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Joel Jervis Deverill Ltd.

Joel Jervis Deverill Ltd. GROWTH THROUGH ACQUISITION. Financial. Strategic. 2 Types of Acquisition. 3 Basic Types of Strategic Acquisition. There are common elements to all three. However, each one requires a different integration strategy. Horizontal – buying a competitor.

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Joel Jervis Deverill Ltd.

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  1. Joel JervisDeverill Ltd.

  2. GROWTH THROUGH ACQUISITION

  3. Financial Strategic 2 Types of Acquisition

  4. 3 Basic Types of Strategic Acquisition There are common elements to all three. However, each one requires a different integration strategy • Horizontal– buying a competitor • Vertical – buying a supplier or customer • Diagonal – buying into a new market

  5. Strategic Acquisitions • Operating Synergy –Achieve Economies of Scale • Inefficient Management–Realise a return on investment by buying a company with less efficient management and improving or replacing them • Market Power–Increase market share • Financial Synergy –Achieve lower cost of capital by smoothing cashflow and increasing debt capacity • Undervaluation –Take advantage of low price • Obtain Listing –Acquire or reverse into Public company

  6. Routes to Acquisition • Proactive • Identify, approach and court • Can take time but reduces risk • Can result in paying a premium • Reactive • Respond to approaches from Agents, Brokers, Advertisements, etc. • Can be very quick • Can obtain realistic valuation

  7. Net assets • Price earnings comparisons • Hidden value, synergies, streamlining and cost savings (economies of scale) • HISTORICAL EARNINGS or POTENTIAL EARNINGS! • Quality of products and services • Customer relationships • Positioning relative to competitors • Macro picture; size of markets How Do You Value a Target Company ? • Financial Yardsticks • Commercial Yardsticks

  8. Acquisition StatisticsDemonstrate that of Acquisitions FAIL! 60% of Mergers FAIL! 75% Not improved in 35 Years since acquisition research was first conducted

  9. Unclear Acquisition Strategy • Insufficient Pre-acquisition Planning • Inadequate Due Diligence • Poorly Handled Implementation Why Do Acquisitions Fail

  10. Do Not Acquire for theWrong Reasons • Acquire for the sake of acquiring(Macho Buying) • “Sexy” Sector to be in • Highly profitable but does not fit your strategy

  11. Do you have the human and financial resources to complete the acquisition and implementation? • Structure of deal • Styles and cultures, key factors driving business • Due Diligence process • Financial Analysis • Processes and systems • Effect on staff, customers, suppliers and markets • Degree of integration • How quickly integration can be completed • Effect on business • Communication • Advisors – legal and financial – fee arrangements Pre-Acquisition Planning Points to consider for the pre-acquisition planning are:

  12. Why Carry out Due Diligence • Reduce risk • Input to valuation • Improve your negotiation power • Help planning for post-deal development and integration • Confirm the logic of the deal Are there any skeletons to be discovered?

  13. Areas to Cover duringDue Diligence • Legal • Financial • Business/Commercial Risks • Market • Customers • Management and Staff • Synergies

  14. Implementation “Most acquisitions fail to deliver expected results due to ineffective integration management” Although one individual may be assigned as Project Manager, the best post-merger plans are ultimately created by Groups. These Groups should consist of senior managers, key employees (from both companies), as well as external advisors.

  15. Meeting aggressive deadlines • Achieving tough financial targets • Restructuring quietly with limited information • Merging IT systems and processes • Retaining key employees • Maintaining adequate communication • Managing relocations and consolidations Implementation Management challenges

  16. Are plans consistent with logic of deal? • Are budgets clear and assigned? • Are there business plans to cover both short-term and long-term? • Has the planning process involved the staff who are affected? • Do the plans take into account operational and cultural realities of the two companies? Implementation Key Considerations:

  17. Are the plans supported with appropriate resources? • Do the plans specify measures and milestones of progress? • Have the plans been distributed to appropriate parties? • Is there a program for communicating plans? • Communicate more than usual. Keep people informed as everyone is hungry for information. Tell them how it is. Implementation Key Considerations: Don’t promise that things will stay the same. They Won’t!

  18. Human Resources • Financial and Tangible Resources • Reputation and Other Intangible Resources, eg Branding • Processes • Management Systems • Compensation Plans • Information Technology • Commitments to Customers and Suppliers • Commitments to Shareholders • Commitments to Employees Implementation Implementation will encompass the integration of a wide range of factors including:

  19. There is good and bad news with regards to completing successful Acquisitions…..

  20. The Good News is…….. It is almost entirely within yourcontrol(The Acquirer) to get it right The Bad News is …….. It always has been and 60% of us are still getting it wrong!

  21. Thank you Any Questions?

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