M&A – key processes and case studiesNHHNov 7, 2013

M&A – today’s topics

1. Introduction – M&A in investment banking

2. The auction – how to maximize value

3. Case study – auction process

4. Public offer – how do delist a company

5. Case study – public offer

M&A in investment banking

1. Sell side

2. Buy-side private company

3. Buy-side public company

4. Defense/”sell-side” public company

Complex, often transformational process for management of the buyer and the target

Sell side process – the auction

1. Know the buyers

2. Prepare – know what you selling

3. Keep tension and momentum

4. Never end up with one buyer at any time in the process

5

Strategic buyers

Key rationale

Growth Cash flowAttractive exit available?

Selected examples

Strategic fit/synergies?Process and financial capacity?Willingness to pay

Financial sponsors

ConcernsDecision making takes longerHave we covered all buyers?

Likelyhood to winLevel of preparednessAvailability of financing

Financial sponsor examplesStrategic buyer examples

Tier 1 - NordicCompany 1Company 2

Tier 2 - InternationalCompany 3Company 4

PE - InternationalSponsor 4Sponsor 5Sponsor 6Sponsor 7

PE - NorwaySponsor 1Sponsor 2Sponsor 3

Potential buyer considerationsPotential buyer groups and selected examples

Detailed organisational and business information– Market structure – Detailed organisational and operational

information / data

Management’s strategy and business plan– Clear strategy– Updated and detailed business plan & operating

model

Detailed historical and business plan financials– Detailed P&L information – Cash flow information – Balance sheet

Key drivers for a successful transaction

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Important to allow for sufficient time to prepare documentation before initiating process – both to support buyers with providing offers and to support retaining momentum throughout the process to final offers & signing of transaction agreement(s)

Well prepared and well-structured process High quality documentation / supporting data

Allow sufficient time to prepare documentation ahead of process initiation

Process timing aligned with any (upcoming) milestones

Process structure to be adapted to potential buyer universe

Sufficient time for key potential buyers to make decisions

Keep to communicated time line & deadline

Structure and documentation

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Vender Due Diligence

ContentVDD area

Financial and tax

Commercial / market

Legal

Comprehensive report by audit firm

Typically covers last three years

A report by a business consulting firm covering market, trends and target company’s position

Report by law firm covering corporate documents, important agreements, legal issues etc.

Scope depends on complexity of company structure

Purpose & comments

To support the business / investment caseTypically takes ~4 weeks

To assist in documenting financial performance of the business

Typically takes 6-8 weeks

To assist in documenting the business including key legal related matters

Typically takes ~4-6 weeks depending on time to complete data-room

Third party reports preparted by the seller

Preparation phase Initial marketing and discussions Execution phase

Timing

Management role and

participation

SEB role and tasks

Key responsible

Key documents

Business- strategy and plan, supporting VDD-materials (TBD) Introductory presentation Information Package and

Management Presentation

Introductory presentation

Information Package Management

presentation

Strategy/business plan and detailed operating model (historic and future financials)

VDD materials – To be discussed

Introductory presentation + teaser Materials used in initial discussions

to ascertain potential buyers’ interest

Information Package - provided in a “round 1” to provide basis for indicative offers

Management presentation

Preparation phase Preparation/start of execution phase Execution phase

Management/Due diligence advisors SEB/Management SEB/Management

Assist with input to business plan/strategy Assist in selecting due diligence advisors,

Process coordinator Take lead in drafting documents Evaluate buyer / partner interest

Process coordinator Buyer contact / discussions Evaluate buyer / partner interest

Prepare (updated) strategy and business plan and (input to) operating model

Provide input to documents Meetings with selected potential

buyers

Provide input to documents Conduct presentations Q&A / due diligence

Illustration only

Illustration only

Illustration only

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Key documentation, activities and roles in the process

Strategy and Business PlanNovember 2013

Key content for Intro Presentation and Info Package

Key contents: Summary introduction to the business– concept, platform, history, organization, operations etc. Summary key investment considerations with focus on growth and development opportunities Summary market overview including description of regulatory framework & funding model Summary historical financial development (P&L level, other financial highlights)

Introductory presentation

Information Package

Document Use and key content comments

Key contents: Introduction to the business including concept and platform Key investment case considerations with supportive data / slides Market overview including size, growth rates, competitive landscape and detailed description of regulatory framework including funding model Detailed business description Business strategy / growth plan Historical financial development and business plan prognoses

– Detailed P&L including proforma and normalisation adjustments, and break-down of revenues and costs– Capital expenditure details – Balance sheet and working capital data

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Round 2; Due diligence

10

November December January February

NDAs Round 1

Final offer(s)

Indicative offers

Info Pack distributed

Year-end period

Prelim. Q4 update

Illustrative process timing / structure

March April

Decide on broader pre-marketing (if any)

Pre-marketing Decide structure of further process

Buyer review

Easter

Illustrative time line 2-staged process

Marketing material, VDD prep.

Round 2; Due diligence Final offer(s)

Indicative offer(s)

Focused Info Pack distr.

SPA signed

Round 1

Decide on structure of further process

SPA signed

Focused process

Broader process

3Initial disc.

