Mergers & Acquisitions Overview & Discussion

Mergers & Acquisitions Overview & Discussion Susanna Bennett

[email protected] CFO eEye Digital Security www.eeye.com and Vice President & Treasurer Financial Executive International – OC Chapter www.fei.org

Corporate Strategies in M&A • Why?

• Gain market share • Enter new markets • Acquire technologies • Integrate vertically

• Why not?

Grasping for a company simply because it’s on the market, or because a competitor wants to buy it

Overpayment or misguided purchase! 2

Corporate Strategies in M&A Exploit market power, economies of scale & scope, and market inefficiencies Related industries - Horizontal Same industry/ Same market - Consolidation Suppliers - Vertical

Same industry/ Different market - International

3

Screening Potential Deals • • •

Never stop looking Constantly scanning marketplace Be diligent and disciplined – Do not simply react whenever IBanks contact you

• Look at various potentials in the market, not just •

the deal at hand Don’t cast strategy aside in the face of an exciting opportunity

Can’t make a good stew unless you have good ingredients shop around to find the best ingredients 4

Due Diligence • Look for the devil in the details • A 360 approach – • external-internal ………. peel the onion! • past-present-future • scenario modeling on synergy assumptions

• How do they make $ and how would we

make $ after M&A? • Link due diligence with business planning 5

Look for the devils in the details! • Industry / Markets

• Customers / Partners • Competition • People • Suppliers

• Customer & Vendor Contracts • Operations & Support • Pricing and discounts • Finance, Accounting & Taxes • Contingent Liabilities • Corporate Controls • Intellectual Properties • Human Resources • Legal • IT – infrastructure & applications • Insurance • Synergy – Assumption Testing!!

6

Valuation • No magic formula • Future cash flow • Earnings estimates • Assumption modeling • Due diligence findings • Synergy • Set limits and stick to financial discipline • Maintain reasonable and realistic expectations X

Rationalization: “This deal is strategic – don’t worry, it’s all going to work out in the end no matter what price we pay.”

 Wisdom:

“If you stumble across too many red flags while evaluating a business, walk away!” 7

Making the Deal Happen • Identify the details critical to the deal’s success

• Use early negotiations to foster a sense of trust with the target’s top executives

• Know who have influence on the deal – target company and your company

• Don’t focus on the price yet • Keeping a foot on the brakes 8

Making the Deal Good • Negotiate on several fronts simultaneously

• Make sure you have alternatives to this deal

• Anticipate the competition • Close quickly after setting final terms 9

Making the Deal Good • PR: External & internal • Integration – Realizing the synergy dream

•Talent •Culture •Structure •Technology •Discovering and leveraging the

unknown and unexpected treasures 10

Are You the Strongest Acquirer? Ability to realize synergies Financing capacity Ability to make quick decisions Attractiveness of currency Reputation  Negotiations  People treatment  Integration

Post-acquisition performance record 11

Are You the Strongest Target? Ability to realize synergies Financing capacity Ability to make quick decisions Attractiveness of currency Reputation  Negotiations  People treatment  Integration

Post-acquisition performance potential 12