Mergers & Acquisitions (M&A) Strategic Analysis Series Primer July 2010

Mergers & Acquisitions (M&A) Strategic Analysis Series Primer July 2010

M&A Primer Introduction Objectives • The purpose of this module is to allow new ACs and Consultants to: • obtain a background understanding of M&A • understand what XXX does/doesn’t do in an M&A project • review basic analytical tools required in different M&A projects at XXX • develop, through an exercise, an important basic analytical skill often used in M&A projects XXX: denotes the M&A advisor or consulting company

M&A Primer Introduction Agenda • Trends in M&A • Guiding Principles for Successful M&A • XXX Approach • Case Examples • screening • due diligence • sale • Exercise on Synergy Calculation • Typical Watchouts • Key Takeaways XXX: denotes the M&A advisor or consulting company

M&A Primer Drivers of M&A Activity Trends Macro-economics Strategic Financial Other • Economy boom or recovery • Over-capacity in an industry • Cheap money • Industry consolidation • Globalization • Gain share • Eliminate competitive threat • Capture operating opportunities, e.g., scale efficiencies • Leverage existing business systems • forward/backward integration • start-up alternative • Diversify/balance portfolio • Retire excess industry capacity • Improve capital markets evaluation of acquirer • meet growth targets • reduce portfolio risk • Invest idle cash • Greed • Ego XXX: denotes the M&A advisor or consulting company

M&A Primer M&A Activity - U.S. vs. Europe Trends European and US M&A activity is experiencing similar positive trends. CAGR (1992-1997) $B Europe 21% US 41% Note: Transaction Value (including Net Debt of Target). Excludes split-offs. Europe includes 50 major countries Source: SDC XXX: denotes the M&A advisor or consulting company

M&A Primer Trends M&A Activity • M&A activity has grown rapidly in nominal dollar terms, peaking in the U.S. in the late 1980s, and then matching those levels last year • The ferocious merger activity of the late 1980s was driven in large part by the “easy money” afforded by the junk bond market. This resulted in huge, often unsubstantiated, premiums being paid for companies without regard to the value creation opportunities presented (or not presented, as the case may be) by the operations/underlying business of the target • Growth in merger activity since 1992 has coincided with the economy’s recovery from recession • Recent M&A activity benefiting from: • extended economic health with little recessionary pressure on horizon • a resulting corporate demand for growth • increase in international M&A activity as companies pursuing global strategies • Since late 1997, U.S. and European markets have experienced the resurgence of junk bonds to facilitate the execution of deals getting larger and larger XXX: denotes the M&A advisor or consulting company

M&A Primer Trends M&A Activity by Country 1996/97 US market dominates the global M&A activity. Percent change: 50% 41% 110% 31% 50% 14% 79% 57% Note: Represents announced deals Source: SDC XXX: denotes the M&A advisor or consulting company

8,000 500 Transactions (line) Aggregate Offered Value ($ BN) (bars) 400 6,000 300 4,000 200 2,000 100 0 0 Retail Utilities Oil & Gas Insurance Broadcasting Miscellaneous Health Services Food Processing Office Equipment Banking & finance Business Services Electronic, Electric Chemicals & Drugs Aerospace & Aircraft Telecommunications Measuring, Medical, Leisure & Entertainm Prepackaged Software M&A Primer Trends US M&A Activity by Seller Industry (1992-97) Value and volume of transactions vary across industries. For example, in the US, computer software and service industries tend to do many small deals. Telecommunications, broadcasting and leisure and entertainment have high transaction size. Source: SDC ( March 98) XXX: denotes the M&A advisor or consulting company

Sources: The BUYOUTS Yearbook, XXX Analysis. M&A Primer Trends Multiples Paid for Acquisitions Over the last five years, the prices paid for acquisitions have been increasing, and reinforces the need for in-depth due diligence and analysis to ensure a fair price. Average EBIT Multiple XXX: denotes the M&A advisor or consulting company