Agree on party/ies for focused process – NDAs signed

2

- Timing to be discussed vs company readiness and status of any on-going contacts & discussions.

- Key strategic potential buyers given access to materials as basis to provide indicative offers – “focused Info Pack”

- Further process with selected strategic party/ies (based on indicative offers) vs initiating broader process (based on pre-marketing)

1

2

3

1Net debt & NWC schedule

Incl. meeting(s) with management

Initial financing discussions

Case study: Deal by deal analysisRecent¹ sell side transactions

1) 2008 – 2011

Source: SEB Enskilda11

1 2 3 4 5 6 7 8 9 10 11 12 13 14

Invited parties 77 37 15 32 6 109 56 3 16 22 35 66 35 61

IM’s/DataPack’s sent 49 24 9 20 6 86 34 2 9 7 10 33 11 22

No. of 1st round bids 21 8 4 10 2 24 7 1 2 5 5 5 5 5

1st round bids/IM’s sent (%) 43 % 33 % 44 % 50 % 33 % 28% 21 % 50 % 22 % 71 % 50 % 15 % 45 % 23 %

No. of invitations to 2nd round 4 4 4 7 2 15 4 1 1 2 1 3 4 5

Invitation to 2nd round bid vs 1st round bid 19 % 50 % 100 % 70 % 100 % 63 % 57 % 100 % 50 % 40 % 20 % 60 % 80 % 100 %

No. of Final rounds bids 1 1 2 4 1 4 1 1 1 2 1 2 3 2

Final rounds bids/2nd rounds invitations 25 % 25 % 50 % 57 % 50 % 23 % 25 % 100 % 100 % 100 % 100 % 67 % 75 % 40 %

% delta winning bid vs. next highest final bid (=% "overbid")     20.3% 2.7%   32.9%             6.6% 13.3%

% delta winning bid vs. highest 1st round bid 4.5% (8.3%) (18.8%) (35.%) .5% (15.8%) (4.4%) (26.3%)   6.3% (9.2%) 13.% (2.9%)

EV/EBITDA (LFY) 17.1x 10.4x 9.1x neg. 13.6x 9.2x 8.1x 4.3x NM 7.4x 8.9x 7.8x 9.4x 10.5x

> Few bidders going all the way – very selective buy-side behaviour> Key is to find a few really strong contenders – buyer security and communication is key> First round bid rarely increased in the second round

Europris case study

Public-to-private – the buyer’s dilemma

1. Takeover premium

2. New issue discount

3. How can you make money?

Takeover premium in Norway

New issue discount

Company Country First dayof trading

Change incompanyforecasts

Changein peer

multiples

Adjusted pitch value pr. share

(mid point, pre discount)

ImplicitIPO

discount

Issue price pr. share

(post discount)

% premium/discountto bottom ofprice range

% premium/discountto top of

price range

1 week performance

MQ Sweden Jun 2010 1% -14% 32.7 -2% 32.0 6% -9% -3%Chr Hansen Denmark Jun 2010 0% 9% 104.1 -14% 90.0 20% -11% 9%TDC Denmark Dec 2010 0% 7% 58.6 -13% 51.0 25% 5% -5%Duni Sweden Nov 2007 -12% -20% 57.1 -12% 50.0 14% 2% -6%HMS Sweden Oct 2007 0% -8% 67.2 10% 74.0 3% -16% -1%SRV Finland Jun 2007 -1% 11% 10.5 -14% 9.0 31% 7% 16%Rezidor Sweden Nov 2006 -13% 14% 59.8 -13% 52.0 39% 15% 0%AGR Norway Jun 2006 51% 1% 52.9 -11% 47.0 18% 0% -2%Gant Sweden Mar 2006 4% 10% 149.3 -8% 138.0 6% 6% 35%Ahlstrom Finland Mar 2006 -22% 34% 26.9 -18% 22.0 34% 12% 12%Cermaq Norway Oct 2005 40% -19% 47.5 -7% 44.0 28% 8% 9%Hemtex Sweden Oct 2005 28% 21% 61.5 -9% 56.0 31% 10% 15%Indutrade Sweden Oct 2005 7% 2% 68.6 -5% 65.0 25% 6% 16%Average 6% 4% -9.0% 21.5% 2.6% 7.2%Median 0% 7% -11.1% 24.7% 5.6% 8.7%

How can you make money?

