M&A DUE DILIGENCE EXPERTISE Canback & Company

M&A DUE DILIGENCE EXPERTISE
Canback & Company
November 2014
PREDICTIVE
ANALYTICS
INTEGRATORS
CANBACK & COMPANY
Cambridge, Massachusetts
42.365869,-71.093471
www.canback.com
+1-617-399-1300
Canback & Company prefers fundamental analysis of primary data over conceptual frameworks,
achieving greater accuracy in problem solving at a lower cost
Performance
MANAGEMENT CONSULTING INDUSTRY S-CURVE
- Datasets at the
center of problemsolving
- Repeatability and
scalability for
efficiency
- Conceptually based
problem-solving
- Experience preferred
over hard analysis
1900
1960
Predictive
analytics
A new paradigm
with higher
performance
Few, if any, breakthroughs since the
early 1990s
Traditional
management
consulting
1990
2014
Time
“The future is already here, it is just unevenly distributed”
- William Gibson
2
Canback & Co has offices in ten key international markets, allowing us direct access to vital
centers of economic growth. Boston and Johannesburg are core offices, while the other eight are
satellite offices
OUR CAPABILITIES
OUR GLOBAL OFFICES AND LEADERS
Office
Management
Consulting
Predictive
Analytics
C-GIDD
Market
Research
Boston
Japan
Johannesburg
Shin Ito
Tokyo
Boston
China
Beijing
Xingxing Liu
India
Jakarta
Aniket Pargaonkar
Mexico City
Mexico
Nigeria
Francisco Maciel
STREAM Insight Ltd
Indonesia
Brazil
South Africa
Kenya
Lagos
Teddy Purnomo
Mark Wopicho
Giancarlo Spata
Nairobi
Arshad Abba
We have established satellite offices in key international markets: Brazil, China,
Japan, India, Indonesia, Kenya, Mexico, and Nigeria. Our new core office in South
Africa opened this month.
Pune
Sao Paulo
For more information about the various offices please visit our website
3
Canback & Co is often cited in the press, research reports, annual reports, and investor
presentations by some of the largest companies and organizations in the world
Abuja +12: Shaping the Future of Health in Africa (2013)
The Shifting Urban Economic Landscape: What Does it Mean for Cities? (2013)
Mapping the Path to Future Prosperity - Emerging Markets Inclusive Growth Index (2014)
African Cities Growth Index 2013 (2013)
Quarterly Divisional Seminar Series — South Africa (2014)
Quarterly Divisional Seminar Series — Asia-Pacific (2013)
Annual Results Presentation (2013)
Entering the African Beer Market: Uncovering the Strategies to Enable Success (2013)
NYC Jobs Blueprint (2013)
The Future of Retailer Brands (2010)
Africans Open Fuller Wallets to the Future (2014)
The War for Nigeria (2013)
Nigeria - A Nation Divided (2011)
Hot Spots - Benchmarking Global City Competitive (2012)
4
M&A due diligence is today our largest practice because of our fast, fact-based and practical
approach
Market Opportunity
Assessment
Experience & Approach
Target Evaluation
M&A due diligence
>35%
Management
consulting
>65%
Strategy
development
30%
Canback & Co
Tokyo
Beijing
This used to be our core activity and