Notes: Failure defined as earnings less than cost of capital and/or subsequently divested. M&A Primer Trends Acquisition Success Rates The majority of acquisitions have been deemed failures. Percent of Acquisitions Failing* in First Five Years Percent of Total Survey of CFOs XXX & Company Study Harvard Business School London Business School XXX: denotes the M&A advisor or consulting company

M&A Primer Trends Common Reasons for Failure • Poor strategic fit • combination does not provide competitive advantage • lack of understanding of the business • Overpay • imperfect information/wrong valuation • too optimistic in forecasts/synergies • unforeseen industry downturn/emerging technology • auction environment; failure to set/stick to ‘walk away’ price • CEO/management ego • revenue growth vs. profitability • emotion vs. analysis • Poor post acquisition integration • inadequate planning • failure to exploit revenue/margin potential • disrupted relations with customers, employers and suppliers • culture clash; failure to involve ‘acquired’ people Strategic, financial and operating causes XXX: denotes the M&A advisor or consulting company

M&A Primer Trends Glossary • The legal combination of two (or more) formerly independent entities • The acquisition by an independent entity of a control stake in another entity. This is usually achieved by acquiring more than 50% of shares for a public company • The sale or closure of a particular entity • Leveraged buy-out: An acquisition made possible financially by large issuance of debt, making the new entity highly “leveraged” or “geared” (i.e., with a high ratio of debt to equity) • Investment firms managing private funds by running business portfolios • Bonds (or debentures, or coupon debt) issued by an entity without a credit rating or with entities with “non-investment grade” rating • Financial markets use the service of credit rating firms such as Standard & Poor’s and Moody’s to determine entities’ credit worthiness (i.e., the ability for an entity to pay back their debt). Ratings are allocated from AAA or Aaa (highest) to C (lowest) • Entities with Investment Grade Ratings (AAA down to B) are considered stable • non-investment Grade entities (below B) present an investment risk (e.g., third world countries, highly leveraged companies) Merger Acquisition Divestiture LBO Private Equity Firms Junk bonds Credit Rating XXX: denotes the M&A advisor or consulting company

M&A Primer Principles Guiding Principles (1 of 2) XXX believes that a clear and disciplined approach to the acquisition process is vital to ensure success. Proactive Strategic Thinking Screening • Acquisitions are made to improve the strategic position of existing businesses or add to the core competencies of the corporation • Assess impact of acquisitions on long-term shareholder value • Use acquisition as a vehicle to accelerate growth in key business units Principles: • Look for all companies that potentially strengthen the corporation • Don't allow a "transaction" mentality to dominate the process • Define business segments • Diagnose key competencies and any skill gaps • Analyze market dynamics • Study cost of acquisition versus organic growth • Look for targets that present best fit in terms of: • relatedness • impact on market position • Examine key success factors of potential targets • Examine competitive position of client vs. competitive bidders Activities: XXX: denotes the M&A advisor or consulting company

M&A Primer Principles Guiding Principles (2 of 2) XXX believes that a clear and disciplined approach to the acquisition process is vital to ensure success. Execution Capture Full Value Principles: • Make better decisions upfront through careful due diligence • Strive to identify "deal breaker" issues as early as possible • Use information and insights to provide confidence in making a bid • Clearly communicate corporate vision to target • Begin integration process as early as possible • Be objective to ensure a fair decision-making process • Create a set of short-term and long-term objectives • Quantify all potential synergies and cost savings • Examine margin and revenue forecasts • Evaluate management of target Activities: • Provide a blueprint for capturing full potential value • Support managerial integration team XXX: denotes the M&A advisor or consulting company

M&A Primer Principles Strategy and M&A Acquisitions at both the corporate and business unit level need to be thought of as an integral part of a company's growth strategy. • Corporate objectives • growth and financial targets • competitive arena • Corporate strategy • strategic position • management of resources Growth throughcorporate acquisitions • Business unit objectives • business definition • growth and financial targets • Business unit strategy • strategic position • key success factors • sustainable competitive advantage Growth throughbusiness unit acquisitions Organic growth XXX: denotes the M&A advisor or consulting company

