Business Consolidation : Creating Value
Sanjay UppalGroup Chief Financial OfficerEmirates NBD
18 – 22 October 2009Dubai International Convention & Exhibition CenterDubai. UAE
M & A activity is driven by diverse motivations
Synergies : Cost-reduction & revenue enhancement
Diversification
Strategic Focus : Horizontal & vertical integration
Financial purchase
Valuing considerations other than cashValuing considerations other than cash
Market share
1
M&As make significant contributions to relative growth – but most acquisitions tend to destroy relative value
Improvement in share price from T – 2 years to
. . . but most acquisitions fail to create value A strong and well executed M&A strategy can help companies realize growth . . .Explanatory power for differences in Improvement in share price from T – 2 years to
T + 2 years, adjusted for returns on MSCI World Index***, %
Explanatory power for differences in company growth*, R², percent
23%Innovation**
38%Market growth 39% Success
39%
61%Failure
39%Inorganic activity
2
* Based on the time series growth regression of 54 large companies across a broad range of sectors** Remainder including disruptive innovation and noise in regression analysis
*** Based on analysis around 1229 large deals executed before 2005Source: SDC, Hoovers, Company reports, Analyst reports, McKinsey analysis
Key stages of M&A
Pre-transaction Post-transactionExecution Process
TransactionM&AC tTarget Post
C bilitTransaction Execution Process
M&A strategy
Corporate strategy
gidentification
merger mgmt
Launch Capability building
Identify Value Negotiating for Value Delivering Value
3
Success of the Transaction depends on success at every stage, and most importantly on ability to realize the expected value
Realising the vision – Delivering the value
Valuation & synergies Due
diligence
Transaction
Post-transactionPre-transaction
Negotiation
Transaction Execution Process Post
merger mgmt
Launch Capability building
M&A strategy
Corporate strategy
Target identifi-cation g
Identify Value Negotiating for value Delivering Value
Focus shifts to well executed post merger managementFocus shifts to well executed post merger management
Prioritization of high value & high risk areas
Integration of businesses & achieving synergies
4
Integration of businesses & achieving synergies
Delivering the value
Making it work : Delivering shareholder value
Strategygy- Vision- Mission- Values- Synergies target
Communication- Employees
y g g
Employees- Board- Analysts- Regulators- Rating agencies
Technology & Process Integration- Alignment to Strategy- Technology choiceg g
- Customers- Suppliers- Shareholders- General Public
Technology choice- Replacement- Migration- Process Review & Redesign- Integration Planning
Organization & People- Business Model
- MediaIntegration Planning
5
- Organization structure- HR Policies- Team building- Realignment
The Experience
6
We communicated the expected Value Creation potential of the Merger : 12 July 2007
Summary of Synergies (AED m)
% of Smaller Base1
Synergies (2010) Total, AED m Projected Benchmark 2
Revenue 195 10.5% 5–10%Costs 151 22.2% 14– 26%
7
1. As a % of NBD’s Base2. Domestic M&A transactions
Revenue SynergiesSource of Synergies % Total Basis / Rationale
• Greater share wallet and yield enhancement• Cross sell for new product capabilities to increase fee
income• Increased capacity for cross border risk due to larger
balance sheet
34%
• Focus on cross selling amount major product categories• Incremental revenue generated through market share
/pricing advantages and leveraging of the largest distribution network in the UAE
31%
• Greater penetration, particularly regionally. In larger projects and financing deals, by leveraging balance sheet and capital
• Expansion of client base and cross sell of new product capabilities
28%
• Improved cost of funding due to stronger capital base
• Improved sales due to integrated broader offering
4%
3% • Improved sales due to integrated broader offering3%
100%
8
100%
Significant revenue synergies dependent on successful IT & Operations integration
Cost SynergiesSource of Synergies % Total Basis / Rationale
• Branch and ATM network consolidation.• Integration of card acquiring business• Pricing advantages on advertising / marketing spend
34%
• Optimised Head Office and Group Functions
• Reallocation of IT personnel from NBD to EBI IT
26%
25% dedicated centre• Reduced group capex spend
• Improved cost of funding due to stronger capital base
25%
7%
• Improved efficiency from integrated operations and IT platform
4%
100%
3% • Leveraging of existing Emirates Islamic Bank as platform for unified Islamic offering
9Over 50% of cost synergies dependent on successful IT & Operations integration
Effort during Integration followed 4 primary objectives
1 Maintain & improve customer service across networks
2 Derive economies of scale & cost benefits from consolidation
3 Control for / minimize risk during & after transition process
4 Minimize disruption & impact on staff and supporting entities
10
supporting entities
A Phased approach to achieve our objectives
BRANCHES ATM/CDM WEB MOBILE SALES
CALL CENTRE
PRIORITY 1Front end customer facing
Customer
SALES CENTRE channels have maximum visibility & impact on
Customer service
PROCESSES PRIORITY 3Common processes maximised through
common front-end &
• Core Banking• Trade Finance• Treasury
• Brokerage• ERP• IT Security
BACK OFFICE 3RD PARTY / VENDORS
back-end functionality / systems
PRIORITY 2Consolidations of volumes will
PRIORITY 4Vendor services & relationship
11
remove duplication, drive economies of scale
consolidation to achieve better services & cost base
H1 2009 : Achieved Synergies of AED 328m –Ahead of 2009 full year target by 33%
250
AED MillionsRevenue Synergies
60%
65
129
195
104129
100
150
200
151169Cost SynergiesTotal Synergies
372400 33%
0
50
2008 2009 2010
50
100
151
109
50
100
150118%
+124
246235
328
100
200
300
400
90%33%
69%
02008 2009 2010
0
100
2008 2009 2010
Target Actual H1
One-off Synergies
144%76%
121212
Note 1: Base used when computing synergy targets were 2006 financialsNote 2: Actual 2009 synergies represent annualised synergies achieved in H1 2009
144%
Creating Value through consolidation
Focus on achieving expected value
Dedicated team in place before transaction closesDedicated team in place before transaction closes
Plan, Plan, Plan
Timing is critical
Communication
13
Business Consolidation : Creating Value
Sanjay UppalGroup Chief Financial OfficerEmirates NBD
14
18 – 22 October 2009Dubai International Convention & Exhibition CenterDubai. UAE