is still the #1 priority. We work on
market entry, brand development,
consumer segmentation and other
market/marketing efforts in emerging
countries
We pioneered, and are still the
world’s only supplier of GDP and
income data at the subdivision and
city level: C-GIDD
We occasionally conduct standalone
market research for existing clients
where we know the topic
Market/industry
research
<5%
Johannesburg
We have a special expertise in quick
delivery of M&A due diligence,
working with up to 30 team members
to evaluate acquisition opportunities
from a market and functional
perspective
Predictive models are almost always
part of our management consulting
work. We also build them on a
standalone basis
Predictive modeling
15%
Commercial
databases
15%
Boston
Case Studies
Jakarta
Lagos
Mexico City
Nairobi
Pune
Sao Paulo
5
Canback & Co has built its M&A due diligence track record through a combination of
experience, technical strengths, and in-market capabilities
Market Opportunity
Assessment
Experience & Approach
Target Evaluation
CANBACK & COMPANY’S M&A DUE DILIGENCE CAPABILITY
Case Studies
Click on image below for a copy of
Due diligence
experience
•
•
Independent decision
making
Completed over 50
due diligence projects
since 2009
Local research
•
•
M&A framework
•
In-market research
merged with local
insight
International
expertise, particularly
in emerging markets
•
Standardized and
highly efficient
processes
Unique due diligence
approach emphasizing
market potential
Quantitative
approach
•
•
Unique focus on
demand modeling
Market sizing and
forecasting using
rigorous statistical
models
6
Since 2009, we have completed over 50 due diligence projects globally, most of which for
recurring clients
Market Opportunity
Assessment
Experience & Approach
Target Evaluation
Case Studies
CANBACK & COMPANY’S DUE DILIGENCE WORK
Project Mix by Geography
2009-present
Europe
9%
C. America and
Caribbean
U.S.
Due Diligence
Project Examples
3%
12%
37%
South America
• $5 billion FMCG acquisition in Brazil
• $2 billion acquisition in the Caribbean
17%
Asia
• $8 billion acquisition in Mexico/Brazil
23%
Africa
DUE DILIGENCE EXPERIENCE
Since 2009, Canback & Company has completed over 50 due
diligence projects internationally
• $12 billion acquisition in the United
States
• JV evaluation in 8 sub-Saharan Africa
countries
• Commercial due diligence for
acquisition in Turkey
Over 80% of these projects were engagements for recurring clients
7
The Canback & Co commercial due diligence approach involves two phases over the course of
6 to 8 weeks. Sometimes clients commission both phases, sometimes one or the other. Note
that the market opportunity assessment often is done before the kick-off
Experience & Approach
Market Opportunity
Assessment
Target Evaluation
Case Studies
M&A COMMERCIAL DUE DILIGENCE TIMELINE
Phase 1: Market opportunity assessment
Phase 2: Target evaluation
Kick-off
Timing
Objectives
Key tasks
Deliverables
3 - 4 weeks
3 - 4 weeks