M&A Primer Principles Strategic Framework The focus of strategic M&A activity should be in areas where there is the highest value creation opportunity as well as the strongest parenting advantage. High Focus Value Creation Opportunity Low High Low Parenting Advantage “Is value to our client higher than value to other parents?” XXX: denotes the M&A advisor or consulting company

M&A Primer Principles M&A Value Creation Opportunities M&A value can arise from generating the full value of an undervalued entity or by adding value to under performing assets. Buy cheap Add value Generate synergies Take advantage of inefficiencies in the market Spot new market trends early XXX: denotes the M&A advisor or consulting company

M&A Primer Principles Critical Issues XXX assimilates the strategic process with acquisitions by focusing on four key areas. (I) Relatedness (II) Strategic Strength (III) Market Dynamics • Market growth • Technology changes • Product substitution • Barriers to exit and entry • Supplier and buyer power • Cost sharing • Customer sharing • Competitor overlap • Experience sharing • Strength of key competitors • Relative cost position • Strengths and weaknesses of acquirer Resolving these issues allows an accurate evaluation of a company (IV) Value: XXX: denotes the M&A advisor or consulting company

M&A Primer Principles Success Criteria - Diagnostic Tool The ability to improve the strategic position of the acquirer, and grow or complement its existing competencies are keys to success. III) Market Dynamics RMS>1.5x Growth > 10% RMS1.5-1.0x Growth 5-10% (II) Strategic Strength(Relative Market Share) Growth <5% RMS<0.5x Medium 25-50% High >50% Low <25% Relatedness (I) (Experience and/or Cost Sharing) (IV) Value Accurate evaluation based on NPV vs. Market Price XXX: denotes the M&A advisor or consulting company

M&A Primer Principles Success and Market Share Acquisitions that increased market share substantially were consistently more successful. Incidence of success Incidence of outright failure Percent Market Share Bought Sources: Porter (33 Large U.S. Corps.; Management Interviews) XXX: denotes the M&A advisor or consulting company

M&A Primer Principles Market Impact of Announced Transactions* The stock market rewards companies that make related and/or focused acquisitions. Average Percent Price Increases Definition: Unrelated Related Focused • Minimal cost overlap between acquirer and target • Medium degree of cost overlap • Target derives >70% of revenues from same business as acquirer • Significant amount of activity and cost overlap between acquirer and target • Target complements existing product line and adds to core competencies of acquirer Note: * Two weeks before compared to one week after announcement Source: Industry Literature Review, XXX: denotes the M&A advisor or consulting company

M&A Primer Principles Examples of Failures (1 of 2) The M&A landscape is littered with unsuccessful acquisitions which failed to adhere to the core guiding principles. Acquisition Thesis Transaction Value Reason for Failure Industry Acquirer Target • Inadequate due diligence • growth cycle not well understood • brand strength overestimated • Leverage distribution channels Consumer Goods Quaker Oats Snapple $ 1.7B Entertain-ment Sony Matsushita Columbia MCA $ 4.8B $ 6.1B • Own up stream contents for downstream hardware • Inadequate due diligence • over valued synergies • Strategically flawed and poor integration Sears DeanWitter $ 6.7B • Build a "one-stop" financial supermarket • Inadequate due diligence • limited cross-sell potential Finance Amex Shearson $ 900MM • Expand distribution capabilities • Poor integration • culture clash XXX: denotes the M&A advisor or consulting company Sources: Industry literature;

M&A Primer Principles Examples of Failures (2 of 2) The M&A landscape is littered with failures which failed to adhere to the core guiding principles. Transaction Value Acquisition Thesis Reason for Failure Industry Acquirer Target Retail • Inadequate due diligence • overvalued potential synergies and brand value Allied Federated $ 6.5B • Expand geographically • Strategically flawed • few synergies between computer hardware and telephony • Poor integration AT&T NCR $ 7.5B Technology/Telecommu-nications • Technology/ telephony integration Novell WordPerfect $ 1.4B • New market entry • Poor integration • culture clash Sources: Industry literature; XXX: denotes the M&A advisor or consulting company

