerations, Risks and Pitfalls
Types of M&A Deals vs.
Considerations
Large Transformation/
Overcapacity Product/
Market Convergence
(Relative)
Consolidation
Size
Roll-up Acquire Strategic

products/ Growth Bet
Small market
Share Gain Adjacent New Business

(Expansion) (Transformative) (Transformative)
“Running a winning M&A shop”, McKinsey
Considerations
Large •Reduce industry
Overcapacity
capacity
(Relative)
•Control Pricing
Size
•Similar Product
Offerings
•Pay for Cost synergies
Small

Considerations
Large •Transfer Core Strength
to target
(Relative)
•Pay for lower operating

Size
cost of target
Roll-up •Increase revenue thru
broad strength
Small

Considerations
Large •Economies of
Product/
Market Scale
(Relative)
Consolidation •Consolidate
Size
back office
•Expand Market
presence
Small •Pay for Growth,
Channels
Considerations
Large •Expand market
offering
(Relative)
•Expand
Size
Geographic
reach Acquire
•Pay for Growth, products/
Small Channels market
•Revenue
Share Gain
synergies Adjacent New Business
Considerations
Large •Transform Industry Transformation/
•Create new Value Convergence
(Relative)
Proposition
Size
•Pay for New Markets,

New Capabilities
Small

Considerations
Large •Skill transfer into new
business
(Relative)
•Pay for High Risk

Size
options, ability to act in

Strategic
new market space
Growth Bet
Small

Adapted: “Running a winning M&A shop”, McKinsey
Three-Stage Process for
Evaluating M&A deals
1. Business Dev +
1. Strategy Approval Business Unit
2. Worth of Target?
3. Attractiveness of Target
vs. Others
2. Approval-to- 4. Target compatible with
Negotiate Strategy?
5. Support from Acquirer?
6. Integration possibilities?
3. Deal Approval “Running a winning M&A shop”, McKinsey

1. Price range
1. Strategy Approval
2. Initial Due Diligence
3. Vision for incorporation
4. Key Synergies
5. Nonbinding Term
2. Approval-to-
Sheet/LOI
Negotiate 6. Negotiation Roadmap
7. Process to Close

3. Deal Approval
1. Strategy Approval
1. Answering Key
2. Approval-to- Questions
2. Debating Valuations
Negotiate
3. Aiming for Integration
4. Dealing with Execution
Risks
3. Deal Approval “Running a winning M&A shop”, McKinsey
Considerations, Risks and
Pitfalls
1. Global footprint vs. Local Presence
2. Anti-trust and Regulatory permissions
3. M&A Accounting Standards
4. ‘Fair Value’ definition in financial reporting =
‘Exit’ price
5. Acquirer and Target having different Risk
Tolerances
6. Public (or Public-hopeful) companies need to
consider EPS after acquisition
Considerations, Risks and
Pitfalls
7. Synergies and Improvements need to realized
as quickly and efficiently as possible
8. Combined Management capability to deliver
improved performance
9. First 100 days post-acquisition blueprint
10. Culture management
11. Staff Poaching from Competitors (and non-
competitors)
12. Customer Poaching from Competitors
Consideration: Alternative
Deals to M&A
“When companies are unwilling to sell or

acquisition premiums are too high,
alliances are the next best thing to a
merger. In other cases, they are actually
preferable to M&A”
David Hernst, Principal, McKinsey’s Washington, DC
Consideration: Alternative
Deals to M&A
Unite business units
Joint
Problem with shared ownership
Venture
New Product Lines
Cost Reductions
Share risk, Share Cost in new markets, R&D
Buy-out clause
Reduce non-core or commoditizing parts

Alliances
Outsourcing, Offshoring
Help supplier gain Scale
Enter Complementary business
End Note for M&A
“Go where the money is...

then marry for love”
F. Scott Fitzgerald, Author
Thank You.
soft copy of slides:

www.totallyunrelatedrandomanddebatable.
blogspot.com

Developing A Corporate Acquisition Strategy: Case Studies, Concepts, and Debatable Ideas

Hochgeladen von

Dokumentinformationen

Originalbeschreibung:

Originaltitel

Copyright

Verfügbare Formate

Dieses Dokument teilen

Dokument teilen oder einbetten

Freigabeoptionen

Stufen Sie dieses Dokument als nützlich ein?

Sind diese Inhalte unangemessen?

Copyright:

Verfügbare Formate

Developing A Corporate Acquisition Strategy: Case Studies, Concepts, and Debatable Ideas

Hochgeladen von

Copyright:

Verfügbare Formate

DEVELOPING A CORPORATE

• How to fail without trying

The Roadmap to Failure

Clear Sailing Denial & Defense Overdue Failure

Clear Sailing Denial & Defense Overdue Failure

Clear Sailing Denial & Defense Overdue Failure

Product "They are the most innovative"

Operational Excellence Customer Intimacy

Make it easy to eat Make it easy to prepare

Make it quick Make what customers want

Operational Excellence Customer Intimacy

Operational Excellence Customer Intimacy

1. Booming Demand 8. Supply security

15. Record profits, High 21. Alternative Industries –

“Earnings Per Share growth expectations

John McConomy, US Power and Utilities Transaction Services Leader,

“Double-Digit Growth”, Michael Treacy

5.New Business 2.Share Gain

4.Adjacent Market 3.Positioning

Expansion 1. Gain Scale to compete

1. Consolidate 2. Integrated Solutions

2. Geographic 3. Financial Growth

3. Distribution 4. Supply (security, mix)

4. Compensate 5. Developing markets

1. Consolidate 10.Demand outstrip supply

2. Geographic 11.Revenue Mix – Tax

Example: Traditional Utility

Corporations JV Partners Supply Chain

Sovereign Funds M&A Gov. Partnership

VCs Social VCs Non-Profit Org

NGOs Holding Co. Competitors

“Double-Digit Growth”, Michael Treacy

5.New Business 2.Share Gain

4.Adjacent Market 3.Positioning

High 1. Base •Lose customers slower than

•Example: Energy Sector

• Create better ‘Value’ proposition

• Neutralize competitor advantages

• Buy Market Share outright

Slow Trigger, Fast Bullet

Preferable OK, but not preferred

1. Cash from Earnings 1. Cash from Stock sale

*Adapted from Warren Buffet’s acquisition strategies

Upstream Midstream Downstream

Raw Mat Conversion Distribution

• Can you win in this market?

Base Share Gain Positioning Adjacent New

Learning & Growth

Competencies Information Motivation,

Roll-up Acquire Strategic

Share Gain Adjacent New Business

Share Gain Adjacent New Business

•Pay for lower operating

Share Gain Adjacent New Business

•Pay for New Markets,

Share Gain Adjacent New Business

•Pay for High Risk

options, ability to act in

Share Gain Adjacent New Business

3. Deal Approval “Running a winning M&A shop”, McKinsey

“Running a winning M&A shop”, McKinsey

“When companies are unwilling to sell or