Example based on Aker Solutions’ figures:When buying:Market capitalization today: NOK 25.1bnPremium of 30% NOK 7.5bnTotal purchase price NOK 32.6bn

P/E prior to premium: 19.3xNet Earnings: NOK 1.3bnP/E after premium 25.1x

When selling:Break even price NOK 32.6bnPlus ipo discount (10%) NOK 4.6bnImplied value needed NOK 36.2bnRequired earnings at same P/E NOK 1.88bn

To make money you need to

Increase earnings with more than 45 percent; or

Pay dividends of NOK 11.1bn in the ownership period; or

Increase p/e ratio from 19.3x to 27.9x

Process – a limiting necessity

1. Process prior to announcement

2. Post announcement transaction steps

Pre-announcement strategies

1. Friendly approach

2. Secure pre-acceptances

3. Blocking stake

4. Majority stake

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Friendly approach to Target Board Intention to launch a bid Offer price level (vs. disclosure obligations)

Conduct (limited?) DD prior to launch

Following DD, secure pre-acceptances (buy shares?); and Board recommendation

Launch voluntary offer

Takeover considerations – general alternatives Alternative 1: Friendly approach to Target Board

Secure pre-acceptances from key shareholders

Inform Board shortly prior to launch

Launch voluntary offer, subject to DD

Conduct a due diligence in the acceptance period

Subsequent mandatory offer and compulsory acquisition

Alternative 2: Secure pre-acceptances before contacting Board

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Takeover considerations – general alternatives

Acquire up to 33.3% of the outstanding shares

Friendly approach to Target Board Intention to launch a bid Offer price level (vs. disclosure obligations)

Alternative 3: Acquire blocking stake before contacting Board

Acquire a 50.1% shareholding (alternatively more than the mandatory offer threshold of 33.3%)

Launch mandatory offer

No conditions allowed

Compulsory acquisition if thr Offeror acquires more than 90%

Alternative 4: Acquire majority stake before launch

Post announcement process

Month 1 Month 2

1 2 3 4 5 6 7 8

Month 3 - 4

Voluntary offer period (2-10 weeks)*

Board statement on offer

End of offer period. Shares are “locked”

Offer document published

Mandatory offer period (if not >90% achieved)(4-6 weeks)

Compuls. acq. (if 90%+accept)

End of objection period (if mandat.

offer)

Mandatory offer launched (if not >90% achieved)

Offer launched Comp. auth. Waived**

Shares accepted are acquired

Week

Month

Comp. auth. filings

Compuls. acq. (if not already done)

Time table from launch to completion

*Typically two weeks with one week extension**Comp. clearance after three weeks if no objections

9 - 16

End of objection period (if direct compuls. acq.)

Control of company if >90% reached in the voluntary offer

Control of company if >90% reached in a subsequent mandatory offer

Conclusion

Public takeovers carries significant cost

You need either a plan, synergies or cash that others don’t have to be successful

Even if you do everyting right – others may destroy your value creation opportunity throughout the process

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Copeinca/Cermaq/Marine Harvest – Action fra Feb til Oct

Source: Newsweb, Cermaq, Copeinca, SEB

26 Feb: China Fishery announces unsolicited public offer on Copeinca at NOK 53.85 per share

20 Jun: Norwegian Ministry of trade and Industry announced bookbuilding process to increase shareholding in Cermaq from 43.5% up to 65%.

8 Jul: Exclusivity period for Altor and Bain lapsed, but negotiations ongoing. Also, a new indicative bid for EWOS has been received from another party

30 Apr: Marine Harvest announces unsolicited offer on Cermaq at NOK 104 per share, subject to Cermaq not completing the Copeinca acquisition. Marine Harvest acquires 4.7 5 of Cermaq

7 May: Open letter from Marine Harvest to Cermaq shareholders. Arguing why the Copeinca transaction does not have a viable rationale and why the Cermaq/Marine Harvest transaction makes sense

11-23 May: intensive lobbying from both Marine Harvest and Cermaq towards the Cermaq shareholders in front of the Cermaq EGM

24-31 May: Negotiations between Cermaq and Marine Harvest regarding an improved offer

31 May: Marine Harvest increasing offer to NOK 107. Says was prepared to offer above 112 per share if it had Cermaq support

24 Jun: China Fishery announces new offer for Copeinca at NOK 68.17. Cermaq has pre-accepted the offer

18 Jul: Cermaq announces definitive agreement for sale of EWOS to Altor and Bain for enterprise value of NOK 6.5 billion

5 Apr: Cermaq announces competing offer on Copeinca at NOK 59.7., subject to rights issue which must be resolved by EGM. Has acquired 17.9%, controlling 50.7%

21 Jun: Marine Harvest announces that it has not received sufficient acceptances in the Cermaq offer. The offer is cancelled and Marine Harvest sells its shares in Cermaq

11 Jul: Cermaq EGM authorizes a potential sale of EWOS

2 May: Cermaq says Marine Harvest offer is unadequate. Defending the rationale for the Copeinca transaction

10 May: Open letter to from Cermaq to its shareholders. Arguing against the Marine Harvest offer and for the rationale of the Copeinca transaction

23 May: Cermaq’s EGM votes down the rights issue. Cermaq BoD cancels the Copeinca offer

31 May: Cermaq announces that negotiations have been unsuccessful. Will evaluate other value optimizing opportunities

17 Jun: Cermaq announces that it has received a conditional offer for EWOS at NOK 6.2bn from Altor and Bain. Will give three weeks exclusivity

25 Jun: Norwegian Ministry of Trade and Industry announces that it has acquired shares and increased its ownership in Cermaq to 59.17%

16 Oct. Altor/Bain secures bond financing of NOK 4,65bn for the financing of EWOS acquisition

End of Oct: Expected closing of EWOS transaction

CEQ share price