M&A Primer Principles Examples of Successful Acquisitions (1 of 2) However, many companies have created enormous value through successful acquisitions. Transaction Value Industry Target Acquisition Thesis Acquirer Reason for Success • Careful due diligence • increased scale and presence as a global player Consumer Goods Cadbury Schweppes Dr. Pepper/ 7-Up $ 2.0B • Expand geographic distribution First Financial Management • Well-managed integration • integration of credit card processing services of consumer and commercial sides Financial Services First Data $ 6.6B • Obtain scale economies • Expand geographical reach and leverage back-office • Careful due diligence and integration • capture of synergies and cost savings $ 1.07B Wells Fargo Crocker Food Tyson Holly Farms $ 1.4B • Extend product line • Good strategic fit and due diligence • capture of cost- sharing potential Sources: Industry literature; XXX: denotes the M&A advisor or consulting company

M&A Primer Principles Examples of Successful Acquisitions (2 of 2) However, many companies have created enormous value through successful acquisitions. Transaction Value Industry Target Acquisition Thesis Acquirer Reason for Success • Well-managed integration • close attention to culture match; open communication of strategic vision High Technology Cisco Stratacom $ 4.5B • New technology Healthcare Columbia HCA $5.7B • Build national healthcare group • Good strategic fit and due diligence • capture of cost-sharing and scale economies • Expand geographic reach and leverage product strengths • Good strategic fit and due diligence • strong understanding of market dynamic to improve strategic position Manufacturing Crown, Cork & Seal Carnaud(French) $ 3.9B Transportation Union Pacific Chicago & North Western Transportation Company $ 1.1B • Expand geographically • Good strategic rationale • pre-emptive strategic move to maintain strategic position Sources: Industry literature; XXX: denotes the M&A advisor or consulting company

M&A Primer Approach Key Activities Approach to acquisitions follows a series of key steps. • Should an acquisition strategy be pursued? • What sector or region? Strategy • The best candidate based on attractiveness and availability Acquisition target screen • Validate screening assumptions Due diligence Bid structure and negotiations • The right price Integration pre-planning Target valuation • Getting full value Integration XXX: denotes the M&A advisor or consulting company

M&A Primer Approach M&A Value Chain XXX has considerable experience in the different skill sets needed at different stages in the acquisition process. Acquisition Screening Due Diligence Valuation Integration Objective: • Identify potential candidates which present best fit in terms of: • relatedness • impact on market position • Understand full strategic value of acquisition candidate • Implement strategic vision for merger that gives direction and impetus for change • Definitive actions and role definitions to speed integration process • Make better decisions upfront • Provide agenda for post-acquisition change • Improve success in closing deal • Business/strategic review • market trends • customers and suppliers • competitors • costs, technology • valuation/full potential assessment • Quantify current operating value, stand alone operating improvements, and potential synergies • Pre-planning • combined cash flows • Transition plan • Cost reduction • Revenue enhancement • Industry profile • Target screening • Target approach XXX Activities: • Ignore market dynamics and competitor impact on future cash flows • Taking management projections at face value • Reluctance to interfere in operations of acquiree • Non-identification of "deal breaker" issues • Misunderstanding of cost savings and upside opportunities Common Pitfalls: • Drawing up incomplete list of candidates • Use of screen process to develop a strategy XXX: denotes the M&A advisor or consulting company

Acquisition Screening Due Diligence Valuation Integration Notes: *Consulting branches of Big Six Accounting Firms. M&A Primer Approach XXX and Other Advisors' Role XXX provides a neutral, third-party view and analysis on the primary strategic and financial issues. Investment Banks: • Comb for potential acquisition candidates based on availability • Utilize contacts to build a wide list of potential targets • In tandem with accountants, analyze financial projections based on managerial input • Value based on prices of comparable businesses recently bought or sold • Multiple of earnings/cash flow, assets • Little or no direct input in post-merger activities Accounting Firms*: • Look for potential acquisition candidates based on availability • Use contacts to build list of potential targets • Limited external research • largely dependent on managerial projections • Value based on prices of comparable businesses recently bought or sold • Construct a basic DCF model • Little or no direct input in post-merger activities XXX Role: • Determine targets based on corporate objectives and strategies • Identify acquisitions that enable the acquirer to: • penetrate new markets • acquire capabilities • gain scale advantage • improve relative market position • Analyze quality of customer and supplier base • Look for potential cost savings and upside synergies • Understand market dynamics to better project market and company growth objectives • Construct a discounted cash flow model that values stand alone, operating improvements and potential synergies • Provide a reality check on market valuations • Active involvement in transition plan, cost reduction and revenue enhancement opportunities • "Hands-on" driver of change process to realize full value of merged entity XXX: denotes the M&A advisor or consulting company

