M&A due diligence workshop 2017 Engineering and Construction Conference Introductions Bruce Gribens James “Mark” Andrews Partner | Managing Director M&A Transaction Services (Tax) M&A Transaction Services (IT) Direct: +1 415 783 5959 Direct: +1 215 789 2757 Email: [email protected] Email: [email protected] Location: San Francisco, CA Location: Philadelphia, PA Bryan Johnson Todd Wilson Senior Manager Managing Director M&A Transaction Services M&A Transaction Services Direct: +1 617 437 3657 Direct: +1 312 486 3892 Email: [email protected] Email: [email protected] Location: Boston, MA Location: Chicago, IL Rob Strahle Senior Manager Engineering & Capital Projects Direct: +1 212 436 7439 Email: [email protected] Location: Jersey City, NJ Copyright © 2017 Deloitte Development LLC. All rights reserved. 2 Agenda Topic Presenter(s) Timing Introductions All 5 minutes The M&A Lifecycle and Overview of Todd Wilson / Bruce Gribens 5 minutes Transaction Execution Importance of Integrated Due Diligence Mark Andrews / Bryan Johnson / 10 minutes Rob Strahle Functional Due Diligence Breakouts • Accounting, Finance, & Treasury • Todd Wilson and Bryan Johnson 25 minutes each • Tax • Bruce Gribens • IT • Mark Andrews • Project Due Diligence • Rob Strahle Copyright © 2017 Deloitte Development LLC. All rights reserved. 3 The M&A Lifecycle and Overview of Transaction Execution M&A Lifecycle Overview A multidisciplinary and integrated approach is key to success across the M&A lifecycle The M&A Lifecycle Pre-deal Pre-Announcement Post-Announcement Integration / Integration / M&A Strategy Target Screening Diligence & Evaluation Separation Planning Separation Execution • Establish a broad corporate • Define and prioritize acquisition • Conduct Financial / Accounting • Establish operating model and • Provide “Day 1” stabilization of the strategy and assess means to criteria to apply to entire and Tax diligence overall integration blueprint organization and functional realize that vision universe of potential targets • Perform business due • Organize controls such as capabilities • Review portfolio against value • Collect screening data from diligence, including integration management office • Execute and manage integration creation and strategic entire universe of potential commercial, operations, IT, and synergy / work thread plans imperative targets, and apply the and HR teams • Deploy all clean room analysis and • Assess and prepare for multiple, acquisition criteria to evaluate • Initial internal controls • Conduct clean room analysis to immediately execute on synergy potential acquisition pathways potential fit diligence front load synergy capture opportunities to achieve goals • Prioritize initial acquisition • Identify core and non-core • Develop Day One requirements • Define customer retention, • Identify, evaluate, and prioritize candidates and develop profiles portfolio assets and eventual and End State plans workforce transition, strategies for achieving organic • High level pre deal integration sale opportunities • Design customer, market, communication and growth plans and inorganic growth planning and initial diligence for • Negotiations execution product and organizational • Integration Execution Support synergy opportunities • Assess capability to undergo a including deal valuation, asset strategies • IP rights protection and strategic M&A program • Detailed screening of potential or target valuation and • Address people and culture management • Establish decision rights and targets on the basis of business structuring issues strategy, competitive strategy accountability within the • Refine integration planning on • Develop and execute a and value potential organization target communications strategy • Valuation of business entities, including financial modeling, approaches, and challenges Copyright © 2017 Deloitte Development LLC. All rights reserved. 5 Leading Practices Leading companies tightly integrate their upstream and downstream M&A processes Approach Execution M&A Target Due Transaction Integration Divestiture Strategy Screening Diligence Execution High Integration Curve Approach Risk Execution Required Risk Level of Handoff Risk Resources Transaction Curve Low Start M&A Lifecycle End Handoff Risk: Execution Risk: Approach Risk: Resources dedicated to integration are not Resources most knowledgeable with the Resources are focused on the transaction and added to the team early enough to sufficiently transaction do not remain on the team through not integration and its associated costs prepare the integration phase A holistic, integrated approach minimizes risks, gaps and handoffs and captures value Copyright © 2017 Deloitte Development LLC. All rights reserved. 