Assess market environment and opportunities

Develop commercial strategy

Conduct market structure, conduct and
performance analyses

Identify operational improvement opportunities and
quantify synergies

Create "as-is" demand model

Build "as-is" and "to-be" financial models

Analyze macroeconomic environment


Perform SCP analysis
Create commercial strategy for pricing, sales and
marketing, and distribution to capture market potential

Conduct in-market research
Manage due diligence across functional groups



Build "as-is" predictive demand model (10-year
forecast) to quantify market potential
Collaborate with corporate finance team and investment
banking team to build financial models

Market analysis and player assessment

Operational due diligence report

Predictive demand model

Post-acquisition strategic blueprint for next 3 years

Valuation and financial models
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The two phases takes us from understanding the current situation (“as-is”) to finding the future
potential (“to-be”)
Experience & Approach
Market Opportunity
Assessment
Target Evaluation
Case Studies
CANBACK & COMPANY’S M&A COMMERCIAL DUE DILIGENCE FRAMEWORK
M&A commercial
due diligence
Market opportunity
assessment
StructureConductPerformance
analysis
Target evaluation
Market demand
forecasting
Commercial
strategy
• Combine statistical
analyses and
managerial insights
to assess market
opportunities
• Use rigorous
statistical methods
to build "as-is" and
"to-be" demand
models
• Develop mediumand long-term
commercial
strategies
• Manage due
diligence
processes across
functions
• Collaborate with
clients and
investment banks to
build financial models
• Conduct in-market
research to refine
models and
recommendations
• Leverage our income
distribution database
C-GIDD to quantify
market potential
• Identify operational
improvement
opportunities in sales
and marketing, as
well as distribution
• Align functional
capability with
commercial strategy
• Merge our predictive
demand model
seamlessly with the
financial model
“As-is"
Functional
strategies
The effort starts with an “as-is” assessment and ends with a “to-be” strategy with financials
Financial
modeling
“To-be"
9
The SCP framework is a standard approach for understanding market dynamics. It is used by
corporations and consulting firms all over the world for more than 50 years and is therefore well
tested and recognized
Market Opportunity
Assessment
Experience & Approach
Target Evaluation
Case Studies
STRUCTURE-CONDUCT-PERFORMANCE* FRAMEWORK
External influences
and shocks
Structure
Conduct
Performance
Government policies
Economics of demand
Supply conduct
Market performance
•
•
•
•
•
•
•
• Category consumption
dynamics
• Growth drivers
• Penetration
• Production process and scale
• Route to market and channel
strategies
• R&D innovation
• Financial resources
• Focus and leadership
• Industry value and profitability
• Relative market share and trends
• Product/service quality
Regulation
Fiscal/Monetary planning
Taxes and subsidies
Wage regulation
Investment incentives
Trade rules
Antitrust policy
Demand conditions
•
•
•
•
•
Demographic trends
Consumer preference
Market growth
Price elasticity
Substitutes
Supply conditions
•
•
•
•
•
Technology
Communication,
transport and
infrastructure
Company legislative
environment
Raw materials
Economies of scale
Economics of supply
•
•
•
•
•
•
•
Level of competition
Concentration
Brand power and consolidation
Barriers to entry
Efficiency
Capacity
Product differentiation
Commercial conduct
•
•
•
Presence, position and
penetration
Reach and relations
Demand creation tactics
Internal performance
•
•
•
•
•
Productive and allocative efficiency
Logistics
Organizational effectiveness
Competitiveness
Benchmarks
Behavioral conduct
Industry chain economics
• Procurement/supplier
economics
• Retail share and concentration
• Wholesaler economics
•
•
•
Pricing behavior and policies
Cartel/Collusion
Execution, ethics and objectives
Tactics and behavior patterns
• Speed, innovation, service
• Execution, ethics, focus
* The Structure-Conduct-Performance framework was first developed by Joe S. Bain in the late 1950’s and was later popularized through Michael Porter’s Five Forces
10
An important part of the due diligence effort are the market visits. These typically happen early in
the process. We follow a rigorous protocol to maximize productivity
Experience & Approach
Market Opportunity
Assessment
Target Evaluation
Case Studies
Canback & Company market visits generate valuable data directly relevant to the acquisition
target. To ensure success, we rely on a detailed market visit protocol that has been tested and
refined over the past ten years
MARKET VISITS
Meet with key
stakeholders