M&A Primer Approach Roles and Responsibilities XXX is an integral part of a dedicated team of M&A professionals. 100% Investment Banks • Presentation to board • Market valuation • How, what and when to say • Price • Terms • Support as needed 80% XXX • Prospectus • Other document- ation 60% Percent of Professional Time • Support as needed • Legal Due diligence 40% Lawyers • Scripts • Due diligence • Presentation to both boards • Non-offer letter • Terms • Portfolio • Norm bands • Key issues investigation • Intrinsic cash flow valuation • How, what and when to say • Scripts • Screening study 20% • Letter of comfort • Due diligence Accountants • Pro formas 0% Identify candidate Due Diligence Valuation Development approach Develop offer and deal structure Negotiate Board approvals Implement XXX: denotes the M&A advisor or consulting company

M&A Primer Approach Acquisition Screening Finding potentially attractive targets is the critical first step in an M&A process. Acquisition Screening Due Diligence Valuation Integration Objective: • Identify potential candidates which present best fit in terms of: • relatedness • impact on market position • Industry profile • Target screening • Target approach XXX Activities: Common Pitfalls: • Drawing up incomplete list of candidates • Use of screen process to develop a strategy XXX: denotes the M&A advisor or consulting company

M&A Primer Approach Acquisition Screening(Common Mistakes) Inadequate screening of candidates is commonplace. Objective: • Review all potential candidates and determine which ones present the best fit in terms of: • relatedness • impact on market position Common pitfalls: • Drawing up an incomplete list of candidates, excluding divisions of large companies and very small companies • Using the screening process to develop the strategy • Saying • "We can't buy it because..." • "They have turned us down before" • "The government won't approve it" or • "It's family/state/competitor/or big company owned" • Making the wrong contact at the target company • Being impatient with acquisition process • Assuming "no" really means "no" XXX: denotes the M&A advisor or consulting company

M&A Primer Approach Candidate Screening Process XXX's approach to screening involves careful analysis of the market, competitors and the target. Broad screen Fine screen Thorough analysis Focus of analysis: Market position Relatedness Value creation Screening criteria: • Industry sector • Company size • Company growth • Market share • Financial performance • Key success factors • Competitive position (costs/customers) • Opportunity for synergies • Stand-alone value of synergies/ performance improvement potential • Management/cultural considerations Objective: • Rapidly narrow down universe of companies • Provide shortlist of candidates • Detailed assessment of remaining candidates XXX: denotes the M&A advisor or consulting company

Overlap Market Attractiveness Market Position Value Creation Screen Stand-alone Financial Performance Relative Market Share Cost Industry Concentration Key Success Factors Value of Relatedness Key Success Factors Growth Rate Relative Growth Competitor Size Size Customer Broad Fine Thorough M&A Primer Approach Screening Criteria The XXX approach to screening evaluates the market dynamics and the target's performance and fit with the acquirer. Partial examination Complete examination Availability of Benefits XXX: denotes the M&A advisor or consulting company

M&A Primer Approach Due Diligence XXX goes beyond financial analysis to assess fully the competitive position of the target, and identify "deal breaker" issues . Acquisition Screening Due Diligence Valuation Integration Objective: • Make better decisions upfront • Provide agenda for post-acquisition change • Improve success in closing deal • Business/strategic review • market trends • customers and suppliers • competitors • costs, technology • valuation/full potential assessment XXX Activities: • Non-identification of "deal breaker" issues • Misunderstanding of cost savings and upside opportunities Common Pitfalls: XXX: denotes the M&A advisor or consulting company