6 Due Diligence A dynamic set of activities involving working with many unknowns identified via an iterative process & addressed when the acquirer takes eventual control of the target Typical Due Diligence Issues Value Drivers Improve/Validate • Early capture and realization of synergies from Products Valuation Model & Deal the M&A transaction Markets Structure Financial • Uncertainty around target management’s Customers claims on growth Capabilities Culture CommercialTax • Stability of customer base ROIC Improve Synergy Operations • Accelerating time to close Risk Due • Tax and accounting structuring Diligence IT Value drivers • Internal control structure, including Sarbanes Process Oxley compliance determine price TechnicalTax Develop Additional Negotiating Leverage • Effect of regulatory matters on a target and structure of Human Capital company’s industry the transaction and define the nature • Identification and quantification of tax and the scope of Risk Management exposures and optimization of related benefits Provide Feedback due diligence on Acquisition • Employee benefits, information technology Forensic / Investigative Agreements systems and risk management practices Services • Supply chain and manufacturing site inspection Legal • Benefit plan funding and liability exposures Legal Identify, Assess & Minimize Risk Our experience shows that it takes a well organized and executed, multidisciplinary approach to due diligence, focused on validating value proposition assumptions, understanding risks and providing actionable feedback Copyright © 2017 Deloitte Development LLC. All rights reserved. 7 Due Diligence Due Diligence objectives, activities and outputs can be segmented into three stages within the M&A lifecycle Phase I Phase II Phase III Phase IV Integration / Divestiture M&A Strategy Target Screening Due Diligence Transaction Execution Preliminary Due Diligence Detailed Due Diligence Final Due Diligence Objectives: • Identify business risks • Analyze data room and any relevant external • Obtain signed Definitive Agreements • Research scouting issues and contact target information • Reach favorable Close terms & final pricing • Make go/no-go decision • Feed negotiation, deal structure, valuation and • Organize for integration integration • Continuously improve due diligence process • Make go/no-go decision General • Identify core team and specialists • Identify due diligence teams • Collect any outstanding data Activities: • Collect external data • Hire outside experts • Analyze data • Review Offering Memorandum if applicable • Collect external data • Develop reps, warranties, deal structure • Analyze all relevant data • Prepare for site visits • Conduct final contract analysis • Develop business case • Conduct site visits & conduct analysis • Negotiate definitive agreements • Produce initial valuation • Refine valuation • Reach final terms • Seek management approval • Develop deal structure • Execute closing agreements • Seek management approval • Identify integration manager Outputs: • Preliminary valuation • Refined valuation • Completed deal structure/closing • Business case • Due diligence reports • Due diligence process review • Defined due diligence team and plan • Proposal for BOD/EMT • Integration plan • Initial term sheet (proactive process) • Preferred deal structure • Preliminary non-binding indication of • Submission of final bid/term sheet interest (auction process) Copyright © 2017 Deloitte Development LLC. All rights reserved. 8 The Importance of Integrated Due Diligence The Deal Team Lead Defines the Process and Manages the Transaction Lifecycle Project Oversight Roles and Responsibilities Executive Sponsor • Establish strategic objectives, priorities and project governance • Set direction for roadmap, and timing • Rapidly resolve escalated issues Project Management Office (PMO) • Understands business issues and impact to the transaction Dedicated PMO/Deal Team Leader • Coordinates activities and dependencies across work streams • Identifies and addresses resource needs/gaps Typical Areas of Focus • Resolves major issues and proactively manages risks Accounting and Commercial and Executive • Identifies major decisions and communications Financial Due Operational Alignment and Diligence Diligence Reporting • Interfaces with broader integration teams • Enables executive visibility through effective tracking and reporting mechanisms Human Resource Tax Diligence IT Diligence Diligence Transaction 360o Day 1 Readiness Support Communications Copyright © 2017 Deloitte Development LLC. All rights reserved. 10 Illustrative Functional Responsibilities Detailed Integration Planning & Execution Preliminary Due Diligence Due Diligence Deal Closing • Develop preliminary acquisition business • Finalize negotiated Definitive Agreement