• Meet with local partners, government officials, and competitors
• Use meeting takeaways to refine model and long-term strategy
• Quantify margins for various product channels
Determine margins
across value chain
• Margins used in financial and demand modeling as well as commercial
strategy formation
• Collect price points by channel and product or brand
Collect price points
Understand discounts
and promotions
Examine RTM and
delivery standards
• Measure price variation between channels and discover realistic prices
facing consumers
• Determine how trade discounts and promotions impact retail prices and
producer margins
• Evaluate effective promotional techniques
• Assess RTM strengths and weaknesses
• Evaluate product availability and identify strong distribution partners
• Determine competitive landscape of international and local players
Profile competitors
• Identify and quantify competitive trends
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A detailed “as-is” demand model is developed with a 10 year horizon. It is broken down by
specified characteristics like geography and channel
Market Opportunity
Assessment
Experience & Approach
Target Evaluation
Case Studies
DEMAND MODELING OVERVIEW
DATA
VALIDATION &
STRUCTURING
•
Category data from the client and third
party sources is cleaned and integrated
with C-GIDD
•
The category data is combined with
macroeconomic variables in a format
facilitating statistical analyses
•
The data is evaluated for normality,
colinearity, linearity in order to specify an
appropriate model
•
We always screen for nonsensical outliers
and remove when necessary
•
A demand model is used to create
projections using varying
statistical techniques including
pooled cross sectional models
and time series
•
Models can be granular at the
brand, pack type, channel, and
region level spanning 5 to 10
years
Macro variables
PREDICTIVE
DEMAND
MODEL
Product
demand
Price
Momentum
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Our target evaluation framework develops a commercial and functional strategies, and quantifies
the acquisition synergy opportunities and financial implications
Market Opportunity
Assessment
Experience & Approach
Target Evaluation
Case Studies
DUE DILIGENCE TARGET EVALUATION
Develop a commercial strategy to
capture market opportunities
Commercial
strategy
The functional due diligence identifies
opportunities in the following areas:
Functional
strategy
•
•
•
•
•
•
•
•
•
Sales and Marketing
Distribution
Supply Chain and Procurement
Production
R&D
Information Services
Corporate Affairs
Taxes
Human Resources
EXPERT VOLUME
ADJUSTMENTS
Financial
modeling
VOLUMETRIC
• Brand mix
• Item mix
FINANCE
ASSUMPTIONS
•
•
FINANCIAL
Revenue
EBITDA
•
•
Meet with the client to develop a
commercial strategy to capture
post-acquisition medium- and
long-term growth opportunities
Identify opportunities to enhance
pricing, sales and marketing, and
distribution strategies
•
Manage the operational due
diligence process across
functional groups
•
Collaborate with client
executives who have functional
expertise to integrate their
recommendations
•
•
Work with client and
investment bank as well as
other parties to complete "as-is"
and "to-be" financial models
Integrate our consumer demand
forecast model and due diligence
improvements into the financial
models
ACQUISITION
SYNERGIES
SAMPLE ANALYSES
Our due diligence examines
the target’s "as-is"
operational capability and
develops a "to-be" strategy.
Acquisition synergy
opportunities including:
• Organic growth (e.g., new
complementary products
or sales channels)
• Increased customer
penetration/cross-selling
• New market
segments/customers
• Strategy for selecting and
entering new market
segments
• Cost-reduction/margin
improvement
CASH FLOW
13
Canback & Co’s main role during the target evaluation phase is to develop the commercial
strategy together our client’s strategists and commercial executives
Market Opportunity
Assessment
Experience & Approach
Target Evaluation
Case Studies
COMMERCIAL STRATEGY DEVELOPMENT
CAPTURE MARKET OPPORTUNITIES
GENERATE PREDICTED MARKET VOLUME
In the commercial strategy, we identify commercial improvement
opportunities to capture market potential in areas including:
• Route-to market
• Product portfolio
• Channel strategy
• Pricing
• Sales and marketing
The commercial strategy lays out a post-acquisition strategic blueprint
for how to generate the market volume projected by our demand
model as well as volume from potential synergies
DEVELOP COMMERCIAL STRATEGY
We work with the client team to develop an
integrated commercial strategy that harmonizes
the different value chain components of our
client and the target. Specific questions to
consider are:
Human Resources (HR)
Finance
Information and Communication Technology (ICT)