M&A Primer Approach Approach to Due Diligence XXX minimizes the risks of acquisitions with a thorough approach to due diligence. • Provide access to the XXX world network to support pre-letter of intent go/no-go decisions • Conduct exhaustive due diligence study of industry and company dynamics: • identify key cash flow drivers • quantify margin and revenue growth forecasts • quantify cost reduction potential • identify "deal breakers" and/or "red flags" causing bid adjustments • identify and quantify all upside opportunities • Identify and evaluate potential exit options • Assist in securing financing through development and presentation of objective, third-party business analysis • Create blueprint for Full Potential strategy • Generate enthusiasm and momentum for the deal within the target company XXX: denotes the M&A advisor or consulting company

M&A Primer Approach Typical Due Diligence Issues (1 of 2) A well-designed due diligence process involves answering a series of key questions. Business Definition: What business is the target in? Who are the current and potential competitors? Market Overview: Is this an attractive industry from size, growth, supplier power, regulatory environment, business concentration and profitability perspectives? Is this the right time to buy? Key Success Factors: How do you make money in this business today and in the future? Company Overview: How well positioned is the target company? (market share, management, products, company performance, customer stability/defections, etc...) Customer Evaluations: What are key purchase criteria and how does our target perform relative to competitors? How might this change in the future? XXX: denotes the M&A advisor or consulting company

Competitor Review: What strategies are key competitors pursuing? How successful are they? Operations: How well managed is the business? Where can the company improve margins and returns? Growth: What is the potential growth? Are there follow-on acquisitions available? How much is the company worth on a stand-alone basis? How much value can be created? Valuation: Exit Strategy: When applicable, is there a clear exit strategy? M&A Primer Approach Typical Due Diligence Issues (2 of 2) XXX: denotes the M&A advisor or consulting company

M&A Primer Approach Typical Due Diligence Activities Understanding of market dynamics, strategic fit, and company performance requires an in-depth external and internal review. External Assessment Internal Assessment • Blind interviews with customers, competitors, suppliers and market experts conducted by experienced, business-minded group members • Exhaustive review of market research reports, company profile information, articles, publications and other publicly available sources • Analysis of above information to determine: • overall market growth potential • customer segmentation • relative performance of target company vs. competitors based on customer needs • vulnerability in value chain (including distribution channels) • Interviews with target company's management in: • marketing/sales • finance/accounting • operations • etc. • Comprehensive review of target company's customer base, personnel and operations • Analysis of above information to determine: • market share projections • potential margin changes • relative cost position • salesforce effectiveness • potential operational improvements XXX: denotes the M&A advisor or consulting company

M&A Primer Approach Valuation XXXs valuation process quantifies the full strategic value of an acquisition to ensure that the client can price with comfort and confidence. Acquisition Screening Due Diligence Valuation Integration Objective: • Understand full strategic value of acquisition candidate • Quantify current operating value, stand alone operating improvements, and potential synergies XXX Activities: • Ignore market dynamics and competitor impact on future cash flows • Taking management projections at face value Common Pitfalls: XXX: denotes the M&A advisor or consulting company

M&A Primer Approach The Value Creation Process XXXs approach to valuation encompasses three distinct steps that closely examine the historical and future financial performance of the target. • Investment banking focus • leverage/gearing • type of financial products used Financial deal structure Percent of Current Market Value (Debt and Equity) • Integration opportunities • expanded distribution • plant consolidation • eliminate redundant R&D • purchasing leverage Synergies Stand alone operating improvement • Better management of assets • plant best demonstrated practices • reduced manufacturing complexity • outsourcing/move off shore • reduced working capital Premium Current operating value Market value of debt and equity • Stand alone cash flow • domestic demand • import penetration • current market share • price per unit • variable cost per unit • fixed costs (R&D, advertising, etc.) • capital expenditures Current market value Maximum potential value Difference between purchase price and post-integration value to client represents value creation opportunity XXX: denotes the M&A advisor or consulting company

