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Sell-Side Success How BCG Supports Divestitures, Spinoffs, and Carve-Outs

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Sell-Side Success How BCG Supports Divestitures, Spinoffs, and Carve-Outs Sell-Side Success How BCG Supports Divestitures, Spinoffs, and Carve-Outs Transaction Center Product Series Boston Consulting Group partners with leaders in business and society to tackle their most important challenges and capture their greatest opportunities. BCG was the pioneer in business strategy when it was founded in 1963. Today, we help clients with total transformation—inspiring complex change, enabling organizations to grow, building competitive advantage, and driving bottom-line impact. To succeed, organizations must blend digital and human capabilities. Our diverse, global teams bring deep industry and functional expertise and a range of perspectives to spark change. BCG delivers solutions through leading-edge management consulting along with technology and design, corporate and digital ventures—and business purpose. We work in a uniquely collaborative model across the firm and throughout all levels of the client organization, generating results that allow our clients to thrive. Sell-Side Success How BCG Supports Divestitures, Spinoffs, and Carve-Outs Transaction Center Product Series A Story of Divestiture Done Right In the aftermath of the 2008 financial crisis, the Merckle family realized it was necessary to reorganize its portfolio of businesses. With approval from the financing banks, the representatives of the family opted to carve out and divest ratiopharm, the group’s generic drugs business unit, freeing up cash to deleverage the rest of the group. This divestiture was to become the strongest possible team for a model of how to maximize the strategic transaction support. value of a carve-out, because Working closely with just two ratiopharm’s owners and top investment banks, ratiopharm’s managers paid very close attention management and the lender banks to the factors that really drive value added independent expertise to for the acquirers of a divestment the divestiture team. The company candidate. also invited M&A specialists from BCG who brought with them deep It would not be easy to sell expertise in the generic drug ratiopharm for an attractive business and whose independent price—that much the management eye would help underscore the team knew very well. Although business logic of any divestiture, the generics unit was the fourth thus anticipating potential largest player in the global generics investors’ concerns from the very market at that time and was tipped beginning. by the media to be worth at least €2.5 billion, it faced fierce and The divestiture team then growing pressure from German developed and followed a health care insurers that were systematic plan for creating squeezing the pharmaceutical a compelling business case, industry’s margins. helping management to pinpoint ratiopharm’s standalone benefits Given these challenges, the owners and identifying the specific understood from the outset that synergies that the unit would offer it would be crucial to deploy if it were to become part of an 2 | SELL-SIDE SUCCESS The move netted €3.6 billion for Merckle and created the world’s leading generic player acquirer’s larger generics group. greatly to the credibility of the business plan. Day One began with an in-depth assessment of ratiopharm’s existing Carefully and deliberately, and future markets, taking into ratiopharm’s executive board account competitive dynamics, assembled a consistent, in- future patent cliffs, the company’s depth business plan that was asset strategy, and its operational fully supported at every level of capabilities. What followed was management. Finally, the generics a joint exercise to compile a full- business was ready to hit the fledged strategic business plan market, and prospective buyers for each of ratiopharm’s 25-plus quickly began to appear. During business units and regional entities. the weeks-long auction process BCG’s organizational experts with strategic and financial bidders, helped management identify and BCG supported the management quantify improvement levers, in navigating the critical expert providing additional value potential. sessions as well as the Q&A processes. It is important to note that these improvements had been initiated With input from BCG’s seasoned in light of a potential divestiture, a divestiture experts and from the full six months before the public investment bank’s deal-making phase of ratiopharm’s divestiture professionals, ratiopharm’s began. As a result, most of the executives were able to design a improvements were halfway compelling yet practical sell-side implemented by the time investors process, tailored to the needs began reviewing the business plan. of specific buyers. Their efforts That preemptive move alone added culminated in the successful sale BOSTON CONSULTING GROUP | 3 of ratiopharm to Israel’s Teva—a welcome was the announcement of move that netted €3.6 billion for synergies valued at more than €300 the Merckle Group and created the million based on the combined world’s leading generic player. Teva-ratiopharm business plan. Even though