Other Support Functions
Suppliers
Procurement
and inbound
logistics
Production
R&D
Route to
Market (RTM)
• Sales
• Distribution
Distributors
Marketing
• Portfolio
• Volume
and value
projections
Service
Consumers
•
•
Is there a need to improve current sales and
market strategy to support the change in
product and pricing strategy?
How can the target restructure the distributor
footprint and relationship to capture the
volume growth?
14
The functional strategies are mostly developed by our client’s executives. Canback & Co’s role is
to assist with targeted analyses and to help create meaningful presentations. Our client
executives are likely to visit the target’s facilities to inform their functional assessments
Experience & Approach
Market Opportunity
Assessment
Target Evaluation
Case Studies
FUNCTIONAL STRATEGY SAMPLE TOPICS
Sales and
Marketing
Distribution
ENHANCE EXISTING
FUNCTIONAL CAPABILITY
After the commercial strategy
is developed, a sound
functional strategy is crucial to
ensure successful
implementation of the
commercial strategy.
We are experienced in
managing this process
across functional teams and
identifying functional
improvements.
Supply Chain
and
Procurement
Production
R&D
Human
Resources /
Organization
Other
Functions
•
•
•
•
Promotion and advertising activities
Marketing operations
Sales representative training program
Sales network
• Route-to-market structure
• Distributor footprint and operations
• Fleet mix
• Supply chain model
• Facilities/offices (locations, sizes, functions)
• Product vendor management
• Facilities/offices (locations, sizes, functions)
• Production capability
• Manufacturing operations and staff
• R&D process
• New product development
•
•
•
•
Organizational structure
Number of employees by location and functional department
HRM policies (e.g. recruiting, comp levels, comp structure, etc.)
Incentive plans and employment contracts
• IT infrastructure and support
• Strategy
• Finance, taxes, corporate affairs integration
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The financial modeling is typically done by our client’s finance experts, with Canback & Co
providing inputs and being a sounding board
Experience & Approach
Market Opportunity
Assessment
Target Evaluation
Case Studies
FINANCIAL MODELING OVERVIEW
DEMAND MODEL OUTPUT
SKU LEVEL P&L FOR TARGET COMPANY
TARGET COMPANY DCF
•
The demand model output can be used to
project financial results down to the SKU level
for the target company’s products using
volume and price forecasts
•
This SKU level outputs aggregate to a
company level income statement that can be
used for valuation
•
We have built numerous discounted cash flow
models using our demand modeling output as
the basis for revenue projections
16
Canback & Co frequently works with other professional services firms in small and large teams
to deliver on due diligence engagements
Experience & Approach
Market Opportunity
Assessment
Target Evaluation
Case Studies
DUE DILIGENCE TEAM STRUCTURES
Due diligence steering committee
Investment bank(s)
• Identify acquisition
targets
Operational
due diligence team
Accounting
due diligence
Legal
due diligence
• The project team membership varies by acquisition
• Size can range from 5 to 50 members
• Provide guidance on
DCF details, valuation
• Provide WACC
estimates
Canback & Co
• SCP analysis before project
kickoff – includes market
visit
Client team
• Operate financial model
• Functional expertise
• Demand modeling
• Provide internal data, data
from target
• Project management during
target assessment phase
• Set goals / priorities
17
Case study 1: In early 2013, Canback & Co completed a due diligence project in Southeast
Asia. We conducted a thorough assessment of local players and partnership opportunities for
our client
Experience & Approach
Market Opportunity
Assessment
Target Evaluation
Case Studies
Client: Global beverages client
Southeast
Asia due
diligence effort
Target: Large beverage player in Southeast Asia
Context: Client is looking to strengthen position in the beverage market through partnership with a large local player. We were
engaged to conduct a thorough analysis of the local market and assess JV potential through conducting commercial due diligence
Market
opportunity
assessment
M&A due
diligence
framework
Target
Evaluation
SCP
• Assessment of political and economic risks, demographics
• Analyze market by category, brand, and player share
• With a team of 4, the entire project ran for 8 weeks, including 1 week of
in-market research
• Worked on the ground and remotely with local researchers who
assisted with translation and in-market visits
Demand modeling
• Model demand at the regional level, over a 10 year time horizon
• Modeling done at the SKU level and includes value and volume