M&A Primer Approach Valuation Roadmap The valuation process must answer a set of key questions regarding capabilities, synergies, and strategic fit. Develop Core Business Expectations Value Target as Stand Alone Business Value Potential Synergies Develop RequiredCapital Structure XXX Role: XXX Role: XXX Role: XXX/Investment Bank Role: • Five year cash flow forecast • Critical areas of sensitivity • market growth activity • key customers/ products • cost reduction • capital expenditures • Detailed financial due diligence • historical financial analysis • future protections • DCF analysis • Comparable analysis • Other potential buyers • strategic • financial • Other options • spin-off • liquidation • etc. • Overall fit with strategy • Cost reduction potential • fixed • variable • Revenue synergies • positive • negative • Customer and competition response • Non-recurring costs • Combined cashflow forecasts • acquirer • target • synergies • Possible financing sources • equity • secured debt • cashflow loans • seller financing Investment Bank Role: • Development of conservative case requirements provides basis for analyzing debt capacity • How much is the target worth to the seller? • How much is the target worth to us? • Can we afford it? • Does the increase risk make sense? Related BVU Modules: • Cash flow • BDP • Industry analysis • 3Cs • RCP • Investment appraisal • Cash flow XXX: denotes the M&A advisor or consulting company

M&A Primer Approach Valuation Potential Synergies A key component in the valuation process is to quantify, as best as possible, any upside opportunities on both the revenue and cost side. Bottom-Line Improvement Cost Reduction (“Hard synergies”) Variable Fixed Revenue Enhancement (“Soft” Synergies) • Manufacturing • Sales & Marketing • Distribution • G & A • Purchasing • Labor productivity • Manufacturing efficiency benefits • Consumer and trade spending efficiencies • Transportation efficiency • Examination of sales distribution channels • Product cross-selling • Other Assessed during due diligence XXX: denotes the M&A advisor or consulting company

M&A Primer Approach Integration XXX can assist in the integration process and maximize the value of the target. Acquisition Screening Due Diligence Valuation Integration Objective: • Implement strategic vision for merger that gives direction and impetus for change • Definitive actions and role definitions to speed integration process • Pre-planning • combined cash flows • Transition plan • Cost reduction • Revenue enhancement XXX Activities: Common Pitfalls: • Reluctance to interfere in operations of acquiree XXX: denotes the M&A advisor or consulting company

M&A Primer Approach Importance of Integration The ability to successfully integrate acquired companies is ranked the most important factor influencing acquisition success. Degree of Importance Ability to integrate company Evaluation of acquisition candidate Management abilities of company acquired Prior experience making acquisitions Compatibility of management styles Pricepaid Sample: 200 CEO's Sources: Wall Street Journal XXX: denotes the M&A advisor or consulting company

M&A Primer Approach Integration - Key Success Factors • Early planning • Take control swiftly • Constant communication • Ensure retention of key managers • Aggressive sharing of corporate vision • Respect for people and culture • Adopt merger principles • fact-based and fair decision making • objectivity • two-way communication XXX: denotes the M&A advisor or consulting company

M&A Primer Approach Integration - Develop Short - and Long-Term Objectives Explicit expression of corporate mission/vision by CEO Long-term objectives • Articulate immediately when control is taken • Gives organization focus for new direction • Maintains impetus for change Short-term objectives • Driven by due diligence and valuation • Reality check • Directs Transition Team in first weeks after the merger Top-down consistent approach XXX: denotes the M&A advisor or consulting company

M&A Primer Approach Typical Timeline Integration is a complex process that must be done quickly to produce tangible results. 0 0 2 4 6 8 10 12 14 16 18 20 (weeks) • Preplanning • future cash flows • industry analysis • due diligence 1 3 5 7 9 11 13 15 17 19 • Strategy • Transition Plan • Communication Plan • Culture Integration • Finance Plan • debt structure • capex • compensation • Cost Reduction • distribution • production • overhead • purchasing • sales • Revenue Enhancement Plan • cross-selling • cross-marketing XXX: denotes the M&A advisor or consulting company

Mergers & Acquisitions (M&A) Strategic Analysis Series Primer July 2010