Teva paid far more than the market had anticipated, its share price rose by 3.3 percent on the day the deal was announced and climbed another 3.2 percent over the next two days. One of the key reasons for the market’s warm 4 | SELL-SIDE SUCCESS “All participants in the selling process always praised the professional work and team experience with BCG. I also want to thank BCG personally for their dedicated and extraordinarily competent work as well as their willingness to support [us], really, at any time.” — Oliver Windholz, former CEO of ratiopharm lessons learned from a divestiture done right The successful sale of ratiopharm stood apart from other deals: ❶ ❸ Shareholders and management All relevant documents had a tamped down the emotion. strategic edge. This enabled For them, M&A was a strategic shareholders and management to tool to free up cash, optimizing communicate a long-term growth the value of the overall Merckle story and properly describe cor- Group. porate capabilities and potential synergies to investors. ❷ ❹ They knew the asset’s value Integration of several executive and marketed it accordingly. levels and all functional de- The information memorandum partments to the sell-side team and management presentation enabled employees to participate revealed an in-depth business actively in the process. This boos- plan that was aligned with ted commitment and employee market and competitive dyna- morale and facilitated deep and mics and that included clear- fast-paced implementation of PMI. cut operational improvement measures. ❺ External M&A experts were brought in. Their involvement provided process security and freed up capacity for day-to-day business and to realize operational improvements. lessons learned from a divestiture That’s How We done right Helped ratiopharm. Imagine What We Could Do For You The truth is, many corporations still treat divestitures as an afterthought. When they decide to sell businesses, they focus on doing a deal, any deal, rather than finding the deal that maximizes shareholder value. But it doesn’t have to be that way. BCG can help. BCG’s capabilities cover the entire divestiture value chain. More often than not, we support our clients with portfolio assessment well before any divestment decision is made. We provide end-to-end content support for clients’ management teams throughout the entire process—from the initial strategy portfolio review and exit decision to implementing the divestiture and ensuring the final details of the deal are fully wrapped up. Portfolio Exit decision Exit realization review & strategy Vendor due diligence Timing Strategic fit/ Carve out feasibility Best owners/ Equity story Deal transaction & marketing execution models Business materials support Valuation plan impact Pre-deal improvement Project office/Process management “Creating the case” “Unlocking the value” Let’s see exactly how BCG helps companies all along the divestiture value chain. BOSTON CONSULTING GROUP | 7 Creating the case From Portfolio Review to Pre-Deal Improvement The overarching strategic priority might be. Our portfolio strategy for businesses is to achieve methodology evaluates an asset’s profitable growth and thus create strategic fit and potential for value value for their shareholders. creation, and assesses overall For most major companies, portfolio health before and after one crucial way to do this is to divestiture. deftly manage their portfolio of businesses—expanding through Valuation/impact acquisitions or joint ventures Clients considering divestitures when it makes business sense, have to know the price ranges in and shedding businesses when which they should sell—and that that is the best path to value. involves knowing the value of the They have expert help when they asset as a stand-alone business, need it: BCG has all of the skills understanding how exactly it and experience required to help creates value, and predicting to companies analyze their portfolios what extent the divestiture itself in terms of market attractiveness, will alter the valuation. competitive position, and financial performance. Specifically, we offer Optimal timing these services: BCG is on hand to support decisions about the best timing for Strategic fit and feasibility the deal, taking into account what There are two crucial contextual future value creation will look like questions to be asked as the value as well as considering the impact of review begins: What is the potential capital market and industry cycles. of a particular business unit to create real, defendable value? And Best owners/transaction is that value being maximized in models the current corporate structure, or Not every potential bidder will be would a different owner do better? the ideal owner of the asset being prepared for sale. BCG has wide BCG’s experts can help clients see experience not only in determining the business rationale for divesting the best fit for both seller and a business and quickly get a divesting asset but also in assessing sense of how feasible a divestiture the right way to package and 8 | SELL-SIDE SUCCESS present to investors and gauging which transaction models seem bcg adds value to the pre- best suited to the deal at hand.
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