• Demand is forecasted on both an “as is” (organic market growth) and
“to be” (organic growth with strategic initiatives) scenario
Due diligence team room
Commercial due diligence
• Collaborated closely with client’s management team based in Southeast
Asia
• Assessed multiple local players and profiled most attractive player for
potential partnerships
• Analyzed partnership opportunities for client and target local player to
jointly improve market positions, value chain performance, and
profitability
• Identified specific partnership opportunities for client and local player
such as portfolio improvement, new category rollout and value chain
improvements
Value chain analysis
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Case study 2: In early 2014, Canback & Co completed a lengthy due diligence project in West
Africa, assisting our client with negotiation and valuation of a joint venture
Experience & Approach
Market Opportunity
Assessment
Target Evaluation
Case Studies
Client: Global FMCG client based in Africa
West Africa
due diligence
effort
Target: Distribution company
Context: Client is looking to enter a West African market. JV partner – distribution company – has been identified and parties
have engaged in substantial talks. Our key tasks were to quantify future demand, value the venture, and negotiate distribution fees
Market
opportunity
assessment
M&A due
diligence
framework
SCP
• Assessment of political and economic risks, demographics
• Analyze market by category, brand, and player share
• Walk the ground to understand consumer behavior, establish prices,
and frame competitor conduct
• Analytical framing of market using Canback toolbox
Demand modeling
• Model demand for current and new product recommendations over a 10
year time horizon and 3 phases
• Modeling done at the SKU level and includes value and volume
• Demand is forecasted on both an “as is” (organic market growth) and
“to be” (organic growth with strategic initiatives) scenario
Due diligence meeting
Commercial due diligence
• Route to market challenges and distribution gaps were identified due to
nature of JV partner business
• Proposal of a new sales and service model was introduced to minimize
partner shortcomings and maximize value
Target
Evaluation
Financial modeling
• Demand projections and costs were input into Canback financial model
to determine payback period and valuation
• Financials led to a need for distribution fee renegotiation
• Canback team present during final negotiations to offer strategic advice
and update financial model
RTM evaluation
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Canback & Company contact information
–––––––––––––––––––––––––––––––––BOSTON HEADQUARTERS–––––––––––––––––––––––––––––––––
Canback & Company LLC
210 Broadway, Suite 303
Cambridge MA 02139-1944
42.365869,-71.093471
Tel: +1-617-399-1300
Fax: +1-617-553-4500
Web: http://canback.com
C-GIDD
Dr Staffan Canback
Managing Director
Tel: +1-617-399-1300 Ext. 201
Cell: +1-617-818-4963
Email: scanback@canback.com
Jesse Logan
Vice President
Tel: +1-617-399-1300 Ext. 202
Cell: +1-781-640-7458
Email: jlogan@canback.com
Jonathan Mayes
Engagement Manager
Tel: +1-617-399-1300 Ext. 203
Cell: +1-412-901-8213
Email: jmayes@canback.com
Irina Blinova
Office Manager
Tel: +1-617-399-1300 Ext. 202
Cell:
Email: iblinova@canback.com
BRAZIL
JOHANNESBURG
Arshad Abba
Country Manager – South Africa
Tel: +27-11-083 5890
Cell: +27-83-786 2450
Email: arshad_abba@canback.com
MEXICO
CHINA
Canback Analytics LLC
210 Broadway, Suite 303
Cambridge MA 02139
http://cgidd.com
Canback do Brasil
Rua Com. Miguel Calfat 128
1101 Vila Olimpia
São Paulo - SP 04537-080
Canback Mexico
Bosque de Ciruelos 160-7
Bosques de las Lomas
11700 México, D.F.
Canback China
Suite 903B, Rongxin Tower
S. Square, Beijing W. Station
Beijing, 100055
Bobo Shen
Tel: +1-617-399-1300 Ext. 210
Email: bshen@canback.com
Giancarlo Spata
Tel: +55-11-3846 9668 or 8187 7801
Email: gfspata@canback.com
Francisco Maciel Morfin
Tel: +52-155-4354-9806
Email: fmaciel@canback.com
Dr Xingxing Liu
Tel: +86-10-8399 3522 or 3523
Email: xliu@canback.com
INDIA
SOUTHEAST ASIA
JAPAN
WEST AFRICA
Canback Research
c/o ValueNotes Database Pvt Ltd
1 Bhuvaneshwar Society
Abhimanshree Road
Pashan, Pune 411 008
Maharashtra
Canback Southeast Asia
Jl. Tiang Bendera 5 no. 2A
DKI Jakarta 11230
Canback Japan
Ginza Wall Building UCF 5F
6-13-16 Ginza, Chuo-ku
Tokyo 104-0061
STREAM Insight
7A, Ikorodu Road
Maryland
Lagos
Aniket Pargaonkar
Tel: +91-20-5601-0423 or 24
Email: research@canback.com
Teddy Purnomo
Tel: +62-812-8743 7578
Email: tpurnomo@canback.com
Shin Ito
Tel: +81-3-6338-0002
Email: sito@canback.com
Adewale Opawale
Tel: +234-710-30 51 40
Email: a.opawale@streaminsightonline.com
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